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  • 3 Tips to Refinance a Mobile Home Loan
    A:

    There are only three reasons that a borrower should want to refinance a mobile home loan: to obtain a lower monthly payment, to obtain a shorter term on the loan, or to cash out or consolidate debt on the mobile home. A borrower should not simply base a refinancing decision on a lower interest rate alone, as it may not necessarily result in obtaining one of these three listed goals when all factors of the loan are considered. A borrower must choose the purpose of the refinance based on these three possible outcomes. Although rare, it is possible to achieve all three at once.

    Make Sure You Qualify for Refinancing

    Generally, beyond the typical good credit rating and income requirements, there are no special qualification standards for a personal property loan on a mobile home. However, personal property loans usually have a much higher interest rate than mortgages. Thus, a mortgage may be the better option. If the borrower decides to refinance his or her mobile home loan as a mortgage, there are three requirements to qualify beyond normal credit and income standards. First, the mobile home must be sitting on a permanent foundation that the Department of Housing and Urban Development deems qualified. Two, the mobile home owner must own the land that the home is on (with a few exceptions for leased land). And three, the mobile home has to be titled as real estate and not personal property.

    Refinancing May Not Make Sense if Selling Soon

    If a borrower plans to sell the mobile home soon, a refinancing may not be a good idea because the fees involved in refinancing may not outweigh the benefits of a refinancing in the short term. A mobile home loan professional can help borrowers calculate the net savings of a refinancing, even if the sale of the home is imminent.


  • Are all mortgage backed securities (MBS) also collateralized debt obligations (CDO)?
    A:

    Mortgage-backed securities (MBS) and collateralized debt obligations (CDOs) are different concepts with frequent overlap between them. MBS are investments that are repackaged by small regional banks as a means of funding mortgages by reselling them as securities through investment markets. CDO investments are typically used to package many mortgages and other loan instruments together by risk level for investors. Many MBS are also CDOs. After a small bank funds a mortgage, the mortgage is then packaged as an investment with real estate backing the security as collateral.

    Collateralized debt obligations are often created from risky mortgages as a means of spreading risk across multiple products and borrowers. Groups of CDO investments, known as tranches, are sold in pieces to investors with the riskiest securities commanding higher rates of return for investors. The best pieces of tranches are typically funded first, as they have less risk. CDO instruments offer synthetic securities with a customized level of risk. As synthetic securities, CDO instruments have the characteristics of many different investment types. Synthetic investments are made by pooling together different types of assets and loans. This results in complex investments with custom characteristics. Many MBS assets are used, along with other types of debts, in the creation of CDO instruments.

    Some MBS are CDOs; in other words, as they are funded using the creation and exchange of synthetic financial instruments. Many financial professionals argue that the widespread use of high-risk synthetic investments contributed significantly to the worldwide recession experienced in 2007 and shortly after.


  • Are balance transfers worth it?
    A:

    When it comes to credit card debt, balance transfers are worth it if one measure is met: If the balance being transferred has an annual percentage rate (APR) that is lower than its current APR. This is interest rate that is charged on the balance. It doesn't make sense, for example to transfer a balance that has an APR of say 10% to a card where the balance will then have an APR of 12%. However, with that said, the fine print must be read.

    Transferring Based On Interest Rate

    Often, credit cards give offers to cardholders to transfer balances at 0% APR for a certain period of time. After that time is up, the balance has a predetermined APR applied to it. For example, a card with a 15% APR may allow balance transfers to maintain a 0% APR for 12 months, and then the normal 15% APR applies. This is a situation where transferring a balance to a higher APR card may still be ideal, as long as that balance transfer can be paid off before the higher APR kicks in. Even if a certain portion of the balance can be paid off before the higher rate kicks in, or in a reasonable amount of time after it kicks in, the transfer may still be worth it.

    As an example of this, assume that a cardholder has a $10,000 balance with a card that has a 10% APR. Another card has a 15% APR and offers 12 months of 0% interest on all balance transfers. If the cardholder is confident that a majority of the balance transfer can be paid off before the new 15% APR begins, then the transfer should be made. Assume that the credit cards compound the interest on an annual basis. To simplify the calculations, disregard monthly minimum payments. The goal here is to see how much interest is accumulated between the two options. Here is what happens after three years go by with the initial credit card:

    10% card ending balance year one = $10,000 + ($10,000 x 10%) = $11,000

    10% card ending balance year two = $11,000 + ($11,000 x 10%) = $12,100

    10% card ending balance year three = $12,100 + ($12,100 x 10%) = $13,310

    Total interest = $3,310

    Now, here is what happens with the second card:

    15% card ending balance year one = $10,000 + ($10,000 x 0%) = $10,000

    15% card ending balance year two = $10,000 + ($10,000 x 15%) = $11,500

    15% card ending balance year three = $11,500 + ($11,500 x 15%) = $13,225

    Total interest = $3,225

    Even with the transfer, after three years, slightly less interest is accrued. The ideal move is to pay off the balance during the 0% interest period, but a certain amount of wiggle room may exist when transferring balances. It is always a good idea to calculate the amount of interest that will accrue over a specific time period to see what the better option is. Keep in mind that sometimes credit cards charge fees to transfer balances, and this adds an element to the breakeven point calculation.


  • Are direct consolidation loans subsidized?
    A:

    When college students leave school, they can borrow a Direct Consolidation Loan to combine various federal student loans taken out while in school into one loan and make one low monthly payment. Direct Consolidation Loans are not subsidized, meaning the government does not pay the interest on the loan when the student is enrolled in school or when the loan is in deferment. The names Direct Consolidation Loan and Direct Subsidized Loan sound similar, but the loans are different.

    What Is a Direct Consolidation Loan?

    Students who take out loans for college do so annually, and each loan is separate. A student enrolled in college for four years, who borrowed annually, graduates with four separate loans with four separate interest rates. The student might make one payment for these loans to the same loan servicer, but such payments can be pricey.

    Consolidating all federal loans taken out while in school under a Direct Consolidation Loan results in a lower monthly payment and a lower interest rate. Borrowers may lose some benefits of the original loans when they consolidate, such as loan cancellation or special interest rates given at the time the original loans were taken out.

    What Is a Direct Subsidized Loan?

    Students borrow Direct Subsidized Loans based on their financial need as determined by information provided by the students, and their parents if they are still dependents, on the Free Application for Federal Student Aid (FAFSA). The loan pays for tuition per credit hour and any other school-related expenses such as housing, books and materials. Subsidized means the government pays the interest on these loans for the borrowers while they are enrolled in school at least half time, and during the six-month grace period after leaving school and deferment periods.


  • Are personal loans bad for your credit score?
    A:

    Taking out a personal loan is not bad for your credit score in and of itself. However, there are several factors that come with taking out a new loan that could affect your overall credit score.

    What Factors Into Your Credit Score

    To understand how taking out a personal loan affects your credit score, you must first understand how the score is calculated. Roughly 35% of your overall credit score is based on your payment history. Thirty percent of your score is based on the total amount of debt you owe. Ten percent of the score is based on the number of credit lines (which include credit cards) that you have opened recently.

    The last two factors are initially impacted by a new personal loan. Your total debt increases overall, and a new line of credit is opened. The credit agencies take note of this activity and could possibly lower your credit score based on the new loan. However, your overall credit history has more impact on your credit score than a single new loan. If you have a long history of managing debt and making timely payments, the effect on your credit score from a new loan is likely to be lessened.

    Keeping a New Personal Loan From Damaging Your Credit Score

    The easiest and best way to keep a personal loan from negatively affecting your credit score is to continue making payments on time and within the terms of the loan agreement. A personal loan that you pay off in a timely fashion can actually have a positive effect on your credit score; it demonstrates that you can handle debt responsibly.


  • Are Sallie Mae loans considered federal loans?
    A:

    SLM Corporation (SLM), more commonly known as Sallie Mae, is a public corporation and a private-sector lender, so its direct loans are not federal loans. Basically, federal student loans consist of funds that are provided by the U.S. government, while private student loans come from entities such as banks and other financial institutions. However, private entities often work as loan servicers for certain federal loans on behalf of the government. Sallie Mae once provided such a function for federal student loans, and via a spin-off, it continues to do so.

    What Is Sallie Mae?

    The public/private confusion lies deep in Sallie Mae's history. At its beginnings in 1972, Sallie Mae operated as the Student Loan Marketing Association – and it was a federally chartered, government-sponsored enterprise. Although that charter was terminated in 2004 and the company was privatized and incorporated, its “quasi-government status” image persisted, because it offered and serviced the William D. Ford Federal Direct Loan Program and Federal Family Education Loan Program (FFELP). The former is the program offering the government's familiar Stafford Loans and Perkins Loans; FFELP loans were education loans offered by private companies that were guaranteed by the U.S. government. Sallie Mae was the largest originator of these loans, which it and other banks would then often resell to investors to make additional revenues. 

    That all ended with the Health Care and Education Reconciliation Act of 2010. This legislation ended the public-private partnership FFELP; from then on, all government or government-backed student financing would originate with the U.S. Department of Education, through the Federal Direct Loan Program. 

    This forced Sallie Mae to shift its business to private education loans (not insured or guaranteed by the government), transforming into just another private financial company – one derives the bulk of its revenues from the education-loan banking and management business.

    Enter Navient Corporation

    The loss of the government-backed student loan business prompted Sallie Mae to review its operations. In May 2013, it announced  it was separating into two distinct entities, both of which would be public. Sallie Mae itself had begun trading on Nasdaq as SLM in 2011; on May 1, 2014, it spun off Navient Corporation to shareholders.

    Navient bills itself as a provider of loan management, servicing, and asset recovery services. It started off with $148 billion in assets with FFELP loans accounting for $103 billion of this total, which it believes makes it the largest holder. It now plans to service its loan portfolio, work with other holders of FFELP loans, and pursue relationships with the Department of Education, universities, and related groups that need help with the servicing of student loans.  

    The other company (which includes the old Sallie Mae Bank, renamed SLM Bank) handles all the private loan origination and servicing businesses.  Although this second entity is starting out with a substantially smaller asset base (about 8% of the original company's total assets), it is expected to grow while the other company is expected to shrink in line with the dwindling of the FFELP, as loans get repaid, over the next 20 years. 

    The Bottom Line

    Sallie Mae offers a three-pronged approach to college students these days. First, it helps them to explore using scholarships and existing savings to fund education costs. It then helps them investigate government-backed loans, even though it doesn’t help originate them.  Finally, it then helps them bridge any remaining needs with the private education loans it offers. It also offers info on loan repayment programs, both federal and private. Currently, Sallie Mae estimates it services around 13 million customers. 

    While no longer allowed to originate federal student loans, Sallie Mae plans to survive in the private loan market. Navient, its former FFELP business, has a tougher future to grapple with, but will likely evolve as a general servicer of student loans. With any luck, the government will hire it for servicing, and firms like Sallie Mae will likely turn to it for help servicing their private loans.


  • Are student loans forgiven after death?
    A:

    There are four scenarios that may occur with student loans if the borrower dies:

     

    1. Federal student loan (with or without co-signer): the loan is forgiven and no one owes any money

    2. Federal PLUS loan: the loan is forgiven but the parents will owe taxes on the forgiven amount.

    3. Private student loan with no co-signer: the loan is not forgiven and the lender will attempt to collect the amount due from the estate of the student.

    4. Private student loan with co-signer: the loan is not forgiven and the co-signer owes the remaining balance.

    Federal student loans are forgiven when the borrower dies once proof of death is submitted. No money will be owed and the debt will not be passed on to anyone else. This is the only type of loan that can be entirely forgiven.

    If the type of federal loan is a PLUS loan that a parent borrower takes out on behalf of a student there may be a large tax liability. If a PLUS loan is forgiven because of a student death, the parents will receive a form 1099-C from the Internal Revenue Service which details the amount of the student loan forgiven. This amount is treated as taxable income at the parents' ordinary income tax rates.

    If the student loans are private student loans, such as those from Sallie Mae, Discover, Wells Fargo and others, the answer to this question becomes more complex. If the student dies, some lending organizations do allow the loans to be forgiven. Some private student loan lenders will go after the remaining balance due from the deceased student's estate, and usually they have high priority in line.

    If the student has a cosigner for the loan, things get even more complicated. Since cosigners are legally obligated to pay the debt if payments can't be made, upon the death of a student, the cosigner will owe the entire remaining balance. Also, the death of the student or the cosigner can automatically trigger a default on the loan, meaning that the entire balance of the loan is due immediately. Precisely because of this, it is highly recommended that student loan borrowers with cosigners purchase a life insurance policy that at least covers the projected balance of the student loan.

     

  • Are travel rewards credit cards worth it?
    A:

    A travel rewards credit card may be worth it, depending on how frequently you travel, whether you can afford to charge the amount required on the card to qualify for rewards and whether you can pay off the card balance on a monthly basis. Travel rewards cards typically benefit people who travel a lot, for work or recreation, and can afford to charge the high amounts on the credit card required to earn significant numbers of points or miles. You can also compare bonus incentives to determine whether travel rewards credit cards are worth it.

    Carrying vs. Paying Off the Monthly Balance

    The more money you charge on a travel rewards card, the more points or miles you get. If you are able to pay off your credit card balance monthly, the travel rewards you get might be worth it. Paying off your credit card ensures that you do not accrue the high interest and fees that only compound when you carry a balance to the next month.

    Some consumers isolate their spending to one credit card and pay it off as a monthly bill. Isolating spending racks up the amount needed to get significant points or miles. Travel rewards credit cards are also worth it for business owners, or employees who have company business credit cards issued in their names, who charge all expenses to a travel rewards credit card and have the business’ accounting department pay off the balance monthly.

    Limited Availability

    Say you get a travel rewards credit card and plan to use it all year in order to rack up points for your annual family vacation. While airlines and hotels no longer have “blackout dates,” they can, and do, limit availability for people wishing to cash in travel rewards. Peak days and seasons vary among travel brands, so a travel rewards card may not be worth it if you cannot use the rewards points or miles when you need them. Contrarily, a travel rewards card may be the best option for a person who travels frequently. People who fit this category fly and stay in hotels year-round and most likely can take advantage of slow travel days and seasons to get the most out of their rewards.

    Evaluating Bonuses

    Credit card issuers make travel rewards sound like they are free, but they really are not. The amount of money you pay to get them, especially rewards cards with initial bonus offers, can help you determine if the card is worth it. One rewards card might offer 40,000 points for spending $3,000 in 90 days, while another might offer the same amount of points for spending $1,000. The lower spending amount might sound like a better deal, but whether the card is worth it depends on how the card issuer and travel brand allow you to redeem the points.


  • Can a Best Buy credit card help you build credit?
    A:

    A Best Buy credit card can be used to help improve your credit score and credit history as long as you use the card responsibly. How you use the Best Buy card will ultimately determine how helpful it can be to your credit.

    Understanding Your Credit Score

    The Fair Isaac Corporation (FICO) credit score is calculated using five different categories of credit information. Most significantly, 35% of the credit score is based on payment history and another 30% is based on the amount owed on credit cards. Essentially, two-thirds of the overall credit score is based on how well you can pay off your credit card balance in full and on time. The remainder of the credit score calculation looks at information such as the length of your credit history and the frequency with which you open new lines of credit.

    How the Best Buy Credit Card Can Help

    If you use a Best Buy credit card but pay off the balance within the terms of the agreement, you will likely see an improvement in your credit score. Timely payments of any outstanding credit balances help you build a strong credit history and avoid paying any unnecessary interest and late fees.

    Best Buy offers free financing on certain purchases for terms of up to 24 months. This means that it charges no interest if you pay off the full balance of the purchase on time. Doing so will likely result in a higher credit score, as it demonstrates to lenders that you can use the card responsibly and have the means to pay for what you have borrowed. A higher credit score can lead to potentially lower interest rates on mortgages and other loans in the future.


  • Can a Walmart credit card help you build credit? (WMT)
    A:

    Through Synchrony Bank, Wal-Mart Stores, Inc. (NYSE: WMT) offers two credit cards: the Walmart MasterCard and the Walmart credit card. When used properly, both of these credit cards can help you build your credit history and credit score.

    By reviewing the terms and conditions of the Walmart MasterCard and Walmart credit card, you can verify that your account activity is reported to the three credit bureaus (Equifax, Experian and TransUnion). Data, such as your account balance and list of late payments, will appear on your credit history, which the credit bureaus use to calculate your credit score.

    5 Tips for Building Your Credit Score with a Walmart Credit Card

    Whether you're just beginning your credit history or looking to strengthen it, the single most important thing you can do to improve your credit is to make monthly payments on time. Accounting for 35% of your FICO credit score, payment history is the biggest component of any credit score. By paying on time, you improve your payment history and avoid late payment fees.

    If you miss a payment deadline, make that payment within 30 days. A missed payment isn't reported to any credit bureau unless it is made 30 days after the deadline. However, you'll still be responsible for applicable late payment fees (up to $35 with either Walmart card).

    Keep a low balance on your credit card by paying off the entire balance every month. The amount owed is the second-largest component (30%) of your FICO credit score. By keeping a low credit utilization ratio, you're contributing positively to your credit score. Most credit issuers like to see a credit utilization ratio below 35%.

    Don't close your credit card account. Your credit score improves as the length of your credit history grows. Even if you stop using your Walmart MasterCard or Walmart credit card, keep them open, especially if they're your first or only credit cards.

    By enrolling in electronic statements with your Walmart credit card, you can also enroll to receive a monthly FICO credit score to keep track of your progress. Watching your score go up will keep you motivated to keep on building your credit.


  • Can FHA loans be used for condos?
    A:

    A borrower can obtain Federal Housing Administration (FHA) loans to finance the purchase of a condominium as long as the condo is on the list of FHA-approved condominium projects. Families and individuals with lower incomes have higher chances of obtaining FHA loans since the U.S. government provides insurance and reimburses a lender in case a borrower cannot meet his mortgage obligations.

    FHA Loan Program

    The FHA loan program was established in 1933 to assist low-income families in obtaining mortgages. Because many financial institutions typically have strict qualifying criteria for income and assets, many low-income families are unable to obtain mortgages. Banks are more willing to qualify low-income families for FHA loans since they are insured by the U.S. government. FHA loans typically have down payments as low as 3.5% of the house price and low closing costs, and are available for one- to four-unit properties. FHA loans also require borrowers to participate in a mortgage insurance premium program administered by the U.S. Department of Housing and Urban Development (HUD).

    FHA Loans for Condos

    FHA loans are typically available for both single-family and multifamily homes. However, individuals can purchase condos using FHA loans if a particular condo project is approved by HUD. The department maintains a database, which allows users to search for FHA-approved condominium buildings by location, name or status. The search results for the FHA-approved condos show the address for the condo complex, type of approval method, percentage of units with active FHA-insured loans and the approval status of a condominium.


  • Can I improve credit score with utility bill?
    A:

    The bad news for consumers is that, typically, utility bills only appear on a credit report when they're delinquent. In most states, providers aren't obligated to regularly report payment histories to the major credit bureaus; in fact, there are significant disincentives for doing so. In addition to being expensive, reporting to credit agencies makes the utility company subject to the Fair Credit Reporting Act. Most don't bother with the potential legal fallout.

    However, if you're significantly behind on your bills, a gas, electric or phone provider may send your account to a collection agency that could – and likely will – forward the information to one or more of the credit bureaus.

    Of course, paying your bills on time will help your credit, insofar as the absence of "negative" items improves your score. But if you're looking to build your credit score, simply paying your gas, electric or phone bill on time usually won't do the trick. A more effective approach is to obtain a secured or unsecured credit card and use it responsibly. (You can bet these lenders report to all three credit bureaus – they usually do.)


  • Can I use a prepaid credit card to pay bills or transfer money to other accounts?
    A:

    Prepaid credit cards may be used to both pay bills – either as a one-time transaction or recurring transaction – and transfer money to other cards of the same brand.

    Some prepaid credit card bill payments are made in the same manner as regular credit cards. Payments may be made on a utility's website, on the telephone with representatives of the utility, or by filling out a form included with a paper bill in the mail and returning it to the utility. There is usually no fee for transactions such as this.

    Other prepaid credit card bill payments may be made through the prepaid credit card issuer's website. The Western Union NetSpend Prepaid MasterCard, for example, maintains a site where cardholders may make bill payments. There may be a fee for bill payments made through a prepaid credit card issuer's website.

    Many prepaid credit cards offered by MasterCard and Visa allow for card-to-card transfers for cards of the same brand. For example, a MyVanilla Prepaid Visa Card allows cardholders to transfer funds to other MyVanilla Prepaid Visa Cards. Most prepaid cards do not allow transfers between cards of different brands or between prepaid cards and regular credit cards. Many prepaid credit cards, such as the MyVanilla Prepaid Visa Card, allow for free transfers.

    Cards such as the Western Union NetSpend Prepaid MasterCard allow users to send and receive Western Union money transfers using their cards. There is generally no fee for receiving Western Union money transfers. There are, however, fees for sending Western Union money transfers; these fees vary and are determined at the time the transfer is sent.

    Using a Prepaid Credit Card

    When a prepaid credit card is first obtained it is necessary to register the card, activate it and load funds onto it. Some cards come with preloaded amounts, so all that is required is to register and activate the card. Cards also need to be registered with a username and password to allow access to online account services that enable cardholders to make card-to-card transfers and online payments with retailers or utilities, as well as to view account balances, holds, transaction history and registration information. One of the benefits of a prepaid credit card is that it offers the consumer protection in the event the card is lost or stolen (cards that are not registered in the cardholder's name are difficult if not impossible to replace).

    Often, cardholders can add money to the card via the website as well.

    Online payment processors perform security checks to match customer information with the information registered on the card. By disallowing transactions in which customers can't correctly input matching information, facilitators have been able to dramatically reduce instances of stolen credit cards used for fraudulent purposes.


  • Can Netspend cards be used internationally?
    A:

    NetSpend cards are prepaid debit cards that allow cardholders to make purchases as they would using traditional debit or credit cards. NetSpend cards can be used internationally, and they are accepted at any location that accepts a debit Visa or MasterCard.

    Using Your NetSpend Debit Card Internationally

    NetSpend debit cards can be used at millions of locations worldwide. Prepaid debit cards are often a wise decision for international travel. If a prepaid debit card is stolen or comprised, the account owner can call customer service immediately to deactivate the card.

    However, NetSpend debit cards do not include the newer technology being added to most credit cards, such as the chip-and-signature feature. Most European credit card terminals have been converting to this technology to reduce theft and fraud. Also, there are no NetSpend reload locations outside the United States.

    NetSpend accounts offer several fee plans, with the most common being the pay-as-you-go plan. This charges the account holder $1 on every credit charge, $2 on every debit charge and $2.50 for domestic ATM withdrawals. NetSpend also offers a flat monthly fee option in lieu of the individual transaction fees.

    There are several additional fees involved with using the card internationally. When buying standard items or services overseas, the foreign transaction fee is 3.5% of the U.S. dollar amount of the purchase transaction. When withdrawing from an international ATM, there is a charge of $4.95 per withdrawal, in addition to the ATM's own transaction fee.


  • Can Sallie Mae loans be forgiven?
    A:

    Sallie Mae (Student Loan Marketing Association) loans issued by SLM Corporation (SLM) similar to other private loans, cannot be forgiven. As of 2017, there is no option for private student loan forgiveness, but there are options for public student loan forgiveness. If a person needs relief from his Sallie Mae loans, there are options other than forgiveness. Note: When we say "Sallie Mae loan," we are referring to a loan that originates with the agency; Sallie Mae also administrates federal direct student loans (confusing, we know).

    Talk to the Lenders

    The first step is to speak directly with the lender. Sallie Mae, for example, has forbearance options for those needing it. By using this option, a person is able to temporarily pause loan payments without facing delinquency. A loan can only be in forbearance for up to 12 months.

    Refinancing/Consolidating the Sallie Mae Loan

    By consolidating multiple loans, a person is often able to get a better interest rate. Doing so not only means lower monthly payments (obviously), but it also saves a lot of money over the entire life of the consolidated loan, reducing long-term financial stress.

    Private student loans can only be refinanced or consolidated with other private loans, and public loans with other public loans. Unfortunately, Sallie Mae no longer offers private loan consolidation. Students can still consolidate their Sallie Mae and other private loans through a private financial institution. In that case, the consolidated loan and resulting payment plan are managed by that institution.

    Public loans administered through Sallie Mae can be consolidated with other student federal loans. The agency used to allow student-borrowers to apply for the consolidation of federal loans directly, but this is no longer the case: They now have to apply directly to the U.S. Department of Education's Federal Student Aid division. Sallie Mae can continue to manage the new Federal Consolidation Loan, if the borrower wishes.

    Look at Federal Student Loan Repayment Options

    Sallie Mae loans can't be refinanced, either. However, for those who have both private and public student loans, it is possible to use the special programs offered to give relief to federal loans, and then apply those savings to the Sallie Mae loan. Some people in this situation apply for a federal income-based repayment plan and use the extra capital to pay off the Sallie Mae loan. These options are also available for federal consolidated loans.

    First, a student can elect for graduated repayment, which is a loan that has lower monthly payments initially, which increase gradually over a 10-year period.

    Students can opt for an income-based repayment plan. This plan caps monthly payments at a discretionary income level of 10% or 15% (depending if your loan originated before or after July 2014). However, to be eligible for this type of plan, students must prove financial hardship.

    A student who has an outstanding loan balance of more than $30,000 is eligible for an extended repayment plan. This plan extends the life of the loan to 25 years, with monthly payments based on a low fixed or graduated repayment amount.

    Also, some lenders allow for unemployment protection that puts payments on pause if a person loses his or her job.

    For related reading, see "'My Student Loans Will Be Forgiven by the Government': Really?"


  • Can student loans be used to pay rent?
    A:

    Student loans can be used to pay for room and board, which includes on- and off-campus housing. So yes, students can use loans to pay monthly rent for apartments and other types of residences away from campus. The sooner a student knows she wants to live off campus, the sooner she is able to assess how much money she needs, so it is important to fill out the Federal Application for Free Student Aid (FAFSA) as early as possible in the prior academic year.

    Student Loans and Paying Rent

    College and university students should be aware that institutions of higher education pay tuition and fees first, especially when students receive no other financial aid such as Pell Grants or scholarships. Once these expenses are paid, the institution sends students any leftover loan money, usually by direct deposit to a bank account, which students can use for college-related living expenses including rent. Students should therefore understand that if they are planning to take a full course load and have no financial aid other than student loans, there may not be enough loan money left over to pay monthly rent for an entire semester or academic year. Planning ahead and ensuring enough financial aid is available to cover tuition, fees and rent is important.

    Handling Disbursement Delays

    College financial aid departments usually do not disburse leftover student loan money until after the start of the academic year, and landlords always want security deposits and monthly rent on time. Students seeking off-campus housing should make sure they have enough money to cover these costs, whether from family contributions or part-time employment, until they receive their student loan disbursement.


  • Can student loans garnish your bank account?
    A:

    Lenders can garnish your bank account to recover student loan debt and they can do it in different ways depending on whether your student loans are federal or private. Here is what may occur if you default on your student loans.

    Federal Student Loans

    In the case of federal student loans, it is important to realize that the government does not need a court order or judgment to garnish your wages. In other cases, creditors must first sue you in court and obtain a judgement to garnish your bank account. Creditors who own your federal student loans do not have to do this. They simply must send a letter to your home address, giving you a 30-day notice that your wages are being garnished. At that point, you can request a hearing in front of a judge to make your case. If your wages are garnished, the maximum that can be withheld is 15% of your disposable income, which is the amount of your net paycheck after taxes. Your employer withholds these funds and forwards them to the appropriate creditor. This process is typically a last resort process for those who deliberately refuse to pay their loans. There are always payment plans available to help those who are unable to pay.

    Private Student Loans

    In the case of private student loans, or those not offered by the federal government, the creditor does not have any special wage garnishing ability. The creditor must first sue you in court to obtain a judgment, and then submit a court order to your employer with the details of the garnishment. How much they are allowed to garnish depends on the state in which you live.


  • Can student loans hurt your credit?
    A:

    Student loans can hurt your credit score only if you default on them. Otherwise, student loans can actually help your credit score when you make your monthly payments on time. Limiting the money you borrow for higher education to an amount you can easily repay is the key to having student loans work in your favor.

    On-Time Payments

    Making the required payments on a modest student loan can benefit a new college graduate. Student loan servicing companies, which administer student loans once they enter repayment status, report payments to the credit bureaus: Equifax Inc. (EFX), TransUnion (TRU) and Experian PLC (EXPN.L). When you make consistent, on-time payments, lenders considering your loan applications can see from your FICO credit score that, even though you’re a new grad, you’re skilled at managing your money. When you make your student loan payments as required, the loan can help you qualify for your first apartment, an unsecured credit card with a favorable interest rate and even a job.

    Defer but Don’t Default

    If you run into financial trouble along the way, contact your student loan servicer immediately and ask for deferment. Keep making loan payments until your loan servicer approves your deferment request to avoid any delinquencies on your credit report. Lenders typically consider deferment a responsible move because it frees up income to repay other loans.

    Defaulting means that the borrower cannot repay the student loan and has no interest in applying for deferment or seeking other repayment solutions. Defaulting on a student loan can make it difficult to get the loans needed to buy a home, a car or other big-ticket items.


  • Can the Best Buy credit card be used anywhere?
    A:

    The Best Buy credit card can only be used in Best Buy stores and when making purchases online through the Best Buy website. Outside of Best Buy, the card is not accepted, since it is not associated with any major financial card networks such as MasterCard, Visa, American Express or Discover. However, Best Buy offers the Best Buy MasterCard credit card that can be used anywhere MasterCard-branded cards are accepted.

    Best Buy Credit Card

    The Best Buy credit card is issued by Citibank, and it is designed to benefit customers who can use this card exclusively at Best Buy stores and its website. The main advantage of the card is that it offers 5% back in rewards to its regular cardholders and 6% back to Elite Plus members. In 2017, Best Buy offers special six-month financing for purchases in excess of $199; 12-month financing for purchases in excess of $399; 18-month financing for major appliance purchases totaling $599 or up; and 24-month financing on home theater purchases totaling $799 and up. During the promotional period for the special financing offer, Best Buy credit cardholders do not have to pay interest if they make their fixed monthly payments on time and pay off their balances at the end of the promotion period.

    Best Buy Credit Card Terms

    Besides its promotional financing, the Best Buy credit card charges its customers an interest rate that is equal to the prime rate plus 21.99%. The card also has a late payment penalty of up to $38. Citibank charges a minimum interest of $2. If you use the card outside Best Buy, the rewards are 2% back for dining out and grocery purchases and 1% back for so-called everyday purchases.


  • Can you pay off a Walmart credit card in store? (WMT)
    A:

    Wal-Mart Stores, Inc. (NYSE: WMT) allows multiple payment options for its credit cards, including in-store payments. The multinational retail company has a store card and a Discover card; both card balances can be paid at a retail location.

    Payment Options With Walmart Credit Cards

    Walmart allows its customers to pay credit card balances in a variety of ways. Payments can be made in any Walmart location at the customer service desk. If a consumer is also a Sam's Club member, he can make a payment at any Sam's Club location. Payments made in the store post to a consumer's credit card account within 48 hours. Walmart is unable to look up credit card information in the store, and a physical card is needed to make payment with this method.

    Another way is to pay a balance directly online using Walmart's portal. Consumers can sign into their Walmart credit card account to make a payment to their balances, which posts within two to three business days. Online payments cannot be set up as recurring and need to be done individually.

    E-payments can also be made to pay a Walmart credit card balance. These types of online payments can be set up directly with a consumer's financial institution, and as a recurring monthly payment. A valid checking account is needed.

    Consumers can pay credit card balances by phone. The service is free if an automated method is used and costs $10 if a representative helps over the phone. Consumers need a valid checking account with their routing number and account number ready to pay over the phone. A debit card can also be used.


  • Can you pay off your Best Buy credit card in store?
    A:

    All Best Buy credit cards can be paid off in the store using cash or a check. These credit cards have great benefits for consumers who regularly make purchases in Best Buy stores, online or through Best Buy affiliates. Cardholders can also pay their Best Buy credit card bills by check, over the phone, by mail and online through BestBuy.com.

    Types of Cards and Rewards

    Best Buy has two types of credit cards available. One can only be used through Best Buy and its affiliates. The other, a Best Buy Visa, can be used at any retailer that accepts Visa. Both cards offer Best Buy shoppers 5% cash back. The Best Buy Visa offers cardholders 2% cash back on groceries and at restaurants and 1% cash back on everything else. Occasionally, the card will offer additional cash back in categories that change throughout the year. Special financing offers do not earn cash-back rewards.

    Best Buy offers additional rewards to its Elite Plus customers. Cardholders can qualify to be Elite Plus members after spending $3,500 at Best Buy or an affiliated store in one calendar year. After earning the Elite Plus status, cardholders then earn 6% cash back on all Best Buy purchases.

    Other Features

    Both cards allow customers to create and manage their accounts online. By using the online feature, cardholders can update their personal information, view transaction activity and check their card balance. Visa offers consumers zero fraud liability in the event of a lost or stolen card. Any lost or stolen cards should be reported to the company as soon as possible.


  • Can you use a Walmart credit card anywhere? (WMT)
    A:

    Wal-Mart Stores, Inc. (NYSEARCA: WMT) offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. While the Walmart MasterCard can be used at any retailer that accepts MasterCard, the Walmart credit card is only accepted at Walmart and Sam’s Club stores, including their associated gas stations and websites.

    The Walmart MasterCard Credit Card Details

    As of October 2015, the Walmart MasterCard has no annual fee. This card has an annual percentage rate (APR) of 22.9% for purchases and quick cash advances and 25.9% for cash advances. These APRs are subject to change. The minimum interest charge is $1.

    This card has a cash advance fee of either $5 or 3% of the amount of each cash advance, whichever is greater, and a foreign transaction fee of 3% for each transaction.

    If you have no previous late payments within a six-month period, you're charged a one-time late payment fee of $25. However, if you do have late payments within a six-month period, the late payment fee increases to $35.

    Walmart MasterCard Credit Card Benefits

    The Walmart MasterCard comes with $0 fraud liability protection against charges by unauthorized users and a free FICO score check when signing up for online statements.

    When using the card at any Walmart gas station, you can receive a 5-cent discount per gallon. When using the card anywhere else, you'll receive 1% cash back for any purchase. When accrued to at least $5, the cash back is awarded as a statement credit.


  • Can you use your Walmart credit card at Sam's Club?
    A:

    Consumers can use their Walmart credit cards to shop at Sam's Club and to make purchases at Sam's Club gas stations. However, they cannot use their Walmart credit cards when they shop online at SamsClub.com.

    Payments Accepted at Sam's Club

    In addition to the Walmart credit card, Sam's Club also accepts Sam's Club Credit, Walmart and Sam's club shopping/gift cards, cash or check, debit cards, American Express, MasterCard, Visa, Supplemental Nutrition Assistance Program (SNAP) benefits and Discover. Sam's Club credit cardholders may also use their cards in Walmart stores.

    Benefits of Walmart Credit

    There is no annual fee on Walmart credit cards. Cardholders have zero liability fraud protection and are eligible for special financing offers throughout the year. Walmart credit cardholders also receive free monthly FICO credit score reports. Walmart credit provides additional discounts on gas at Walmart gas stations, but it only provides discounts at Sam's Club gas stations that are open to the public.

    Sam's Club Membership Benefits

    Sam's Club members enjoy discounts on accounting and tax services. Members receive discounted auto pricing at over 10,000 dealerships around the country. Many additional benefits, from deals on travel, health insurance and vehicle maintenance are available with a Sam's Club membership. Sam's Club has a full list of its member benefits listed online; you can also visit any Sam's Club location and talk to customer service regarding membership benefits.

    Different levels of membership are available. The basic Sam's savings and Sam's business cards are available for $45 per year, as of 2017. The Sam's Plus membership is available for $100 per year and offers extended shopping hours (same for business) and $10 cash back for every $500 spent, up to $500 per year.

    For related reading, see "Can You Use a Walmart Credit Card Anywhere?"


  • Compound interest versus simple interest
    A:

    Interest is the cost of borrowing money, where the borrower pays a fee to the lender for using the latter's money. The interest, typically expressed as a percentage, can be either simple or compounded. Simple interest is based on the principal amount of a loan or deposit, while compound interest is based on the principal amount and the interest that accumulates on it in every period. Since simple interest is calculated only on the principal amount of a loan or deposit, it's easier to determine than compound interest.

    Simple Interest

    Simple interest is calculated using the following formula:

    Simple Interest = Principal amount (P) x Interest Rate (I) x Term of loan or deposit (N) in years.

    Generally, simple interest paid or received over a certain period is a fixed percentage of the principal amount that was borrowed or lent. For example, say a student obtains a simple-interest loan to pay one year of her college tuition, which costs $18,000, and the annual interest rate on her loan is 6%. She repays her loan over three years. The amount of simple interest she pays $3,240 ($18,000 x 0.06 x 3). The total amount she repays is $21,240 ($18,000 + $3,240).

    Real-Life Simple Interest Loans

    Two good examples of simple interest loans are auto loans and the interest owed on lines of credit such as credit cards.

    A person could take out a simple interest car loan, for example. If the car cost a total of $100, to finance it the buyer would need to take out a loan with a $100 principal, and the stipulation could be that the loan has an annual interest rate of 5% and must be paid back in one year. Therefore, the simple interest on the car loan can be calculated as follows:

    ($100) x (5%) x (1)  = $5

    Alternately, say an individual has a credit card with a $1,000 limit and a 20% APR. If, for example, he buys $1,000 worth of goods. He pays only the minimum the next month, $100. So the next month, with a $900 balance remaining, he would owe the following:

    ($900) x (20%) x (1)  = $180

    Compound Interest

    Conversely, compound interest accrues on the principal amount and the accumulated interest of previous periods; it includes interest on interest, in other words. It is calculated by multiplying the principal amount by the annual interest rate raised to the number of compound periods, and then minus the reduction in the principal for that year. Or as a formula:

    Compound Interest = Total amount of Principal and Interest in future less Principal amount at present

    To demonstrate, let's go back to our student in the first example: She's borrowing the same amount ($18,000) for college and repaying over the same three years, only this time it's a compound-interest loan. The amount of compound interest that would be paid is $18,000 x (1.06)3 - 1) = $3,438.29 – obviously, higher than the simple interest of $3,240.

    Examples of Simple and Compound Interest

    Let's run through a few examples to demonstrate the formulas for both type of interest.

    Example 1: Suppose you plunk $5,000 into a one-year certificate of deposit (CD) that pays simple interest at 3% per annum. The interest you earn after one year would be $150: $5,000 x 3% x 1.

    Example 2: Continuing with the above example, suppose your certificate of deposit is cashable at any time, with interest payable to you on a pro-rated basis. If you cash the CD after four months, how much would you earn in interest? You would earn $50: $5,000 x 3% x (4 ÷ 12).

    Example 3: Suppose Bob the Builder borrows $500,000 for three years from his rich uncle, who agrees to charge Bob simple interest at 5% annually. How much would Bob have to pay in interest charges every year, and what would his total interest charges be after three years? (Assume the principal amount remains the same throughout the three-year period, i.e., the full loan amount is repaid after three years.)

    Bob would have to pay $25,000 in interest charges every year ($500,000 x 5% x 1), or $75,000 ($25,000 x 3) in total interest charges after three years.

    Example 4: Continuing with the above example, Bob the Builder needs to borrow additional $500,000 for three years. But as his rich uncle is tapped out, he takes a loan from Acme Borrowing Corporation at an interest rate of 5% per annum compounded annually, with the full loan amount and interest payable after three years. What would be the total interest paid by Bob?

    Since compound interest is calculated on the principal and accumulated interest, here's how it adds up:

    After year one, interest payable = $25,000 ($500,000 (loan principal) x 5% x 1).

    After year two, interest payable = $26,250 ($525,000 (loan principal + year one interest) x 5% x 1).

    After year three, interest payable = $27,562.50 ($551,250 (loan principal + interest for year one & year two) x 5% x 1).

    Total interest payable after three years = $78,812.50 ($25,000 + $26,250 + $27,562.50).

    Of course, rather than calculating interest payable for each year separately, one could easily compute the total interest payable by using the compound interest formula, which you'll recall is:

    Compound Interest = Total amount of Principal and Interest in future, less Principal amount at present

    = [P (1 + i)n] – P

    = P [(1 + i)n – 1]

    P = Principal, while i = annual interest rate expressed in percentage terms, and n = number of compounding periods.

    Plugging the above numbers into the formula, we have P = $500,000, i = 0.05, and n = 3. Thus, compound interest = $500,000 [(1+0.05)3 - 1] = $500,000 [1.157625 - 1] = $78,812.50.

    However you calculate it, the point is that by being charged compound interest rather than simple interest, Bob has to pay an additional $3,812.50 ($78,812.50 - $75,000) in interest over the three-year period.

    The Bottom Line

    In real life situations, compound interest is is often a factor in business transactions, investments and financial products intended to extend for multiple periods or years. Simple interest is mainly used for easy calculations: those generally for a single period or less than a year, though they also apply to open-ended situations, such as credit card balances.

    To delve deeper into the amazing concept of compounding here, check out "Investing 101: The Concept of Compounding."


  • Continuous compounding versus discrete compounding
    A:

    Discrete compounding and continuous compounding are closely related terms. An interest rate is discretely compounded whenever it is calculated and added to the principal at specific intervals (such as annually, monthly or weekly). Continuous compounding uses a natural log-based formula to calculate and add back accrued interest at the smallest possible intervals.

    Interest can be compounded discretely at many different time intervals. The number of and distance between compounding periods is explicitly defined with discrete compounding. For example, interest that compounds on the first day of every month is discrete.

    There is only one way to perform continuous compounding – continuously. The distance between compounding periods is so small (smaller than even nanoseconds) that it is mathematically equal to zero.

    Compounding is still considered to be discrete if it occurs every minute or even every single second. If it isn't continuous, it's discrete. Simple interest is considered discrete as well.

    Calculating Discrete Compounding

    If the interest rate is simple – no compounding takes place – then the future value of any investment can be written as: Future Value = principal x ((1 + (interest rate) x (time period)); or, more simply, as FV = P(1+rt)

    When interest is compounded discretely, its formula is: FV = P (1+ r/m)^mt, where t is the term of the contract (in years) and m is the number of compounding periods per year.

    Calculating Continuous Compounding

    Continuous compounding introduces the concept of the natural logarithm. This is the constant rate of growth for all naturally growing processes. It's a figure that developed out of physics.

    The natural log is typically represented by the letter e. To calculate continuous compounding for an interest-generating contract, the formula needs to be written as: FV = P*e^(rt).


  • Debit card versus credit card
    A:

    Debit cards and credit cards work in similar ways. Both carry the logo of a major credit card company, such as Visa or MasterCard, and can be swiped at retailers to purchase goods and services. The key difference between the two cards is where the money is drawn from when a purchase is made. When a consumer uses a debit card, the money comes directly from his checking account. When he uses a credit card, the purchase is charged to a line of credit for which he is billed later.

    Consider two customers who each purchase a television from a local electronics store at a price of $300. One uses a debit card, and the other uses a credit card. The debit card customer swipes his card, and his bank immediately places a $300 hold on his account, effectively earmarking that money for the television purchase and preventing him from spending it on something else. Over the next one to three days, the store sends the transaction details to the bank, which electronically transfers the funds to the store.

    The other customer uses a traditional credit card. When he swipes it, the credit card company automatically adds the purchase price to his card account's outstanding balance. He has until his next billing due date to reimburse the company, by paying some or all of the amount shown on his statement.

    With most credit card companies, the customer has 30 days to pay before interest is charged on the outstanding balance, though in some cases, interest starts accruing right away. Interest rates on credit cards are notoriously high (they are key way the credit card companies make money). Savvy consumers avoid paying it by settling their balance in full each month.

    The Debt Instrument Difference

    By definition, all credit cards are debt instruments. Whenever someone uses a credit card for a transaction, the card holder is essentially just borrowing money from a company, because the credit card user is still obligated to repay the credit card company.

    Debit cards, on the other hand, are not debt instruments because whenever someone uses a debit card to make a payment, that person is really just tapping into his or her bank account. With the exception of any related transaction costs, the debit user does not owe money to any external party: The purchase was made his or her own available funds.

    However, the distinction between debt and non-debt instruments becomes blurred if a debit card user decides to implement overdraft protection. In this case, whenever a person withdraws more money than what is available in his or her bank account, the bank will lend the person enough money to cover the transaction. The bank account-holder is then obligated to repay the account balance owed and any interest charges that apply to using the overdraft protection.

    Overdraft protection is designed to prevent embarrassing situations, such as bounced checks or declined debit transactions. However, this protection does not come cheaply; the interest rates charged by banks for using overdraft protection are as high, if not higher, than the ones associated with credit cards. Therefore, using a debit card with overdraft protection can result in debt-like consequences.


  • Debt and collection agency
    A:

    If your debt is significantly delinquent – usually 90 days or more past due – your lender may decide to either assign or sell your debt to a third-party debt collection agency. Sometimes collection agencies sell entire portfolios of debt accounts to each other. If your debt is purchased by another debt collection agency, the date opened on the account is the date purchased from the original (or previous) creditor. In this sense, the previous account is written off by the selling creditor, and a new collection account is opened.

    This does not mean that your delinquency is wiped clean, however. The original delinquency date – when you missed your last payment – must remain the same. It does not matter how many times the debt account changes hands. Your credit history is not altered, and the statute of limitations on credit reporting or on legal collection practices does not reset.

    This does not mean that nothing has changed, however. If your debt is moving from an original lender to a third-party debt collector, this new creditor's collection efforts are regulated through the Fair Debt Collection Practices Act (FDCPA). The FDCPA is designed to protect you from unscrupulous or abusive debt collection techniques and generally only applies to third-party agencies.

    Collectors cannot legally restart the clock on the statute of limitations (seven to 10 years, depending on the debt) through any re-aging techniques or through the sale to a different debt collector. The Federal Trade Commission has shut down the operations of collection agencies for attempts to re-age debts. For more on this topic, see "When Does the Statute of Limitations Clock Start on My Debts?"


  • Difference between delinquency and default
    A:

    Delinquency and default are both loan terms representing different degrees of the same problem: missing payments. A loan becomes delinquent when you make payments late (even by one day) or miss a regular installment payment or payments. A loan goes into default – which is the eventual consequence of extended delinquency – when the borrower fails to keep up with ongoing loan obligations or doesn't repay the loan according to the terms laid out in the promissory note agreement (such as making insufficient payments). Loan default is much more serious, changing the nature of your borrowing relationship with the lender, and with other potential lenders as well.

    Defining Delinquency

    Loan delinquency is commonly used to describe a situation in which a borrower misses its due date for a single scheduled payment for a form of financing, like student loans, mortgages, credit card balances or automobile loans. There are consequences for delinquency, depending on the type of loan, the duration and the cause of the delinquency.

    For example, assume a recent college graduate fails to make a payment on his student loans by two days. His loan remains in delinquent status until he either pays, defers or forebears his loan.

    Defining Default

    On the other hand, a loan goes into default when a borrower fails to repay his loan as scheduled in the terms of the promissory note he signed when he received the loan. Usually, this involves missing several payments over a period. There is a time lapse that lenders and the federal government allow before a loan is officially placed in default status. For example, most federal loans are not considered in default until after the borrower has not made any payments on the loan for 270 days, according to the Code of Federal Regulations.

    Consequences of Delinquency and Default

    In most cases, delinquency can be remedied by simply paying the overdue amount, plus any fees or charges resulting from the delinquency. Normal payments can begin immediately afterward. In contrast, default status usually triggers the remainder of your loan balance to be due in full, ending the typical installment payments set forth in the original loan agreement. Rescuing and resuming the loan agreement is often difficult.

    Delinquency adversely affects the borrower's credit score, but default reflects extremely negatively on it and on his consumer credit report, which makes it difficult to borrow money in the future. He may have trouble obtaining a mortgage, purchasing homeowners insurance and getting approval to rent an apartment. For these reasons, It is always best to take action to remedy a delinquent account prior to reaching default status.

    Student Loans

    The distinction for default and delinquency is no different for student loans than for any other type of credit agreement, but the remedial options and consequences of missing student loan payments can be unique. The specific policies and practices for delinquency and default depend on the type of student loan that you have (certified versus non-certified, private versus public, subsidized versus unsubsidized, etc).

    Nearly all student debtors have some form of federal loan. When you default on a federal student loan, the government stops offering assistance and begins aggressive collection tactics. Student loan delinquency may trigger collection calls and payment assistance offers from your lender. Responses to student loan default may include withholding of tax refunds, garnishing of your wages and the loss of eligibility for additional financial aid.

    There are two primary financial options made available to student debtors to help avoid delinquency and default: forbearance and deferment. Both options allow payments to be delayed for a period of time, but deferment is always preferable because the interest on your federal student loans is actually paid by the federal government until the end of the deferment period. Forbearance continues to credit interest to your account, although you do not have to make any payments on it until the forbearance ends. Only apply for forbearance if you do not qualify for a deferment.


  • Dividend Reinvestment Plan - DRIP
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    What is a 'Dividend Reinvestment Plan - DRIP'

    A dividend reinvestment plan (DRIP) is a plan is offered by a corporation that allows investors to reinvest their cash dividends into additional shares or fractional shares of the underlying stock on the dividend payment date.

    Most DRIPs allow investors to buy shares commission-free and at a significant discount to the current share price, and do not allow reinvestments much lower than $10. This term is sometimes abbreviated as "DRP."

    Next Up

    BREAKING DOWN 'Dividend Reinvestment Plan - DRIP'

    DRIPs are offered by many companies to give shareholders the option of reinvesting the amount of a declared dividend by purchasing additional shares. Normally, when dividends are paid, they are received by shareholders as a check or a direct deposit into their bank account. Because shares purchased through a DRIP typically come from the company’s own reserve, they are not marketable through stock exchanges. Shares must be redeemed directly through the company.

    Although these dividends are not actually received by the shareholder, they still need to be reported as taxable income. If a company does not offer a DRIP, one can be set up through a brokerage firm, as many brokers allow dividend payments to be reinvested in the shares of any stock held in an investment account.

    Shareholder Advantages of DRIPs

    There are several advantages of purchasing shares through a DRIP. DRIPs offer shareholders a way to accumulate more shares without having to pay a commission. Many companies offer shares at a discount through their DRIP from 1 to 10% off the current share price. Between no commissions and a price discount, the cost basis for owning the shares can be significantly lower than if the shares were purchased on the open market.

    Long term, the biggest advantage is the effect of automatic reinvestment on the compounding of returns. When dividends are increased, shareholders receive an increasing amount on each share they own, which can also purchase a larger number of shares. Over time, this increases the total return potential of the investment. Because more shares can be purchased whenever the stock price decreases, the long-term potential for bigger gains is increased.

    Company Advantages

    Dividend-paying companies also benefit from DRIPs in a couple of ways. First, when shares are purchased from the company for a DRIP, it creates more capital for the company to use. Second, shareholders who participate in a DRIP are less likely to sell their shares when the stock market declines. One reason is the shares are not as liquid as shares purchased on the open market. Another reason is DRIP participants can more easily recognize the role their dividends play in the long-term growth of their investment.






  • Do balance transfers hurt your credit?
    A:

    Transferring a credit card balance can hurt your credit score in the short term, but the extent to which transferring balances hurts your credit score depends on the amount of the balance that you transfer and the new card’s credit limit. In the long term, however, you may see your credit scores go up if you transfer balances strategically to cards with large credit limits.

    Why Transfer Balances?

    Credit card companies entice consumers to transfer balances with attractive offers such as 0% interest for 12 months. Transferring balances means that a consumer moves debt from one credit card to the zero-interest card, which can lower the person’s credit card bill, but only temporarily if he or she fails to completely pay off the debt during the introductory interest-rate period. Transferring a balance does not cancel the interest and charges already added to the balance, but it does stop additional interest and charges from incurring.

    Taking advantage of a credit card’s introductory offer usually saves the cardholder some money. For example, a consumer with a credit card balance of $10,000 at 15% interest, planning to pay the card off in one year, might save around $831 by transferring a balance to a card with a zero-interest offer. However, such credit cards charge balance transfer fees of as much as 3% of the amount being transferred, which shaves off some of the amount saved in interest.

    FICO’s Response

    Consumers transferring balances to new credit cards should consider their credit-utilization ratio as part of the decision-making process. FICO determines credit scores by assessing the credit utilization ratio. The ratio compares consumers’ total available credit to the amount they owe in order to determine their credit scores. Here is how credit-utilization works when it comes to credit-card balance transfers.

    Example: A person with $10,000 in available credit on Credit Card #1 has $3,000 in charges on the card. On this card, he has used up about 33% of the available credit; FICO considers 30% utilization to be ideal. Say the person gets a 0% interest offer on balance transfers on Credit Card #2, and that card has a limit of $12,000. Moving his $3,000 balance to the new card frees up Credit Card #1 completely and only eats up 25% of Credit Card #2, thus dropping his credit utilization to below 30%. Therefore, while his credit score might decrease temporarily because of the inquiry made as part of the application for Credit Card #2, overall, his credit score will most likely increase.

    Debt Refinance Alternative

    Credit card users wanting to transfer balances with minimal effect on their credit scores might consider personal bank loans. FICO calculates credit scores based on revolving credit, so a bank loan does not figure into the credit utilization ratio. Consumers should be aware, however, that banks almost never offer zero-interest personal loans, but the interest rate offered is usually lower than credit card interest rates.


  • Do FHA Loans Have Prepayment Penalties?
    A:

    Unlike subprime mortgages issued by some conventional commercial lenders, Federal Housing Administration (FHA) loans do not have prepayment penalties. Rules governing FHA loans state that these type of mortgages cannot contain any unnecessary fees, such as a due-on-sale clause or prepayment penalty, that may cause a financial hardship to borrowers.

    How Mortgage Interest Is Calculated in Case of Prepayment

    For all FHA loans closed before Jan. 21, 2015, while you are not required to pay extra fees when paying your FHA loan early, you are still responsible for the full interest as of the next installment due date. For example, assume the monthly payment due date of your FHA loan is on the fifth of every month. If you made your monthly payment by the first of the month, you are still liable for the interest until the fifth. Even if you paid the full balance of your mortgage, you are still responsible for the interest until the payment due date.

    This post-payment interest charge was not a prepayment penalty, but many homeowners felt it was; in 2012, holders of FHA loans paid an estimated $449 million in post-payment interest charges. To reduce the burden on homeowners, the FHA revised its policies to eliminate post-payment interest charges for FHA loans closed on or after Jan. 21, 2015. Under these new policies, lenders of qualifying FHA loans must calculate monthly interest using the actual unpaid mortgage balance as of the date the prepayment is received. Issuers of FHA loans can only charge interest through the date the mortgage is paid.


  • Do I still owe debt collectors for a debt that's past the statute of limitations for my state?
    A:

    Learn what a statute of limitations on debt actually limits; that is, what activity or action can no longer justify legal proceedings in court. In all cases, a statute of limitations on debt only refers to the ability of creditors to bring a debtor to court for violating the terms of the credit agreement; the statute does not limit the ability of the creditor to attempt to collect on the debt nor does it remove your obligation as a debtor to repay the balance of your account.

    Be very careful what you say to creditors once the statute of limitations governing your debt has expired. Depending on your state and the type of debt, even acknowledging that you owe the debt may be grounds for reviving the time period for legal action against you. In fact, under some circumstances, you may end up unintentionally extending the statute of limitations on a not-yet-expired debt that you owe.

    Not all debts have a statute of limitations. If you are uncertain about whether your debt has a time-barred collection horizon, check your state's website. Under the Fair Debt Collections Practices Act, or FDCPA, the creditor is legally required to inform you of any statute of limitations.

    Another tricky function of statutes of limitations is that they do not all start when the debt is first owed. Some statutes may start their "clock" as soon as the first payment is made, while some debts restart after every payment, and others do not start until a payment is missed.

    If you are contacted about a debt that is past the statute of limitations, check your credit report. You should be able to see if the debt is being represented accurately and, if not, this could constitute a violation of the Fair Credit Reporting Act (FCRA) on the part of your creditor. It is not always legal for debts past their statute to be reported.

    The only ways to remove your credit balance is to either repay in full, arrange with the creditor to have the debt cancelled, enter into a debt settlement program or have the debt discharged in bankruptcy. Once the statute of limitations expires, however, the creditor cannot use the power of the U.S. court system to make you pay. Your rights under the FDCPA are still in good standing, meaning you have legal recourse should your creditor use abusive or deceptive collection practices.

    It is illegal for a creditor to try to force repayment by suggesting it can take legal action against you if the statute of limitations governing the debt has expired. However, not paying a debt likely has a negative effect on your credit score, regardless of any statute of limitations.


  • Do inquiries for preapproved offers affect my credit score?
    A:

    Inquiries for a preapproved offer do not affect a credit score unless a person follows through with the actual application. Even though someone is preapproved, he or she must fill out the application that accompanies the preapproval. A preapproval basically means that the lender thinks the person has a good chance at being approved, but it is not a guarantee.

    There are two types of inquiries: hard inquiries and soft inquiries. A soft inquiry is what lenders use to preapprove a consumer for a line of credit. Soft inquiries also happen when a current lender pulls a credit report for an account review or when a debt collector checks a credit report for recent activity. A hard inquiry is what is used when someone applies for a credit card or loan. When the consumer fills out the application that accompanies a preapproval, sometimes the lender uses the soft inquiry that was previously pulled, and sometimes the lender pulls a brand new report with a hard inquiry.

    Soft inquiries are seen only by the consumer and do not accompany requests for a credit report. They do not affect credit scores, and other lenders cannot see them. Hard inquiries can affect a consumer's credit score if there are many. Even though the impact of hard inquiries on a credit score is very low, other lenders can see them and sometimes deny a credit application because the consumer has too many other recent inquiries. These hard inquiries fall off a credit report after two years.


  • Do mortgage escrow accounts earn interest?
    A:

    A bank is not required to pay interest on any escrow accounts (also mortgage impound accounts) it holds for its customers. There are some exceptions of course, but the U.S. Department of Housing and Urban Development (HUD) does not require interest to be paid.

    There have been two attempts to pass legislation in 1992 and 1993 regarding the payment of interest on escrow bank accounts. Both of these proposals were declined and there have not been any further attempts to change the escrow system since.

    The states that do require interest payments on escrow accounts are: Alaska, California, Connecticut, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Oregon, Rhode Island, Utah, Vermont and Wisconsin. There are legal exceptions that may preclude a bank from paying interest.

    Many of these states require that any interest earned through an escrow account be paid to the customer. This does not make escrow bank accounts an acceptable alternative to standard savings accounts for several key reasons. First, the HUD caps the total excess deposit amount at one sixth of the total minimum amount to be deposited and paid out over the year. This limitation severely restricts any compounding customers might typically enjoy in a regular certificate of deposit (CD) or savings account.

    Due to this fact, customers who manage their personal finances closely might actually benefit by investing the money they pay into an escrow bank account in other investment vehicles. For those whose credit and loans are highly leveraged already, it might be easiest to make smaller monthly payments rather than one large annual payment. Since mortgage escrows are designed to protect lenders from tax defaults, the bank ultimately makes the final decision on whether or not it will require a borrower to establish an escrow banking account.


  • Do Pharmacies Take CareCredit?
    A:

    CareCredit’s health, wellness and personal care credit card is now accepted for prescriptions and general merchandise purchases in all of Rite Aid’s nearly 4,600 stores in the United States. While CareCredit is accepted at over 175,000 health care providers nationwide, the company is still working on expanding its network of pharmacies that accept the CareCredit card.

    CareCredit

    The CareCredit card is administered by Synchrony Bank, and it specifically targets people who spend a significant amount of money on health care, such as dental services, and cosmetic and dermatology procedures. The card is also suitable for people who incur expenses on veterinary services associated with treatment of their pets. CareCredit cannot be used outside of its network of health care providers that signed up to accept the card as a means of payment. CareCredit does not expire as long as a cardholder is in good standing.

    CareCredit Financing Terms

    Unlike other credit cards, CareCredit offers better financing terms on health care spending. For health care purchases in excess of $200, consumers can take advantage of a promotional period of 6, 12, 18 or 24 months. During this period, no interest is assessed as long as cardholders pay off their outstanding balances in equal fixed-payment amounts.

    For financing terms greater than 24 months, CareCredit charges a 14% annual percentage rate (APR) on outstanding balances. For purchases in excess of $1,000, CareCredit has 24-, 36- and 48-month financing terms, while purchases in excess of $2,500 can qualify for the 60-month offer. CareCredit works with its cardholders in case they cannot meet their payment due dates by offering choices that fit cardholders' financial needs.


  • Does Advertisers provide good financing?
    A:

    When an advertisement says "financing available," it means that the seller is going to give you a loan on an item that you purchase. Making use of seller financing means that you're buying on credit. You do not have to pay for the item on the spot, but you are billed periodically by the seller for a portion of the cost, plus interest charges. Consumers commonly use financing when purchasing big ticket items like cars, jewelry, major appliances and furniture.

    An important point to note is that when retailers or dealers advertise financing, the interest rate that they quote is not necessarily the one that applies to you. Sometimes, the rate you actually end up paying is affected by your geographical location, credit history, term of loan and the condition of the item being purchased. Generally, new items are less expensive to finance (i.e., lower interest rates) than used items.

    There are pros and cons to using the seller's financing program. The pros are that it's often fast, convenient and competitive, and if you do not meet the rigid requirements of traditional lenders, there is a good chance that you can obtain financing from a seller. The cons associated with seller financing are that there are sometimes higher interest rates and down payment requirements than those at traditional lending institutions.

    If you have to take out a loan to make a purchase, there are other options. You can go to your bank, your local credit union or family and friends. There may be particular upside to using a financial institution that you already have a relationship with, in the shape of special rates or accommodations for account-holders and clients.


  • Does CareCredit cover prescriptions?
    A:

    In the United States, the health care sector is one of the fastest growing and costliest industries. The demand placed on workers in the industry continues to grow, as do costs to consumers. With a substantial number of individuals in the country unable to afford health insurance and thus unable to obtain crucial care and procedures to improve and sustain their health, CareCredit is becoming a popular option. CareCredit allows a patient to make a series of payments to a medical provider over time. It is not intended to be an overall medical credit card.

    As a rule, pharmacies will not accept the card to pay for prescriptions or other minor medical supplies. In some instances, a veterinarian who also sells prescriptions may accept CareCredit, but this is not customary. Pet owners should check with their veterinarians to see if they can use CareCredit cards to purchase such prescriptions.

    What CareCredit Is and Where It Can Be Used

    CareCredit is a special form of credit card that was designed to be used for beauty, wellness and health care needs. This card allows an individual to make monthly payments to cover the full costs of many treatments and procedures that health care professionals perform. CareCredit provides special financing offers that typically cannot be obtained through traditional credit cards when paying for health-related treatments and procedures.

    CareCredit offers shorter-term financing options, between six and 24 months, and it does not charge interest on purchases over $200 when minimum monthly payments are made. It offers longer-term health care financing for periods in excess of 24 months and up to 60 months with an attached 14.9% annual percentage rate (APR) until the balance is paid in full.

    Across the U.S., CareCredit is accepted at more than 170,000 providers. Uses include LASIK and other vision care procedures, cosmetic and dermatological procedures, dental care and veterinary care. In many cases, providers have applications for CareCredit, but applications are also available online.


  • Does inflation favor lenders or borrowers?
    A:

    Inflation can benefit either the lender or the borrower, depending on the circumstances.

    If wages increase with inflation, and if the borrower already owed money before the inflation occurred, the inflation benefits the borrower. This is because the borrower still owes the same amount of money, but now he or she has more money in his or her paycheck to pay off the debt. This results in less interest for the lender if the borrower uses the extra money to pay his or her debt early.

    Inflation can help lenders in several ways, especially when it comes to extending new financing. First, higher prices mean that more people want credit to buy big-ticket items, especially if their wages have not increased – new customers for the lenders. On top of this, the higher prices of those items earn the lender more interest. For example, if the price of a TV goes from $1,500 to $1,600 due to inflation, the lender makes more money because 10% interest on $1,600 is more than 10% interest on $1,500. Plus, the extra $100 and all the extra interest might take more time to pay off, meaning even more profit for the lender.

    Second, if prices increase, so does the cost of living. If people are spending more money to live, they have less money to satisfy their obligations (assuming their earnings haven't increased). This benefits lenders because people need more time to pay off their previous debts, allowing the lender to collect interest for a longer period. However, the situation could backfire if it results in higher default rates.


  • Does Netspend report to credit bureaus?
    A:

    NetSpend does not report to credit bureaus in any capacity. NetSpend is a prepaid debit card program that allows cardholders to pre-fund their accounts with debit card capabilities. A NetSpend card is often safer and more convenient than carrying cash, but it still allows the cardholder to make in-person and online purchases.

    NetSpend's Account Opening Requirements

    NetSpend does not require a Social Security number to open an account. When enrolling on NetSpend's website, a person must provide his name, address and email address. The following screen then requires the creation of a username, password and security question. Once these two processes are complete, the cardholder receives a card in seven to 10 business days, and he can fund the account at any time.

    The lack of a requirement to enter a Social Security number makes a NetSpend different from a credit card or a traditional debit card. Both credit cards and traditional debit cards require applicants to provide a Social Security number and date of birth. Credit card providers run credit checks prior to approval, often determining the amount of credit they can provide. This information is directly reportable to the credit bureaus, regardless if they approve the card or not.

    Credit reporting bureaus maintain credit reports specifically through Social Security numbers. If NetSpend never requires cardholders to supply this information, it cannot forward any information to the credit bureaus.

    Since NetSpend accounts are prepaid by the cardholder's own funds, a reportable offense would be rare. The only scenario that might cause issues is if a cardholder enrolls in the overdraft protection service. If the cardholder creates a sufficiently large negative balance and does not repay within the designated period, NetSpend has the right to submit his information for collections. There is no mention of reporting to any credit bureau or agency under any circumstance in NetSpend's cardholder agreement as of 2015.


  • Does the Walmart credit card have an annual fee?
    A:

    The Walmart credit card does not charge annual fees to its cardholders. It does, however, have other fees associated with late payments, and it charges interest on balances that are not paid on a timely basis. From time to time, Walmart offers special financing terms on its credit card and pays a specific incentive amount after cardholders open a card.

    Walmart Credit Card

    The Walmart credit card is administered by Synchrony Bank and provides $0 liability protection, a 5 cent per gallon discount at participating U.S. Walmart gas stations, a free FICO report every month and no annual fee. Additionally, for purchases made in stores, the card provides special financing terms. Depending on the amount spent, cardholders do not have to pay interest on the balance as long as the balance due is paid off in fixed monthly amounts during the promotional period. The higher the amount spent in a store, the longer the promotional period is.

    The Walmart credit card does not allow taking cash advances and conducting transactions in foreign currencies. If a cardholder makes a late payment, he is charged up to $35 of a late payment penalty. If a cardholder paid his total minimum payment due on time in each of the previous six billing cycles, the late payment fee is reduced to $25. Synchrony Bank uses a daily rate to calculate interest on the balance of the Walmart credit card each day. The annual percentage rate (APR) for purchases is the prime rate plus 19.65%. Walmart credit card members can pay their balances by mail, online, or at any Walmart or Sam's Club store.


  • Does Walmart take international credit cards?
    A:

    Foreign visitors to Walmart locations in the United States can use their credit cards issued by banks outside of the U.S. Walmart accepts international credit cards, including American Express, Discover, MasterCard and Visa. Some Walmart stores may accept international credit cards issued by JCB and UnionPay (only those with the "UnionPay" logo on the front of the card and card numbers starting with "62") as well.

    Tips for Using Your International Credit Card at Walmart Stores

    To be sure what credit cards are accepted at the Walmart store that you're visiting, consult the "We gladly accept" sign located at the store's entrance.

    The international financial institution that issued your credit card may require advance notification that you're traveling to authorize transactions abroad. Call the customer service line on the back of your card and notify the representative about your travel plans to prevent any problems.

    The chip-and-pin cards are very new in the U.S. Their current iteration, as of October 2015, is closer to "chip-and-sign" cards. Some Walmart pay terminals may ask you to provide a signature instead of your card's PIN.

    If you run into any issues when processing your card's chip, payment terminals at Walmart are still equipped with magnetic stripe readers. If you card has a magnetic stripe, you can use it as a backup plan for payment.

    Tips for Using Your International Credit Card on Walmart's Website

    When using your international credit card to shop on Walmart.com, remember that Walmart's site only delivers orders to the 50 states, APO/FPO military addresses and U.S. territories.

    Most credit and debit cards issued by banks outside of the U.S. are accepted forms of payment for purchases made on Walmart.com. To ensure that your transaction goes through, Walmart recommends that you enter your full billing international address in the Billing Address line and your international phone number without the 001 or 011 prefix in the Billing Phone Number line. If your transaction is declined, your order is canceled and you'll receive a notification to the email addressed that you used to attempt your purchase.


  • Fixed and variable rate loans: Which is better?
    A:

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest rates change. As a result, your payments will vary as well (as long as your payments are blended with principal and interest).

    Fixed interest rate loans are loans in which the interest rate charged on the loan will remain fixed for that loan's entire term, no matter what market interest rates do. This will result in your payments being the same over the entire term. Whether a fixed-rate loan is better for you will depend on the interest rate environment when the loan is taken out and on the duration of the loan.

    When a loan is fixed for its entire term, it remains at the then-prevailing market interest rate, plus or minus a spread that is unique to the borrower. Generally speaking, if interest rates are relatively low, but are about to increase, then it will be better to lock in your loan at that fixed rate. Depending on the terms of your agreement, your interest rate on the new loan will stay the same, even if interest rates climb to higher levels. On the other hand, if interest rates are on the decline, then it would be better to have a variable rate loan. As interest rates fall, so will the interest rate on your loan.

    Fixed Interest Rate or Variable Rate Loan?

    This discussion is simplistic, but the explanation will not change in a more complicated situation. It is important to note that studies have found that over time, the borrower is likely to pay less interest overall with a variable rate loan versus a fixed rate loan. However, the borrower must consider the amortization period of a loan. The longer the amortization period of a loan, the greater the impact a change in interest rates will have on your payments.

    Therefore, adjustable-rate mortgages (ARM) are beneficial for a borrower in a decreasing interest rate environment, but when interest rates rise, then mortgage payments will rise sharply. Use a tool like Investopedia's mortgage calculator to estimate how your total mortgage payments can differ depending on which mortgage type you choose.

    To learn more about adjustable rate mortgages and the impact that fluctuations in interest rates will have, read "Choose Your Monthly Mortgage Payments" and "Mortgages: Fixed-Rate Versus Adjustable-Rate."


  • How are savings & loan companies different from commercial banks?
    A:

    Savings and loan (S&L) companies provide many of the same services to customers as commercial banks, including deposits, loans, mortgages, checks and debit cards. However, savings and loans associations place a stronger emphasis on residential mortgages, whereas banks tend to concentrate on working with large businesses and on unsecured credit services such as credit cards. S&Ls are also owned and chartered differently than commercial banks, and are generally more locally oriented.

    Commercial Banks can be chartered at either the state or federal level. The same is true for S&Ls, also sometimes referred to as thrift banks, savings banks, or savings institutions. The Office of the Comptroller of the Currency (OCC), however, is in charge of monitoring all nationally chartered commercial banks and S&Ls.

    S&Ls can be owned in either of two ways. Under what is known as the mutual ownership model, an S&L can be owned by its depositors and borrowers. Alternatively, an S&L can be established by a consortium of shareholders controlling stock issued by a thrift's charter.

    Commercial Banks, on the other hand, are owned and managed by a board of directors selected by stockholders. Many commercial banks are large, multinational corporations.

    By law, S&Ls may loan up to 20% of their assets for commercial loans, and only half of that can be used for small business loans. Moreover, for Federal Home Loan Bank borrowing approvals, an S&L must be able to show that 65% of its assets are invested in residential mortgages and other consumer-related assets. The banking industry does not have these types of limitations.

    In contrast to the S&L's narrower focus on residential mortgages, banks typically provide a broader range of financial offerings, often including credit cards and wealth management and investment banking services. Although commercial banks are permitted to provide residential mortgages, they tend to focus on loans targeting the construction and expansion needs of regional, national and international businesses.


  • How can a creditor improve its Average Collection Period?
    A:

    In accounts receivable management, the average collection period refers to the amount of time it takes for a creditor to recoup loaned funds. The average collection period is an important component of the cash conversion cycle. Companies with small collection periods tend to have better cash flow and to be more financially solvent. The opposite is true of companies that struggle to collect on their receivables.

    Walking Fine Lines

    Creditors face a kind of catch-22 when trying to manage their receivables. Collection practices that are too slow can compromise the entire business with poor cash flow. Practices that are too aggressive run the risk of violating the Fair Debt Collection Practices Act (FDCPA) or running afoul of the Consumer Financial Protection Bureau (CFPB).

    Information Is Key

    Even though collection practices are highly regulated, creditors still have the right to collect information on their borrowers in advance of accepting credit sales. An effective accounts receivable management practice should keep customer information up to date. This saves time when trying to contact delinquent accounts. It might even prevent the need for more expensive debtor location techniques, such as skip-tracing, down the road.

    Simple and Timely Invoices

    Creditors should try to make it as easy as possible for their customers and clients to make payments. Some companies send out reminders during the week prior to a contractually due payment date. Others might provide simple electronic invoices or electronic payment functionality. Debtors are more likely to pay when the process is easy and lacks confusion.

    Credit Policy and Credit Terms

    Ultimately, each business's average collection period is reliant on the terms and provisions laid out in the credit contract. If the contract requires that a debtor makes payments every 30 days, then it follows that the average collection period will tend toward 30 days. If the contract further stipulates that a late fee is not assessed until the account is seven days delinquent, then it is likely that average collection periods will fall between 30 and 37 days.


  • How can I get a standby letter of credit?
    A:

    The procedure for obtaining a standby letter of credit involves the applicant applying to a bank, establishing credit worthiness, and usually putting up cash collateral and paying a fee.

    A standby letter of credit, commonly referred to as an SLC or LOC, is a written obligation of the bank issuing the letter of credit stating that the bank will pay the beneficiary of the letter of credit in the event that the bank's customer, the applicant for the SLC, fails to pay the beneficiary money due him from the applicant. Essentially, the SLC is a form of backup payment insurance designed to guarantee that the seller in a transaction receives the money due him from the buyer. It is payable to the beneficiary, in accord with the terms of the SLC, upon demand, and the issuing bank cannot refuse to make payment due to any disagreements between the applicant and the beneficiary.

    Standby letters of credit are commonly considered as certifications of the applicant's creditworthiness and ability to make the necessary payment to fulfill his contractual obligation to the beneficiary of the SLC. In the event that the bank issuing the SLC ends up having to make payment to the beneficiary, it expects, or at least hopes, to be paid back by the applicant.

    The time frame an SLC is in effect is usually about a year, allowing for the applicant to make standard payment to the beneficiary.

    If a seller requests a standby letter of credit, he commonly insists that it be an irrevocable letter of credit, meaning that the terms of the SLC cannot be modified without the beneficiary's consent. The applicant then requests the SLC from his bank. The issuing bank typically reviews the creditworthiness of the applicant prior to issuing the SLC. All but the most creditworthy applicants for an SLC are required to post cash collateral with the issuing bank covering at least a portion of the amount of the SLC and they must also pay a fee to the issuing bank, typically 2-5% of the amount of the SLC. The applicant then provides a letter of confirmation to the beneficiary from the issuing bank; this is called a bank confirmation letter.

    In addition to the applicant, the issuing bank and the beneficiary, a fourth party involved with an SLC is the confirming or advising bank. This is a bank, usually located near the beneficiary, that pays the beneficiary on behalf of the issuing bank in the event that the SLC becomes payable. This arrangement is more common in international transactions. The beneficiary usually pays the confirming bank a small fee.

    An SLC is transferable in that the beneficiary can sell or assign the rights to the proceeds from the SLC, but the beneficiary remains the only party who can demand payment of the SLC. In the event that such an arrangement is made, the beneficiary informs the issuing bank to pay the proceeds of the SLC to the party the beneficiary has assigned to receive payment. There is no public trading of SLCs.

    In the United States, SLCs are governed by rules of the Uniform Commercial Code (UCC).


  • How can you cancel your Walmart credit card?
    A:

    Wal-Mart offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. Both are administered through Synchrony Bank. To closer either one of these credit cards, contact Wal-Mart by sending a letter to the address shown on your latest billing statement or by calling the company's customer service number (you can find it on the back of your Walmart credit card or on your statement, or online).

    If you need to close your account right away, calling customer service is the fastest way to process your request.

    Details About Closing Your Walmart Credit Card

    Under most circumstances, you are still liable for the full outstanding credit card balance. To prevent accumulating additional charges by any other authorized users of your Walmart credit card, collect all cards issued and destroy them. If authorized users are in other states than the one in which you reside, notify them about your plans to close your Walmart credit card right away.

    Until you settle the account in full, the variable 23.15% annual percentage rate (APR) for the Walmart credit card and the variable 17.15% to 23.65% APR (26.15% for cash advances) for the Walmart MasterCard apply to remaining balances.

    Wal-Mart reports your credit card activity to the three credit bureaus (Equifax, Experian and TransUnion). Closing your account may negatively impact your credit history, depending on how long you have had the card. If your Walmart credit card is your oldest credit card, consider paying off the full balance but keeping your account open; otherwise, the average age of all your accounts will go down, which can reduce your credit score.

    Wal-mart offers several payment options for its credit cards, including online, over the phone, by mail and in store (both Wal-Mart and Sam's Club sites, if you're a Sam's Club member). For details, see "Can You Pay off a Walmart Credit Card in Store?"


  • How can you pay your Walmart credit card?
    A:

    Holders of Walmart credit cards can make payments on their balances due by mail, online or at Walmart and Sam's Club stores. Cardholders can access their online accounts through Walmart's website. Additionally, Walmart allows its card members to make payments over the phone. However, Walmart may charge a fee for expedited phone payments.

    Walmart Credit Card

    The Walmart credit card is administered by Synchrony Bank and is designed to reward its cardholders for spending their money at Walmart stores. As a reward, Walmart provides free FICO reports on a monthly basis, 5 cent per gallon gas savings at Walmart gas stations and special financing offers. If a person makes an in-store purchase over a certain dollar threshold, he is eligible for promotional financing. For this financing offer, no interest is charged for a specified promotional period as long as the cardholder makes fixed amount monthly payments and repays his balance in full.

    Walmart Credit Card Payments

    Walmart credit card holders must make at least the total minimum payment due on their accounts by 5 p.m. Eastern Time on the due date. To avoid interest charges, cardholders must repay their total outstanding balances from their previous statements. If a Walmart credit cardholder makes a late payment, he is charged a late penalty fee of up to $35.

    Walmart charges an annual percentage rate (APR) of the prime rate plus 19.65% on any unpaid balances from previous statement periods. Cardholders must make all payments in U.S. dollars by either a physical or electronic check, money order or a comparable instrument issued by a U.S. bank.


  • How did the ABX index behave during the 2008 subprime mortgage crisis?
    A:

    Markit Group Ltd. created the ABX index as a synthetic basket of goods designed to provide feedback on the subprime mortgage market. The ABX itself is broken into five separate indexes, each of which represents a "tranche" of 20 credit default swaps, also known as credit default obligations, that are secured with subprime mortgage loans. The tranches are grouped by credit rating, ranging from AAA to BBB-minus. Every six months, a new series is issued based on the largest present deals. A higher value in any given ABX index correlates with decreased subprime mortgage risk.

    Coincidentally, the ABX was launched just before the collapse of the subprime lending market in 2007-2009. The ABX indexes "trade on price," meaning that an index itself is bought and sold at the value of its underlying securities. Because of this, the performance of the indexes roughly mirrored the performance of the credit default swaps during the financial crisis, which was very poor. It is important to note, however, that the ADX does not provide the value of any one specific credit default swap. (See also: How do traders use the ABX index?)

    Some analysts considered the sharp declines in the ABX to be leading indicators of the coming crisis prior to 2008. There was a temporary rally in spring 2007, but that was followed by even sharper declines. The AAA index, which theoretically should have been the most secure and most valuable of all of the ABX indexes, dropped by more than 50% in value from the middle of 2007 to early 2009. The lower tranches dropped far more dramatically; the BBB-minus was below 10, a drop in value greater than 90%, by April 2008.


  • How do available credit and credit limit differ?
    A:

    The difference between available credit and credit limit is closely tied to the account balance of a debt. Credit limit is the total amount of credit available to a borrower, including any amount already borrowed. Available credit is the difference between the credit limit and the account balance – how much you have left to spend, in other words.

    Most credit card companies allow borrowers to increase account balances just beyond credit limits, provided that borrowers agree in writing. This sometimes is a result of charges and sometimes a result of interest and fees. Most credit card companies charge stiff penalties for accounts with balances above the credit limit – again, provided the borrower agrees to this in writing. In times of need, consumers may be tempted to sign any document that gives them access to needed cash.

    The Consumer Financial Protection Bureau mandates amounts that credit card companies are allowed to charge for credit card accounts over the credit limit. The first time a balance exceeds a given credit limit, a charge of up to $25 may be applied. The second time a balance exceeds the credit limit within a six-month period, a charge of up to $35 may be applied. The charge applied may not exceed the amount the account is over the limit.

    Individuals who have agreed to accept fees for exceeding credit limits have the right to change this at any time by notifying the lender in writing. This does not apply to transactions made before opting out of over-limit fees. Also, the lender is more likely to refuse transactions that take an account over the credit limit after a borrower has opted out.


  • How do balance transfers affect my credit score?
    A:

    A balance transfer can be a good way to pay down credit card debt. But, depending on several factors, balance transfers can either help your credit score or hurt it.

    By initially applying for several different cards with low introductory rates, you can negatively affect your credit. Fifteen percent of your credit score is based on the length of time your credit accounts have been open. The longer you have your accounts, the better your score. By opening several new accounts, you bring down the average age of all your credit accounts, thereby hurting your credit.

    Every time you apply for credit, a hard inquiry is made on your credit report. Each hard inquiry has the potential to lower your score by 35 points. If you apply for five different cards, you could lower your credit score by up to 175 points. To keep the negative effect on your credit at minimum through the application process, do your research and only apply for one card.

    After transferring a balance to a new card, keep the old account open. Why? Because closing an account can negatively affect your credit score. By keeping existing accounts open, your average account age remains high.

    If possible, find a card with a credit limit much higher than the amount you need to transfer. Exhausting your credit limit increases your credit utilization ratio (your debt as a percentage of your available funds), which accounts for 30% of your score. Conversely, if you increase the amount of credit available to you, the money owed becomes a smaller percentage of the whole – you are less "maxed out" – and your credit utilization ratio goes down.

    In the long run, balance transfers can improve your credit score if the transfer makes it easier and faster to pay down your outstanding debt. Of course, you will make those payments on time – a crucial part of maintaining a good credit score; doing so will burnish your credit history, too.