A Guide to Schedule K-1 (Form 1041)

Man prepares his tax returnsInheriting property or other assets typically involves filing the appropriate tax forms with the IRS. Schedule K-1 (Form 1041) is used to report a beneficiary’s share of an estate or trust, including income as well as credits, deductions and profits. A K-1 tax form inheritance statement must be sent out to beneficiaries at the end of the year. If you’re the beneficiary of an estate or trust, it’s important to understand what to do with this form if you receive one and what it can mean for your tax filing.

Schedule K-1 (Form 1041), Explained

Schedule K-1 (Form 1041) is an official IRS form that’s used to report a beneficiary’s share of income, deductions and credits from an estate or trust. It’s full name is “Beneficiary’s Share of Income, Deductions, Credits, etc.” The estate or trust is responsible for filing Schedule K-1 for each listed beneficiary with the IRS. And if you’re a beneficiary, you also have to receive a copy of this form.

This form is required when an estate or trust is passing tax obligations on to one or more beneficiaries. For example, if a trust holds income-producing assets such as real estate, then it may be necessary for the trustee to file Schedule K-1 for each listed beneficiary.

Whether it’s necessary to do so or not depends on the amount of income the estate generates and the residency status of the estate’s beneficiaries. If the annual gross income from the estate is less than $600, then the estate isn’t required to file Schedule K-1 tax forms for beneficiaries. On the other hand, this form has to be filed if the beneficiary is a nonresident alien, regardless of how much or how little income is reported.

Contents of Schedule K-1 Tax Form Inheritance Statements

The form itself is fairly simple, consisting of a single page with three parts. Part one records information about the estate or trust, including its name, employer identification number and the name and address of the fiduciary in charge of handling the disposition of the estate. Part Two includes the beneficiary’s name and address, along with a box to designate them as a domestic or foreign resident.

Part Three covers the beneficiary’s share of current year income, deductions and credits. That includes all of the following:

  • Interest income
  • Ordinary dividends
  • Qualified dividends
  • Net short-term capital gains
  • Net long-term capital gains
  • Unrecaptured Section 1250 gains
  • Other portfolio and nonbusiness income
  • Ordinary business income
  • Net rental real estate income
  • Other rental income
  • Directly apportioned deductions
  • Estate tax deductions
  • Final year deductions
  • Alternative minimum tax deductions
  • Credits and credit recapture

If you receive a completed Schedule K-1 (Form 1041) you can then use it to complete your Form 1040 Individual Tax Return to report any income, deductions or credits associated with inheriting assets from the estate or trust.

You wouldn’t, however, have to include a copy of this form when you file your tax return unless backup withholding was reported in Box 13, Code B. The fiduciary will send a copy to the IRS on your behalf. But you would want to keep a copy of your Schedule K-1 on hand in case there are any questions raised later about the accuracy of income, deductions or credits being reported.

Estate Income and Beneficiary Taxation

Woman prepares her tax returns

If you received a Schedule K-1 tax form, inheritance tax rules determine how much tax you’ll owe on the income from the estate. Since the estate is a pass-through entity, you’re responsible for paying income tax on the income that’s generated. The upside is that when you report amounts from Schedule K-1 on your individual tax return, you can benefit from lower tax rates for qualified dividends. And if there’s income from the estate that hasn’t been distributed or reported on Schedule K-1, then the trust or estate would be responsible for paying income tax on it instead of you.

In terms of deductions or credits that can help reduce your tax liability for income inherited from an estate, those can include things like:

  • Depreciation
  • Depletion allocations
  • Amortization
  • Estate tax deduction
  • Short-term capital losses
  • Long-term capital losses
  • Net operating losses
  • Credit for estimated taxes

Again, the fiduciary who’s completing the Schedule K-1 for each trust beneficiary should complete all of this information. But it’s important to check the information that’s included against what you have in your own records to make sure that it’s correct. If there’s an error in reporting income, deductions or credits and you use that inaccurate information to complete your tax return, you could end up paying too much or too little in taxes as a result.

If you think the information in your Schedule K-1 (Form 1041) is incorrect, you can contact the fiduciary to request an amended form. If you’ve already filed your taxes using the original form, you’d then have to file an amended return with the updated information.

Schedule K-1 Tax Form for Inheritance vs. Schedule K-1 (Form 1065)

Schedule K-1 can refer to more than one type of tax form and it’s important to understand how they differ. While Schedule K-1 (Form 1041) is used to report information related to an estate or trust’s beneficiaries, you may also receive a Schedule K-1 (Form 1065) if you run a business that’s set up as a pass-through entity.

Specifically, this type of Schedule K-1 form is used to record income, losses, credits and deductions related to the activities of an S-corporation, partnership or limited liability company (LLC). A Schedule K-1 (Form 1065) shows your share of business income and losses.

It’s possible that you could receive both types of Schedule K-1 forms in the same tax year if you run a pass-through business and you’re the beneficiary of an estate. If you’re confused about how to report the income, deductions, credits and other information from either one on your tax return, it may be helpful to get guidance from a tax professional.

The Bottom Line

Senior citizen prepares her tax returnsReceiving a Schedule K-1 tax form is something you should be prepared for if you’re the beneficiary of an estate or trust. Again, whether you will receive one of these forms depends on whether you’re a resident or nonresident alien and the amount of income the trust or estate generates. Talking to an estate planning attorney can offer more insight into how estate income is taxed as you plan a strategy for managing an inheritance.

Tips for Estate Planning

  • Consider talking to a financial advisor about the financial implications of inheriting assets. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors in your local area in minutes. If you’re ready, get started now.
  • One way to make the job of filing taxes easier is with a free, easy-to-use tax return calculator. Also, creating a trust is something you might consider as part of your own estate plan if you have significant assets you want to pass on.

Photo credit: ©iStock.com/fizkes, ©iStock.com/urbazon, ©iStock.com/dragana991

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Source: smartasset.com

What You Should Know Before Dealing with AFNI Collections

If you have had the displeasure of dealing with AFNI Collections, you may already know some of the aggressive, unfair, and even illegal techniques they employ to try and get your money. It may seem…

The post What You Should Know Before Dealing with AFNI Collections appeared first on Crediful.

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What Are the Best Loans If You Have Bad Credit?

If you need to borrow money but your credit is less than stellar, it’s possible you’ll wind up with a bad credit loan. These loans are geared toward individuals with imperfect credit histories who can prove their income and ability to repay the loan. As a result of their bad credit, however, consumers who use bad credit loans typically pay much higher interest rates and loan fees. Bad credit loan customers may also be limited in how much they can borrow as well as the terms of their loan’s repayment.

From our perspective, LendingClub is the overall best option when it comes to getting a loan when you have bad credit.

Borrow Money with LendingClub

What To Do If You Think You Have Bad Credit

Step 1 — Get Your Actual FICO Score

The only way to find out if you have bad credit is to take a look at your FICO score, which isn’t difficult since many companies offer online access for free. While your FICO credit score isn’t the only credit score you have, it’s the one used by most lenders that offer personal loans.

According to myFICO.com, the credit score ranges are as follows:

  • Exceptional: 800 and up
  • Very Good: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: 579 or below

If your credit score falls below 579, there’s a good chance you could only get approved for a bad credit loan. If your credit is just “fair,” on the other hand, there’s still a chance you’ll wind up with a loan for bad credit.

Get My FICO Scores

Step 2 — Compare Multiple Offers

Once you have determined your credit score, you’ll want to start comparing offers from different lenders to see what fits your needs. You can use this tool to start that process.

Continue reading to find out how Good Financial Cents breaks down the best loans for bad credit and what you should watch out for.

Best Bad Credit Loans of 2021

If you feel you’re a candidate for a bad credit loan, it still makes sense to compare loan options to find the best deal. Loans for bad credit may come with higher interest rates and more fees, but some are still better than others.

For the purpose of this guide, we compared all the bad credit lenders to see how their loan products stack up. The following loans are the best of the best when it comes to loans for poor credit:

  • LendingClub
  • Avant
  • LendingPoint
  • OneMain Financial
  • Upstart

Bad Credit Loan Reviews

Before you apply for a loan with one of the bad credit lenders above, it helps to have a basic understanding of their loan offerings, interest rates, and any other important details they offer. The following individual loan reviews can help you determine which lender offers loans that might work for your situation.

#1: LendingClub

lendingclub bad credit loans

LendingClub is a peer-to-peer lender that operates outside of traditional banks. This means loans funded through the platform are initiated by private investors instead of banks, and it also means you may be able to get funding through LendingClub if you can’t get approved for a loan elsewhere.

Investors in search of higher returns on their money can agree to offer loans to consumers with bad credit who present a higher risk. As a result, LendingClub personal loans come with APRs that range from 6.95% to 35.89%. Obviously, loans with rates on the higher end of the scale will go to those with low credit scores.

Before you apply, it’s important to be aware that LendingClub charges an origination fee that can equal up to 6% of your loan amount. You can repay your loan anywhere from 36 to 60 months, and there’s no prepayment penalty if you pay your loan off early.

  • Pros: No minimum credit score requirement: check your rate online without a hard inquiry on your credit report
  • Cons: Potential for a high origination fee and interest rate

Get a Loan from LendingClub Today

#2: Avant

avant bad credit loan

Avant is another lender that often extends personal loans to consumers with low credit scores. With Avant, your interest rate will fall somewhere between 9.95% and 35.99% and you can repay your loan from 24 to 60 months. A loan funding fee of up to 4.75% of your loan amount is required as well, which will push up the cost of borrowing.

Avant claims that they have loaned $4 billion dollars to more than 600,000 consumers so far and that they have a 95% customer satisfaction rate. You can apply for a personal loan through Avant online, and you can even check your rate without a hard inquiry on your credit report.

  • Pros: No minimum credit score requirement; you can check your rate online without a hard inquiry on your credit report
  • Cons: High APRs and loan fees for bad credit

Borrow Better and Faster with Avant

#3: LendingPoint

lendingpoint bad credit loan

LendingPoint is another bad credit lender that offers personal loans to consumers who are willing to pay whatever APR it takes. Loans from LendingPoint come with APRs between 15.49% and 35.99%, and your loan origination fee can be as high as 6% of your loan amount.

You can repay your loan for anywhere from 24 to 48 months, and loans are offered in amounts up to $25,000. LendingPoint also lets you check your rate online without a hard inquiry on your credit report. You do need a minimum credit score of 585 to qualify for one of their loans.

  • Pros: Check your rate without a hard inquiry; low minimum credit score requirement
  • Cons: Pricey APRs and loan origination fee; loans not available in every state

Sign Up Today with LendingPoint

#4: OneMain Financial

one main financial bad credit loans

OneMain Financial offers personal loans in amounts between $1,500 and $20,000, and you can repay your loan for anywhere from 24 to 60 months. Interest rates range from 18.00% to 35.99%, and an origination fee may apply as well.

You can apply for a bad credit loan with OneMain Financial online, and you can get your loan approved and funded within a matter of days. You can even check your rate and gauge your ability to qualify without a hard inquiry on your credit report.

Finally, note that OneMain Financial has 1,600 physical locations in 44 states. To have your loan funded, you’ll need to visit a OneMain Financial location and meet with a loan specialist.

  • Pros: No minimum credit score requirement; borrow up to $20,000
  • Cons: Potential for pricey APR and loan origination fee; you are required to visit a physical branch to have your loan funded

Get Started with OneMain Financial

#5: Upstart

upstart bad credit loan

Upstart is a unique online lender that makes it easier for borrowers with poor credit to qualify for a loan. This company considers more than your credit score when approving you for a personal loan, meaning they may give more weight to additional factors like your income and how much education you have.

Borrowers who qualify can access between $1,000 and $50,000 in loan funds with a repayment period of 3 or 5 years. Interest rates range from 5.69% to 35.99%, however, depending on creditworthiness and other factors.

Fortunately, loans from Upstart don’t come with any prepayment penalties. You can also check your rate online without a hard inquiry on your credit report.

  • Pros: No minimum credit score requirement; borrow up to $50,000
  • Cons: Potential for pricey APR and loan origination fee

Get the Loan You Deserve with Upstart

How We Chose the Best Loans for Bad Credit

The lenders above offer loans that can be exorbitantly expensive when you factor in interest rates and fees. Since expensive loans are the norm for consumers with bad credit, however, these still represent the best loan options for people with risky credit profiles.

With that in mind, here are the factors we considered to come up with the loans for this list:

Easy Rate Check

Having the ability to check your loan rate online without a hard inquiry on your credit report is beneficial for potential borrowers who aren’t quite ready to fill out a full loan application. We ranked lenders who offer this option higher as a result. With an easy rate check, you can get an idea of your interest rate and loan fees before you apply.

Check Your Credit Score for FREE

No Prepayment Fees

While loans for bad credit typically come with high interest rates and more loan fees, we think prepayment penalties cross the line. We looked for bad credit loans that don’t charge prepayment penalties since borrowers should have the option to pay their loans off early.

Ability to Apply Online

Lenders that let you apply for a personal loan online are considerably more convenient, so we gave a better loan score to loan companies that offer this option. Bonus points were applied if you can complete the full loan application online and have your loan funded electronically.

Loan Reviews

We also looked at individual loan reviews on company loan pages and websites like Trustpilot. While all lenders have their share of poor loan reviews, the lenders that made our list boast considerably more positive user reviews than bad ones. Most of the lenders that made the cut for our ranking have customer approval rates over 90%.

Loans for Bad Credit: What to Watch Out For

Bad credit loans are not ideal since they come with high rates and fees that push up the total cost of borrowing. However, some bad credit loans are also considerably “better” than others based on how they charge fees and the rates they offer. Here’s everything you should watch out for before you apply.

Consider the Impact of High Rates

First, it can be immensely helpful to check your rate with multiple lenders in this space before you apply. There’s a huge difference between paying 25.00% APR and 35.99% APR even though both rates aren’t great, so you’ll want to pay the lowest interest rate that you can.
How much difference can it make? Imagine for a moment you need to borrow $10,000 and repay it over 60 months. Here’s what your monthly payment would look like — and how much interest you would pay overall — if you repaid your loan over 60 months with three different rates:

Loan APR Monthly Payment Total Interest Paid
10.99% $217.37 $3,042.46
25.99% $299.35 $7,960.73
34.99% $354.84 $11,290.34

Avoid Origination Fees If You Can

Also try to avoid loan origination fees if you can, although this may be difficult if your credit score is on the low end of the scale. Loan origination fees are charged as a percentage of your loan upfront, so you can’t avoid them — even if you pay your loan off early. They also add unnecessary expense to your bad credit loan without any benefit for you, the borrower.

Check for Prepayment Penalties

Also, make sure to check for any prepayment penalties that may apply to your loan, and if you can, opt for a lender that doesn’t charge these fees. It would be nice to have the option to pay your loan off early without a penalty if you wind up having the money you need to do so. If you’re able to pay your loan off ahead of schedule, you could pay a lot less in interest over your loan’s term.

Bad Credit Loans: Should You Improve Your Credit First?

If you’re worried about the impact of a bad credit loan on your finances, it can make sense to spend some time improving your score before you apply. If you’re able to pay all your bills early or on time for several months, for example, you could have a positive impact on your score. That’s because your payment history is the most important factor that makes up your FICO score. According to myFICO.com, this factor alone makes up 35% of your score.

The same is true if you’re able to pay down debt to decrease your credit utilization. This advice is based on the fact that how much you owe in relation to your credit limits is the second most important factor making up your FICO score at 30%.

In the meantime, try to avoid opening and closing too many accounts since either of these moves can also ding your score.

If you were able to move the needle and boost your credit score in the “fair” or “good” range, there’s a very good chance you could qualify for a less expensive personal loan with better rates and terms. Of course, this isn’t always possible if you need to borrow money sooner rather than later.

The Bottom Line

Bad credit loans may come with pricey APRs, but they are often the only option of last resort for borrowers whose credit has taken a hit. If you’re in the market for a loan and know you’ll need to get a loan for bad credit, the best thing you can do is compare loan options to find the best deal.

Keep an eye out for bad credit loans with the lowest interest rate and origination fee you can qualify for.

Also, look for lenders that let you check your rate and get prequalified online and before you fill out a full loan application.

With enough research, you should end up with a bad credit loan that helps your finances instead of making them worse.

The post What Are the Best Loans If You Have Bad Credit? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

What Is a Recourse Loan?

Car loan application

In borrowing, there are two types of debts, recourse and nonrecourse. Recourse debt holds the person borrowing money personally liable for the debt. If you default on a recourse loan, the lender will have license, or recourse, to go after your personal assets if the collateral’s value doesn’t cover the remaining amount of the loan that is due. Recourse loans are often used to finance construction or invest in real estate. Here’s what you need to know about recourse loans, how they work and how they differ from other types of loans.

What Is a Recourse Loan?

A recourse loan is a type of loan that allows the lender to go after any of a borrower’s assets if that borrower defaults on the loan. The first choice of any lender is to seize the asset that is collateral for the loan. For example, if someone stops making payments on an auto loan, the lender would take back the car and sell it.

However, if someone defaults on a hard money loan, which is a type of recourse loan, the lender might seize the borrower’s home or other assets. Then, the lender would sell it to recover the balance of the principal due. Recourse loans also allow lenders to garnish wages or access bank accounts if the full debt obligation isn’t fulfilled.

Essentially, recourse loans help lenders recover their investments if borrowers fail to pay off their loans and the collateral value attached to those loans is not enough to cover the balance due.

How Recourse Loans Work

When a borrower takes out debt, he typically has several options. Most hard money loans are recourse loans. In other words, if the borrower fails to make payments, the lender can seize the borrower’s other assets such as his home or car and sell it to recover the money borrowed for the loan.

Lenders can go after a borrower’s other assets or take legal action against a borrower. Other assets that a lender can seize might include savings accounts and checking accounts. Depending on the situation, they may also be able to garnish a borrower’s wages or take further legal action.

When a lender writes a loan’s terms and conditions, what types of assets the lender can pursue if a debtor fails to make debt payments are listed. If you are at risk of defaulting on your loan, you may want to look at the language in your loan to see what your lender might pursue and what your options are.

Recourse Loans vs. Nonrecourse Loans

Bank repo signNonrecourse loans are also secured loans, but rather than being secured by all a person’s assets, nonrecourse loans are only secured by the asset involved as collateral. For example, a mortgage is typically a nonrecourse loan, because the lender will only go after the home if a borrower stops making payments. Similarly, most auto loans are nonrecourse loans, and the bank or lender will only be able to seize the car if the borrower stops making payments.

Nonrecourse loans are riskier for lenders because they will have fewer options for getting their money back. Therefore, most lenders will only offer nonrecourse loans to people with exceedingly high credit scores.

Types of Recourse Loans

There are several types of recourse loans that you should be aware of before taking on debt. Some of the most common recourse loans are:

  • Hard money loans. Even if someone uses their hard money loan, also known as hard cash loan, to buy a property, these types of loans are typically recourse loans.
  • Auto loans. Because cars depreciate, most auto loans are recourse loans to ensure the lender receive full debt payments.

Recourse Loans Pros and Cons

For borrowers, recourse loans have both pros and and at least one con. You should evaluate each before deciding to take out a recourse loan.

Pros

Although they may seem riskier upfront, recourse loans are still attractive to borrowers.

  • Easier underwriting and approval. Because a recourse loan is less risky for lenders, the underwriting and approval process is more manageable for borrowers to navigate.
  • Lower credit score. It’s easier for people with lower credit scores to get approved for a recourse loan. This is because more collateral is available to the lender if the borrower defaults on the loan.
  • Lower interest rate. Recourse loans typically have lower interest rates than nonrecourse loans.

Con

The one major disadvantage of a recourse loan is the risk involved. With a recourse loan, the borrower is held personally liable. This means that if the borrower does default, more than just the loan’s collateral could be at stake.

The Takeaway

Hard Money Loan signLoans can be divided into two types, recourse loans and nonrecourse loans. Recourse loans, such as hard money loans, allow the lender to pursue more than what is listed as collateral in the loan agreement if a borrower defaults on the loan. Be sure to check your state’s laws about determining when a loan is in default. While there are advantages to recourse loans, which are often used to finance construction, buy vehicles or invest in real estate, such as lower interest rates and a more straightforward approval process, they carry more risk than nonrecourse loans.

Tips on Borrowing

  • Borrowing money from a lender is a significant commitment. Consider talking to a financial advisor before you take that step to be completely clear about how it will impact your finances. Finding a financial advisor doesn’t have to be difficult. In just a few minutes our financial advisor search tool can help you find a professional in your area to work with. If you’re ready, get started now.
  • For many people, taking out a mortgage is the biggest debt they incur. Our mortgage calculator will tell you how much your monthly payments will be, based on the principal, interest rate, type of mortgage and length of the term.

Photo credit: ©iStock.com/aee_werawan, ©iStock.com/PictureLake, ©iStock.com/designer491

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Does Paying the Minimum Hurt Your Credit Score

Credit card bills can be confusing. If everything was straightforward and clear, credit card debt wouldn’t be such a big issue. But it’s not clear, and debt is a massive issue for millions of consumers. 

One of the most confusing aspects is the minimum payment, with few consumers understanding how this works, how much damage (if any) it does to their credit score, and why it’s important to pay more than the minimum.

We’ll address all of those things and more in this guide, looking at how minimum credit card payments can impact your FICO score and your credit report.

What is a Credit Card Minimum Payment?

The minimum payment is the lowest amount you need to pay during any given month. It’s often fixed as a fraction of your total balance and includes fees and interest.  

If you fail to make this minimum payment, you may be hit with late fees and if you still haven’t paid after 30 days, your creditor will report your activity to the major credit bureaus and your credit score will take a hit.

When this happens, you could lose up to 100 points and gain a derogatory mark that remains on your credit report for up to 7 years. Making minimum payments will not result in a derogatory mark, but it can indirectly affect your credit score and we’ll discuss that a little later.

Firstly, it’s important to understand why you’re being asked to pay a minimum amount and how you can avoid it.

How Much is a Minimum Credit Card Payment?

Prior to 2004, monthly payments could be as low as 2% of the balance. This caused all kinds of problems as most of your monthly payment is interest and will, therefore, inflate every month so that every time you reduce the balance it grows back. 

Regulators forced a change when they realized that some users were being locked into a cycle of credit card debt, one that could see them repaying thousands more than the balance and taking many years to repay in full.

These days, a minimum payment must be at least 1% of the balance plus all interest and fees that have accumulated during that month, ensuring the balance decreases by at least 1% if only the minimum payment is met.

Do I Need to Make the Minimum Payment?

If you have a rolling balance, you need to make the minimum monthly payment to avoid derogatory marks. If you fail to do so and keep missing those payments, your account will eventually default and cause all kinds of issues.

However, you can avoid the minimum payment by clearing your balance in full.

Let’s assume that you have a brand-new credit card and you spend $2,000 in the first billing cycle. In the next cycle, you will be required to pay this balance in full. However, you will also be offered a minimum payment, which will likely be anywhere from $30 to $100. If this is all that you pay, the issuer will start charging you interest on your balance and your problems will begin.

If you spend $2,000 in the next billing cycle, you have just doubled your debt (minus whatever principal the minimum payment cleared) and your problems.

This is a cycle that many consumers get locked into. They do what they can to pay off their balance in full, but then they have a difficult month and that minimum payment begins to look very tempting. They convince themselves that one month won’t hurt and they’ll repay the balance in full next month, but by that point they’ve spent more, it has grown more, and they just don’t have the funds.

To avoid falling into this trap, try the following tips:

  • Only Spend What You Have: A credit card should be used to spend money you have now or will have in the future. Don’t spend in the hope you’ll somehow come into some money before the billing period ends and the credit card balance rolls over.
  • Get an Introductory Interest Rate: Many credit card issuers offer a 0% intro APR for a fixed period of time, allowing you to accumulate debt without interest. This can help if you need to make some essential purchases, but it’s important not to abuse this as you’ll still need to clear the full balance before the intro period ends.
  • Use a Balance Transfer: If you’re in too deep and the intro rate is coming to an end, consider a balance transfer credit card. These cards allow you to move your full balance from one card (or cards) to another, taking advantage of yet another 0% APR and essentially extending the one you have.
  • Pay the Minimum: If you can’t pay the balance in full, make sure you at least pay the minimum. A missed payment or late payment can incur fees and may hurt your credit score. 

Why Pay More Than the Minimum?

You may have heard experts recommending that you pay more than the minimum every month, but why? If you’re locked into a cycle of credit card debt, it can seem counterproductive. After all, if you have a debt of $10,000 that’s costing you $400 a month, what’s the point of taking an extra $100 out of your budget?

Your interest and fees are covered by your minimum payment and account for a sizeable percentage of that minimum payment. By adding just 50% more, you could be doubling and even tripling the amount of the principal that you repay every month.

What’s more, your interest accumulates every single day and this interest compounds. Imagine, for instance, that you have a balance of $10,000 today and with interest, this grows to $10,040. The next day, the interest will be calculated based on that $10,040 figure, which means it could grow to $10,081, which will then become the new balance for the next day. 

This continues every single day, and the larger your balance is, the more interest will compound and the greater the amount will be due over the term. By paying more than your minimum payment when you can, you’re reducing the balance and slowing things down.

Does Paying the Minimum Hurt My Credit Score?

Paying the minimum amount every month ensures you are doing the bare minimum to avoid hurting your credit history or accumulating fees. However, it can indirectly reduce your score via your credit utilization ratio.

Your credit utilization ratio is a score that compares the credit limit of all available credit cards to the total debt on those cards. It accounts for 30% of your credit score and is, therefore, a very important aspect of the credit scoring process.

The more credit card debt you accumulate, the lower your credit utilization rate will be and the more your score will be impacted. If you only pay the minimum, this rate will become stagnant and may take years to improve. By increasing the payment amount, however, you can bring that ratio down and improve your credit score.

You can calculate your credit utilization score by adding together the total amount of credit limits and debts and then comparing the latter to the former. A combined credit limit of $10,000 and a balance of $5,000, for instance, would equate to a 50% ratio, which is on the high side.

Can Credit Card Fees Hurt My Credit Score?

As with interest charges, credit card fees will not directly reduce your score but may have an indirect effect. Cash advance fees, for instance, can be substantial, with many credit card companies (including Capital One) charging 3% with a $10 minimum charge. This means that every time you withdraw cash, you’re paying at least $10, even if you’re only withdrawing $10.

What many consumers don’t realize is that these fees are also charged every time you buy casino chips or pay for some other form of gambling, and every time you purchase money orders and other cash products. 

Along with foreign transaction fees and penalty fees, these can increase your balance and your minimum payment, making it harder to make on time payments and thus increasing the risk of a late payment.

Does Paying the Minimum Hurt Your Credit Score is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

By: Cherise Romero

In reply to Jeanine Skowronski.

The debt was already sold to collections before I could make any kind of payment. Ive been getting calls left and right on it. It went from a few hundred dollars to 2 grande due to all the. Collections ridiculous interests.

Source: credit.com

How Removing Your Name from a Shared Credit Card Affects Your Credit Score

Credit cards exceptional financial instruments. They allow you to buy without any cash and earn rewards while at it. Another interesting feature is the option of adding another person as an authorized user to your card. However, credit card usage does have a huge impact on your creditworthiness. So, does removing your name from a […]

The post How Removing Your Name from a Shared Credit Card Affects Your Credit Score appeared first on Credit Absolute.

Source: creditabsolute.com

Does carrying a balance help your credit score? – The Points Guy

Editor’s note: This post has been updated with new information. We talk about travel credit cards quite a bit here at TPG. Applying for and utilizing these cards strategically can unlock incredible travel experiences like premium class flights or luxurious hotel rooms. However, there are a number of misconceptions out there when it comes to credit cards, so …

Source: thepointsguy.com