To dig out of debt, create a plan with a debt payoff calculator

Whether you’re carrying one big credit card balance or have multiple cards and loans dragging down your finances, reducing your debt is one of the smartest money moves you can make.

But where to start? If you have just one debt, it may seem obvious how to pay it down. But how long will it take? Or put another way, how much faster could you pay it off if you made extra payments?

When you have multiple debts, it gets even trickier to figure out the best path forward. Which debts should you pay down first? How much extra should you commit each month? When can you expect to retire each debt?

Fortunately, you don’t need to rack your brain with complicated math or spreadsheets to create a personalized plan. All you need is a debt payoff calculator.

These free tools exist in abundance on the internet, and they all work essentially the same: By crunching the numbers of your debt details, plus how much money you can commit to debt reduction each month, the calculator will create a personalized plan of how much to pay, to whom, and in what order.

Even more gratifying is the calculator’s ability to tell you the date each debt will be paid off if you follow the plan. Alternatively, some calculators let you start with a pay-off goal date and then calculate how much you’ll need to pay down every month to reach that goal.

To get started, simply gather your details on debt balances, minimum payments, and interest rates. After entering these into the calculator, you can play around with different monthly payment amounts and goal dates, as well as choose a debt reduction method (debt snowball vs. debt avalanche) to identify your best path forward to a stronger financial future.

The smart ways to consolidate your credit card debt

Almost anyone carrying multiple credit card balances is a good candidate for debt consolidation, which will make repayment easier and less expensive, helping you get out from under the burden of debt more quickly and in better financial shape when you get there.

The two best ways to consolidate card debts are with a no-interest balance transfer card or with a personal loan. If your credit score is good, you’ll probably qualify for a balance transfer card offering 0% interest for 12, 15, or 18 months. If you’re currently paying 18%, 20%, or more on your card balances, it’s easy to see that moving to 0% will deliver significant savings.

What’s important to assess is whether the 0% time period you’re offered is sufficient for you to pay off the balance you transfer. That’s because any transferred balance not fully paid off when the promo period ends will be assessed an interest rate usually above 20%, and it will be retroactive to the initial date of the transfer.

If the length of repayment from a balance transfer card is insufficient for the debts you want to transfer, the next best option is a personal loan. These can be obtained with worse credit, though the better your score, the more attractive the APR you’ll be offered.

Personal loans also allow you to consolidate more than just credit card debts. How you spend money from a personal loan is up to you, so rolling in an auto loan, large medical bill, or other debt is possible.

A personal loan will also establish a clear end in sight, but with terms that are usually 2-5 years. So with this method, you can determine at the outset what your fixed monthly payment will be and the exact date you’ll have paid off the balance.

What is the FAFSA, and when do I file it?

In addition to buying a house or car, paying for a child’s college education is among the biggest expenses many Americans incur in their lifetime. Fortunately, many families don’t have to fund it all themselves.

How much your child’s degree will ultimately cost depends on many factors, especially where they choose to go to school, how much your family income is, and what your assets are. But all roads to that calculation start at the same square one, and it’s called the FAFSA.

The Free Application for Federal Student Aid (FAFSA) is a standardized form used by the federal government, as well as many states and universities, to determine your family’s capacity to pay for your child’s education, and by extension, how much assistance you’re eligible to receive.

Virtually every student should submit a FAFSA, even if you think you make too much money to qualify for aid. That’s because the FAFSA doesn’t just target grants, but also your eligibility for low-interest federal student loans, which are available to almost everyone and are a much better deal than private student loans.

It’s critical to be aware of the FAFSA’s timing. First, know that you’ll need to file it ahead of every year your student will attend college. Second, the filing window opens October 1 of the prior year. So for a student starting college in the fall of 2024, you would file their first FAFSA as early as Oct. 1, 2024.

Filing as close to October 1 as possible is important, as many colleges dole out aid on a first come, first served basis, using students’ FAFSA filing date as their position in the queue. Also, some states have their own deadlines, so you’ll want to make sure you file in time to be considered by your state as well.

Why paying off your car loan early isn’t always a good idea

We’ve all heard it countless times: paying off debt is one of the wisest financial goals you can set. But while paying off your car or truck loan early may indeed be a smart move, it isn’t the best choice 100% of the time.

For one, the shorter your loan term, the less likely it will bring much benefit. If you financed your vehicle for just 3 years, you’ll probably gain little by retiring it early, since you already capitalized on lower interest rates by choosing a shorter term.

You’ll also want to check whether your loan carries a prepayment penalty, or if it involves precomputed interest. In contrast to simple interest, precomputed interest means paying the loan off early won’t reduce your ultimate interest expense.

If you’re clear on these are issues, paying off your loan early will reduce your total cost, which is always a good thing. In addition, it will free up money in your budget for other uses, will make it easier to sell or trade-in your vehicle, and if you’ll soon be applying for a mortgage, will helpfully lower your debt-to-income ratio.

On the other hand, keeping the loan can be great for your credit score, as it adds diversity to your credit profile and provides an opportunity to build your track record of on-time payments.

It’s also sensible to instead pay off any debts with a higher interest rate than your car loan. Credit card debt and personal loans are almost always a better use of your debt reduction dollars than a vehicle loan.

Lasty, if paying off your car or truck early leaves you with less cushion to weather unexpected expenses each month, or prevents you from establishing an adequate emergency fund, it’s smarter to fund that financial security first.

How to earn more from your credit card than it earns from you

The credit card industry generates billions of dollars every year, based on fees and interest paid by many of its cardholders. But unlike most products, you can enjoy the benefits of a credit card for free. Even better, you can come out ahead.

The first step is to avoid incurring interest on your transactions, by paying your full balance every month. When you don’t, the amount you carry over to the next month is charged an interest rate that is almost always in the double digits.

Second, make sure those full payments are always made on time. If you miss the due date by more than a day or two, not only might you trigger an interest fee, but you’re likely to be charged a late fee as well, creating a double cost whammy.

You’ll also want to avoid annual costs. You can do this by only choosing “no annual fee” cards, or if you already have a card with a fee, you can call the issuer to request they waive it or move you to a no-fee card.

Diligently avoiding all of these costs will lead you to a beneficial card relationship, where you have credit access for a month at a time and pay nothing in exchange. But you can do even better by both avoiding all fees and earning rewards on your card activity.

To do this, choose a card that offers cash, points, or travel awards that you find useful. Cash can be the best choice because you can redeem it frequently and apply it to anything in your budget. Additionally, look for sign-up bonuses when shopping for a new card.

When you can earn rewards and simultaneously avoid fees, you’ve succeeded in making your credit card more lucrative for you than for the card issuer.

Smart money-saving moves before applying for that auto loan

If you need to buy a vehicle and don’t have ample savings to buy it outright, you’ll need financing. Fortunately, there are steps you can take beforehand to improve the auto loan rate you can get.

The first step before making any expensive major purchase is to decide ahead of time how much you can afford to spend. Deciding this based on the state of your finances, rather than the vehicle you’d like to own, is smart move number one.

Next, you’ll want to inspect your credit report and score. The higher your score, the lower the interest rates lenders will offer you. So it’s worth spending time on this well ahead of car shopping. If you see errors on your report, you can request they be corrected or removed, which may raise your score.

If you can swing it, it’s also wise to pay down balances on other loans or credit cards before applying for the new auto loan. How much debt you currently hold, as compared to your income, is an important determinant of your credit score, so the smaller your total debt, the better auto loan terms you’ll be offered.

Once you feel your credit report and score are as boosted as you can manage before needing to buy a vehicle, it’s equally critical to diligently shop around. Auto loan rates vary wildly across lenders, but researching them is not difficult online. Oftentimes, credit unions offer the lowest rates, but you may unearth a better rate from a bank or an online lender.

It’s true this homework will take you a little bit of time. But maximizing your credit score and then choosing the best rate from a number of options can save you hundreds or even thousands of dollars for just a few hours’ work.

Where to look for the best personal loan

Personal loans have become increasingly available to those in need of extra cash. But if you’ve never used one, you may wonder where to find the best options.

Of course, it’s best to question whether a personal loan is a good idea at all. They can be smart when they allow you to pay off existing debt at a lower cost. For instance, consolidating multiple card balances into one personal loan with a lower rate is wise.

Less wise is using a personal loan for something discretionary, like a big vacation, or a more lavish wedding than you can afford. Though rates on personal loans are often lower than credit cards, they can still be hefty, and using a personal loan to spend more than your budget can handle could land you in a cycle of debt.

If you decide a personal loan is indeed smart or necessary for your situation, one of the first places to look is online. Personal loans from online lenders have the advantage of being simple and quick. But be wary of the offered rates, as some are quite high.

It’s useful to compare what you find online with what banks and credit unions are offering. The bank you already use is a good place to look, as they may offer better rates to existing customers. And the rates on bank loans tend to be competitive for those with good credit.

Credit unions also offer some of the best rates, and can be particularly competitive for those with less than stellar credit. You’ll need to be a member of the credit union, but joining is often fast and simple.

The bottom line, as usual, is that it’s important to do your homework comparing the rates and terms available from a variety of lenders.

What is the loan-to-value ratio?

For lenders, extending mortgages is a risk calculus. The riskier it seems that a homebuyer will repay their mortgage in a timely manner, the higher the rate the bank will offer. Meanwhile, for applicants appearing to be safer bets, banks extend more attractive terms.

One of the top-level measures lenders use to determine the risk factor of any applicant is the loan-to-value ratio. This calculation determines what share of the home’s value will be mortgaged, by dividing the requested loan amount by the home’s appraised value.

Take the example of a home appraised at $250,000. If you make a $25,000 down payment, the requested mortgage will be $225,000. Divide that by the $250,000 appraised value and you get a loan-to-value ratio, or LTV, of 90%. If instead you put down $50,000, the mortgage drops to $200,000 and with it, the LTV to 80%.

Lower LTV ratios will garner better rates, within certain tiers. For instance, 80% is the standard threshold at which almost all lenders will offer a lower APY. That’s not to say you can’t get a mortgage with a 90% or higher loan-to-value. FHA loans, for instance, are generally only provided for LTVs of at least 90%.

But while 80% is a worthy goal for any homebuyer aiming to get their best deal, dropping the ratio even lower can earn you still better rates. Most lenders will lower their rates at every 5% or 10% LTV mark, so putting enough money down to achieve a 75% or 70% loan-to-value ratio will reward you with a lower APY. There is a limit, though, with lenders typically stopping the rate drops after reaching a 60% LTV.

Once you know the home’s appraised value, understanding loan-to-value ratios enables you to target your down payment to secure the best mortgage rate available.

The financial wisdom of never-ending car payments

If you’re approaching the end of an auto loan, you’re likely excited to soon be free of that monthly payment, and may even be dreaming about how you’ll spend the newly freed-up cash.

But instead of daydreaming about what you’ll buy with your seeming monthly windfall, consider another possibility, one that will serve you much better financially in just a few short years.

Since you’re already in the habit of that monthly withdrawal going to your auto loan, a smart idea is to just keep that payment going. But instead of paying it to a lender, you’ll pay it to yourself. Or more specifically, to your future self who will want a new car or truck in a handful of years.

By keeping your existing vehicle for another 2, 3, or 5 years after the loan is paid off (or for however long you can), but continuing to take the auto payment amount out of your checking and moving it to a savings account earmarked for your future car, you could have the good fortune of buying your next car with no loan at all.

Even if you don’t accumulate enough to pay for your next vehicle in full, you’ll be able to borrow a smaller amount, or take a shorter term with a better interest rate — or both, for even more of a financial win.

Think of it just like a constant line item in your budget: X dollars every month for a vehicle. Whether you have no loan and can stash all of these funds away for your next car, or you have a smaller loan payment and can apply the surplus to pay your loan off earlier, you’ll be giving your future self, rather than a bank, the gift of a richer financial future.

Is your debt too much? Watch for these red flags.

Most Americans have some amount of debt, but there are manageable amounts and then there’s too much. Watch for these warning signs that you might have gotten in a little too deep.

First, there’s the mathematical approach, called the debt-to-income ratio. To calculate it, add up your total debt payments each month and divide that by your gross monthly income. This indicates the percentage of your income that’s going to debt and it’s best to keep the number below 36%. If your percentage is above 40%, it’s a sign you’re overextended.

Then there are the credit indicators. Are all of your credit cards maxed out? Do you pay only the minimum payment each month? Were you rejected the last time you applied for a new card? Any one of these is a red flag, and all three together means your use of credit is significantly harming your financial health.

Lastly, there are psychological and behavioral tip-offs. If someone asked how much debt you have, would you know? Having no idea of the ballpark amount of your total debts is not only a sign you aren’t focused on reducing it, but also that you may be afraid to know the answer.

Similarly, if you don’t look at your bills, perhaps not even opening them, that’s another signal that you're avoiding instead of facing your financial problems.

Lying about your finances to others, either falsely indicating positives or hiding embarrassing negatives, also indicates that you know you’re in financial trouble, whether you like to admit it or not.

Fortunately, debt problems are solvable. First, plan a course of action. Second, stick to the plan. Third, enjoy your milestones along the way. And fourth, accept that while it will take some time, you can eventuallbe free of most or all of your debt.

What’s the catch on Buy Now, Pay Later?

Anyone shopping online in the last few years has likely noticed the explosion of Buy Now, Pay Later options for completing their purchase. The pay-in-installments offer has now spread widely to in-store shopping as well, enabling consumers to buy almost anything with just a down payment.

The Buy Now, Pay Later model originated in Australia and Scandinavia, and landed on U.S. shores around 2015. But it really picked up steam during the pandemic, when online shopping for just about everything reached a fever pitch.

There are a number of BNPL providers, such as Affirm, Afterpay, and Klarna, and almost all of them offer a simple “pay in four” model that is interest-free. The way it works is that you pay one-quarter of the purchase price immediately, and then you’re charged three equal installments, one every two weeks. You can have the installment payments charged to your bank account, debit card, or credit card.

So if these offers are interest-free, how do BNPL companies make money? Primarily, they generate revenue from the merchants themselves. Just like credit cards charge stores a small percentage of every purchase made with their card, BNPL providers charge the merchants a percentage as well, though the fee is much higher than for credit cards.

In addition, many BNPL providers charge fees if you miss a payment or make it late. Many also offer longer-term financing options, with monthly payments over 6 months, 1 year, etc. These longer installment plans do charge interest, and it can be hefty.

Since it’s possible to use BNPL and pay no interest or fees at all, the biggest catch to consumers may be how tempting BNPL makes it to overspend, both by viewing purchases as less expensive than they ultimately are and by accumulating multiple BNPL debts at a time.

Will closing a credit card help or hurt my credit score?

By Sabrina Karl

Regularly paying attention to your credit score is a smart move for anyone wanting to maximize their finances. Because higher scores will lead to lower interest rate offers on mortgages, loans, and credit cards, as well as potentially cheaper insurance premiums, working to incrementally raise your score is a worthy endeavor.

One of the first ideas many people have when considering how to boost their score is to close a credit card. While it may seem like reducing your existing access to credit will look good to future creditors, they actually look more favorably on those who have credit available that they’ve refrained from using.

That’s why one of the top three factors impacting your score is your credit utilization rate. This calculation indicates how much of your available credit you’re currently using. Someone who is maxed to their credit limit on every card would have a credit utilization rate of 100%, while someone who barely uses their cards would have a rate close to 0%. To earn the highest credit scores, you’ll want to use less than 10% of your total combined credit limits.

When you have a card you aren’t using, its limit counts toward your total credit available, yet with no balance on the card, your utilization rate on that account is 0%. Keeping it open therefore helps bring your overall credit utilization factor down. Conversely, closing the card would drop your total credit limit, which will in turn increase your utilization ratio and lower your score.

If you opt to keep a card open but unused, make sure you aren’t paying an annual fee (and if you are, call the card issuer to negotiate a waiver). You may also need to use it for a transaction once every year or two to keep the account active.

Why is my lender seeing a different credit score than I see?

By Sabrina Karl

One of the excellent personal finance developments of the past decade is the easy access consumers now have to their credit reports and scores. While in the past, you needed to request a paper copy of your report and it didn’t show your score, the internet and financial apps now make it easy to see your credit score at a moment’s notice.

But with this new information can come some confusion if you apply for a loan. Namely, you may think your score is one number, but then find your lender is making their decision based on some other credit score. What gives?

It’s a common misconception that we all have one or maybe two scores assigned to us. But in truth, you could have as many as a dozen or more different scores. One underlying reason is that there are three credit scoring agencies in the U.S. Whether your lender pulls from Equifax, Experian, or TransUnion, they will get slightly different scores.

Additionally, some lenders draw a consolidated score that combines all three agency scores into a single number. Still other lenders use the data from these agencies but feed it into an in-house scoring formula.

Another reason is that different lender types prefer different formulas. For instance, mortgage lenders will choose a scoring model tailored to predicting mortgage default risk while auto lenders and credit card companies prefer a slightly different weighting of factors.

Your lender may also be using a more updated score than you saw, if it’s been some time since you last checked.

In any case, almost every scoring model gives the most weight to your on-time payment history, with the next two most important factors being how much debt you hold compared to your limits and how long you’ve had a credit history.

The 6 factors that can boost (or hurt) your credit score

By Sabrina Karl

Anytime you apply for a loan, a new credit card, or even an insurance policy, having a higher credit score will save you money by earning you a lower interest rate, better perks, or a cheaper premium.

So how can you boost your score? The No. 1 step is to understand the factors your score measures, because if you don’t know the rules of the game, you can’t play to win.

Six main factors are incorporated into your credit score and three are the most important. The first is your track record of payments. Whether or not you paid all of your minimum monthly payments on time is recorded each month, and a rating is then assigned for your on-time record.

Also highly important is how much of your available credit you’re using. Maxing out all of your credit cards means your credit utilization rate will be high, leading to a lower score, while using less than your available credit will raise your score.

Rounding out the top three critical factors is the presence of any derogatory marks, such as accounts sent to collections, a bankruptcy, property liens, or a foreclosure. These black marks have a significant negative impact and remain on your report for many years.

After the Top 3, the factor carrying the most weight is the age of your credit history. The longer your history, the higher your score. This is why young adults take some time to build up their score, and why it’s smart to keep your oldest credit card open.

Lastly, having numerous different account types on your record (e.g., credit cards vs. a car loan) can help your score, while applying for credit multiple times in the past year can reduce your score, though these factors have less impact than the others.

What’s the difference between a hard and soft credit check?

By Sabrina Karl

Checking your credit report has never been easier. But as Americans begin to review this information more regularly, questions pop up about what they see there, and a common surprise is that the mere application for credit can ding your score.

Credit inquiries come in two flavors: hard pulls and soft pulls. Only hard inquiries are recorded in your report, and are therefore the only ones you need to worry about. They’re generally performed by financial institutions when you request credit, such as applying for a mortgage, any type of loan (auto, student, personal), or a credit card. Applying to rent an apartment can also appear as a hard pull.

A single hard inquiry on your report will typically have little to no impact. Though they stay on your report for two years, their impact fades over time, and having only one is generally considered negligible.

But an issue arises if you apply for credit multiple times within a short period, such as applying for multiple credit cards at once, or applying for a card close to the same time as applying for a loan. Accumulating multiple hard checks signals that you might be a higher credit risk, and your score could drop as a result.

Meanwhile, other companies are checking your report, too. But since they aren’t extending credit, their checks are classified as soft inquiries, which don’t show up on your report or affect your score. Soft inquiries are most commonly made by credit card companies looking to extend a card offer, insurance companies preparing a quote, or even a prospective employer or someone running a background check.

If you’re ever unsure if an application you’re submitting will trigger a hard pull, simply ask the company involved to indicate the type of inquiry they’ll be making.

The cost of auto loans in this rising rate environment

By Sabrina Karl

When the Federal Reserve increases interest rates, one of the most direct impacts is short-term consumer debt getting more expensive. That means the rate Americans pay on auto loans and credit cards goes up.

To fight white-hot inflation not seen in this country in decades, the Fed is currently on a dramatic rate-increasing path. After dropping the federal funds rate to zero at the outset of the pandemic and keeping it there the rest of 2020 and all of 2021, the Fed has this year implemented six rate hikes, including four consecutive increases by a large 0.75% increment.

So where does that leave auto loan rates? The Federal Reserve has been tracking national rates for 60-month new vehicle loans since 2006, when they averaged in the high 7% range. Today’s rates are not historical highs by that measure. But the most recent data show an average at its highest level in more than a decade.

From mid 2012 until the end of 2018, the 60-month new vehicle rate has averaged in the 4% range, dipping as low as 4.05% one quarter each in 2015 and 2016.

Leading up to the pandemic, the average climbed to 5.37%, but then dropped back down to 4.80% by the end of 2020. It then bobbed around in that high 4% to low 5% range for more than a year.

When 2022 started, the average hit a decade low of 4.52% in the first quarter. But with this year’s numerous rate hikes, which began in March, the average has been marching higher.

The Fed’s latest reading (2022 Q3) shows an average rate that has shot up to 5.50%. That’s its most expensive level in 11 years.

The Fed anticipates making multiple additional rate hikes into 2023, with the next announcement coming on Dec. 14.

Free credit reports still available weekly instead of yearly

By Sabrina Karl

As with many things, rules about credit reports have changed notably since the Covid-19 pandemic. Fortunately for consumers, some of these will remain in place for quite some time.

Free copies of your credit report have long been available. But pre-pandemic, free reports were limited to just one per year, with the official website for requesting copies being aptly named AnnualCreditReport.com.

Credit-conscious consumers know that one hack was to request a free annual copy from each of the three credit agencies at staggered times. So for instance, you could request one report every four months by cycling through Equifax, Experian, and TransUnion in turn.

But now that’s no longer necessary. After the pandemic upended the personal finances of millions of Americans, the three credit agencies announced they would allow access to free credit reports once per week.

In May 2022, they extended the availability of free weekly reports through December 2022, and last month, they extended it again, this time through December 2023.

Checking your credit report with some regularity is important because it enables you to spot errors that might be hurting your credit score, or worse, discover that you’ve been a victim of identity theft. That’s because a credit report will show you all the cards and loans open in your name, including any that were opened fraudulently.

Reporting mistakes can also hurt your score, particularly if they incorrectly indicate late payments. As with identity theft, the sooner you spot an issue and dispute or report it, the better.

With your credit score impacting how much you’ll pay to borrow money and buy insurance, as well as perhaps whether you’ll be offered a loan, a job, or a rental lease, keeping tabs on your credit report is a critical step to building and maintaining your financial health.

Tips for boosting your credit score fast

By Sabrina Karl

Good credit is important to your financial health. Those with good scores get better offers on mortgage, auto, and credit card rates. It can also affect how much you pay for insurance, or affect your ability to rent.

By design, credit scores take a long view backwards. So it’s not realistic to imagine boosting your score 100 or 150 points in a couple of months. But if you’ll be applying for a loan or credit in the near future and want to quickly boost your score 10, 20, or even 50 points, some score-improving strategies do work faster than others.

First, commit to not missing any payment due dates in the future, as this is the number one factor calculated in your score. Though your on-time payment history tracks back for years, there’s no better time than the present to eliminate late payments from your report.

Second, request your free credit report from all three agencies and read through each one, noting anything you see that appears incorrect. If you find errors, dispute them with that agency, as removing a negative mark from your report can immediately improve a score.

Third, lowering your credit utilization rate can quickly impact on your score. Do this by reducing your debts, increasing your available credit, or both. Paying down debt balances is always beneficial, because the less you owe, the higher your score.

Next, if you’re able to resist maxing out any new credit, ask one or more of your existing credit cards for a credit limit increase. When your limit goes up, but you don’t use it, your score also improves.

Ultimately, improving your credit score is a longer-term project than something you do for a couple of months. But when time is tight, these strategies will give you a quick start.

You can refinance federal student loans, but should you?

By Sabrina Karl

Just like a mortgage, student loans can indeed be refinanced. But just because something  can be done, doesn’t mean it’s always a good idea to do it.

President Biden’s recent announcement of pandemic-related student loan forgiveness highlights one of the pitfalls with refinancing, because benefits like this only ever apply to federal student loans.

Student loans can only be refinanced with private lenders; the federal government does not offer refinancing. That means refinancing will erase your eligibility for the benefits and options that come with federal loans. For instance, the federal program offers different repayment plans linked to your income, enabling payments to be capped for lower earners.

Federal loans also offer options for requesting deferment and forbearance in certain circumstances, and the government waits longer than private lenders to report your loan as delinquent or in default. Also notable is the loan forgiveness program for those who have made payments and worked in public service for at least 10 years.

Then come benefits that are hard to foresee, like two big ones triggered by the pandemic. First, the federal government suspended student loan payments and interest through the end of 2022. Second, they announced last week that up to $10,000 in loan balances will be forgiven. Both of these benefits are only available on federal student loans; they do not apply to private loans.

Of course, if it’s a private student loan you’re considering refinancing, there is little downside of moving from one private lender to another (assuming you’re getting a new, lower rate), as you will not be giving up federal benefits on that loan.

But for existing federal student loans, it’s critical that you carefully consider the benefits you know you’ll be giving up, as well as considering the possibility that new future benefits could be offered.

Smart reasons for your teen to get a credit card

By Sabrina Karl

Anyone paying attention to personal finance advice knows that credit card debt is to be strongly avoided. Still, there are good reasons to help your teen get their first credit card.

In particular, it’s helpful for starting their credit score off on a strong foot, while also letting you help them learn responsible card habits before making credit mistakes.

By law, you must be 18 or older to open a credit card on your own. But it’s smart to help your teen start sooner than that, by adding them as an authorized user on one of your cards that has a long on-time payment history.

Being an authorized user entitles them to receive a card in their name and use it just like you would, with their purchases being added to your account. You will still be the one responsible for payments.

Ideally, you would teach them how to review this account online and how you make payments, so they’ll know how to do this themselves one day. And if you’re holding them responsible for their own purchases, you can require they pay you their share by a due date each month, to instill the habit of paying every month, on time, and in full.

Besides helping them learn smart card habits while you can still supervise, making a teen an authorized user also starts their credit history early. This is useful because one of the major components of a credit score is length of credit history—longer histories lead to better scores. Someone with a record beginning at 15 has a score advantage over someone whose credit history doesn’t begin for another three years.

Again, however, it’s critical that the credit history they’re building is positive, so always keep the account on which they are authorized current with on-time payments.