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My Ditched Debt Story: My Shiny Nickels

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My Ditched Debt Story: My shiny nickels

Written by Anna Helhoski Senior Writer | Financial news, consumer finance trends as well as loans for college students loan credit Anna Helhoski is a senior writer who writes about economic news and trends in consumer finance at NerdWallet. Additionally, she is an authority on student loans. She joined NerdWallet in 2014. Her work has been featured throughout The Associated Press, The New York Times, The Washington Post and USA Today. She previously covered local news in The New York metro area for The Daily Voice, Daily Voice and New York state politics for The Legislative Gazette. She has a bachelor's degree in journalistic studies from Purchase College, State University of New York.

Published Apr 4, 2017 at 6:00AM PDT

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The series talks to those who have beaten debt by combining commitment, budgeting and smart financial choices. Their stories may even encourage you to .

My Shiny Nickels blogger Laura Dobbins and her husband, Randy, on a trip to Paris for a trip they could afford after getting out of debt.

In 2011, Sacramento, California-based IT manager Laura Dobbins, her husband and kids lived in an elegant home, complete with all the luxuries of wealthbut their finances revealed a different picture. They were in nearly $40,000 of debt and had charged so much on their credit card accounts that Dobbins was unable to pay for the cost of a plane ticket to a business trip.

She realized that they need to change their lifestyle. Dobbins and her husband, Randy, began saving instead of spending money and taking care of their debts. They even downsized their home and within less than two years, they had become debt-free. She now provides money-saving tips and details her debt payoff techniques on her blog . Here's their story.

How much was the total amount of debt you owed before you started your repayment process?

Laura Dobbins: 2011: $39,685 total which includes $17,000 in credit card debt, $15,000 of auto loan debt and $8,000 of personal loan debt.

What is your total debt today?

In 2013, became debt-free. In 2013, still no debt.

How did you end up in credit?

Ironically, it started in the year that I received my first major promotion and pay raise. This doesn't sound like logical thinking from the outside, but do you make more money, and then you're in debt? While it might sound strange it's "yes." Then we had all of this extra money, and even though we lived in a perfectly sufficient house in a beautiful middle-class neighborhood, we opted to use the extra money towards a bigger and better home in a more upscale neighborhood. With that came the "need" for more furniture and a professionally-designed new backyard and an SUV just like the neighbors had, a gardener, and ... well, you get the idea. Instead of actually being wealthy, we were financing the design of it. Every month. Debt was spiraling downwards. started.

What was the trigger that led you to begin a process to pay off your the debt?

The realization that I couldn't get the $400 plane ticket for a business trip that was coming up. For a long time, we had paid down the credit card to a point to have some available credit for things that came up. This pattern came to a halt the day my boss told me to travel into St Louis for work. I went to our credit card account to find we only had $90 in available credit (and an additional $52 on the checking account). We'd managed to hide our financial status from the world for a really long time, and then it was bubbling up to the surface. And it was terrifying.

What steps did you take to reduce your debt? What were the resources or services you use?

We realized that the first thing we needed to get rid of was the cycle of having debt "rescue" our. So before we paid down the debt we owed, we put up a $1,000 emergency fund.

We were aware that to pay down our mountain of debt in the shortest time, we needed to free up more money. This was not the moment to relax and give a mere $50 to our debt each month. This was an "hair's-on-fire and we needed to call the firemen" economic crisis so we made a big move. Literally. We sold the huge house in the suburbs, and then moved to a small 1,000 square feet home in a neighborhood that is primarily working class. This alone helped us save more than $2,500 per month. (I'll run the numbers to show you the savings: that's a savings of nearly $30,000 annually.)

We also began eating out less often and found more affordable ways to have fun as the family. With the extra cash each month, we paid off the balance using the "snowball method." We began with our lowest account balance on a credit card of $1500 to get a quick, psychological victory right away. We then paid the other debts from the smallest to largest. As we paid each debt off, the amount that used to go toward paying off those monthly bills was applied to the next debt on our list. The "snowball" of money which was going to the debt each month increased like crazy.

What has changed in your life in a positive way after you have gotten out of credit?

We're happy. Truly, wonderfully, down-in-your-soul happy. When the debt was gone and our home costs were at a low level that we had enough money to invest in things that mattered the most. Turns out the huge home in the suburbs did not make us happy however, traveling around the world does. We have saved a significant portion of our money and have enough to splurge on the things that matter.

A several many years back, my husband hated his toxic management job. With the money we'd saved up, we bought our first business -- the one of his long-term dreams. The business was sold to him and is now his own boss , and he loves it.

The freedom from debt offers you more than just an euphoria of freedom It opens up possibilities you've never imagined.

How do you approach your debts and begin paying it off

The method Dobbins recommends is the best option for people who require small victories as motivation to repay larger debts. However, the method, in which you prioritize paying off high-interest debts such as credit cards and payday loans before lower-interest ones like student, mortgage and auto loans can aid in paying down your debt more quickly and lower the cost of interest. This will show you how long it'll be to eliminate one debt at a time.

To make it easier to manage your debt payments You should think about debt consolidation which rolls several debts into a single one that has a lower interest rate. Two options for debt consolidation are a and a . Use a to estimate your interest rate.

Anna Helhoski is a staff writer at NerdWallet, a personal finance website. Email: . Twitter: .

About the author: Anna Helhoski is a writer and is NerdWallet's chief authority regarding student loans. Her work has appeared in The Associated Press, The New York Times, The Washington Post and USA Today.

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Advertiser disclosure You're our first priority. Every time. We believe everyone should be able to make financial decisions with confidence. While our website doesn't feature every company or financial product in the marketplace We're pleased that the advice we provide as well as the advice we provide and the tools we develop are impartial, independent simple, and free. How do we earn money? Our partners compensate us. This may influence which products we review and write about (and the way they appear on the website) However, it doesn't affect our recommendations or advice that are based on thousands of hours of study. Our partners are not able to pay us to guarantee favorable reviews of their products or services. .

Paying bills can be a grind for 43 percent of Americans, CFPB Finds

By Jeanne Lee Jeanne is a former writer at NerdWallet who focuses on debt, credit and loans. She has written about financial issues for more than 20 years, and has also worked with Fortune as well as Money magazines.

Published on September 27, 2017 at 2:26 PM PDT

Editor: Des Toups Lead Assigning Editor | Student loans, repaying college debt, paying tuition for colleges Des Toups is a former director of assigning editors who helped students with their loans and auto loans teams. He has decades of expertise in the field of personal finance journalism, covering everything from auto insurance to bankruptcy, couponing and side hustles.

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More than 40 percent of U.S. adults struggle to get by according to a new report by the Consumer Financial Protection Bureau.

It discovered that the financial health of U.S. adults varies widely, with savings being the best indicator of wellness in addition to earnings or education. The people who were able to deal with emergency situations were in top health.

The agency conducted a huge national survey to gauge the state of financial well-being. A concept it defined as:

feeling confident about finances

being able to absorb the financial shocks

being on track toward financial goals, and

feeling free to make choices that allow enjoyment of life

Monitor your spending categories

See what you've spent across your accounts, the bills you're likely to pay, and how much you're close to saving.

The survey, which was conducted in late 2016, was conducted in the latter half of 2016, and asked Americans about their incomes, savings and views on money. The results, according to the Financial Well-Being in America report revealed that 43 percent of respondents struggled pay their bills, and 34% had experienced money problems in the past year, including having food shortages or being unable to afford medical care.

A score for the financial health of consumers

The survey respondents also received the "financial health score" between 0 and 100. The average rating was 53.

The report noted that around one-third of respondents scored between 51 and 60, another third scored higher than the range, and the rest were less than that.

Scores of 50 or less had a higher chance of having a difficult time, whereas those with scores of over 61 are more likely to be able to make ends meet.

Age-related disparities have been found. Seniors aged 65 and over were the top performers approximately 10 points more than young adults in the 18-to-34 group, who scored the worst.

>>MORE:

The safety net of a security system is vital.

The CFPB conclusions show that having a safety net of savings has a powerful impact on the stability of financial markets. Adults with less than $250 of savings had average scores of 41. However, those who had savings of more than $5,000 scored well above average.

The amount of the respondent's financial cushion, the CFPB said is the best measure of wellbeing, more than education or income.

For most people, the cushion for financial security begins with these basic elements:

Even as little as $250 at the bank could prevent you from entering the debt of each unexpected expense.

It'll be easier to fuel your emergency fund if you know the amount of money coming in and you have an idea of where it'll go.

Select a plan of action that can assist you in making a dent in the amount you owe. As you pay less to creditors, you will be able to put more of your money towards building an investment plan for your future financial security.

After you've completed those three steps, you'll be in a position to establish more long-term goals like saving for retirement.

Factors affecting financial well-being

Here are some of the factors which significantly enhanced the financial health for individuals, the CFPB discovered:

Having a savings cushion

Having financial know-how

You feel confident in your finances

Regularly saving money

In contrast, these events have strong negative implications for financial health:

Having been denied credit

Have you ever used payday loans, pawn loans or auto title loans

After being approached by the debt collector

The study did not find any differences in financial wellbeing due to gender or location. There were only slight differences due to belonging to a certain racial or ethnic group, with whites who are not Hispanic reporting greater financial health over the other groups.

More information from NerdWallet

About the author: Jeanne Lee is former personal finance writer for NerdWallet. She previously wrote in Fortune and Money magazines.

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4 minutes read. Published March 22, 2023

Authored by Rebecca Betterton Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the details of using loans to buy the car they want.

Editor: Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to take control of their finances by providing clear, well-researched information that break down complex subjects into bite-sized pieces.

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who ensure everything we publish is objective, accurate and trustworthy. The loans journalists and editors focus on the areas that consumers are concerned about the most -- different types of lending options and the most competitive rates, the best lenders, the best ways to pay off debt , and more -- so you'll be able to feel secure when investing your money.

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There are money-related questions. Bankrate has answers. Our experts have been helping you master your money for over four years. We continually strive to provide consumers with the expert advice and tools needed to be successful throughout their financial journey. Bankrate follows a strict , so you can trust that our content is truthful and reliable. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content we create by our editorial team is objective, factual and uninfluenced through our sponsors. We're honest regarding how we're able to bring quality information, competitive rates and helpful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and services or when you click on certain links posted on our site. Therefore, this compensation may affect the way, location and in what order items are listed in the event that they are not permitted by law. We also offer mortgage home equity, mortgage and other home loan products. Other factors, like our own rules for our website and whether a product is available in your area or at your own personal credit score may also influence how and where products appear on this website. Although we try to offer a wide range offers, Bankrate does not include details about each financial or credit item or service.

Unfortunately, inflation and its effects are not to go away any time soon. According to Bankrate's Third Quarterly , 43 % of the economists agreed that inflation would be more significant in the next 12-to-18 months. As inflation isn't yet at its hit its peak, now is a good time to plan for its impact -- one being higher interest rates. What does the Fed impacts auto loan rates

The Federal Reserve doesn't directly influence auto loan rates however, it can affect the cost for lenders to borrow funds. A rise within the Fed rate typically means that lenders are quick to follow.

How does inflation affect interest rates? The choices made of the Federal Reserve affect the which will have an impact to the costs of automobile financing. The rates of a driver's loan depend on several variables -- such as a credit history duration, length of the term, vehicle model and morean increase in inflation can mean higher interest rates for drivers even if they have perfect credit. "One one of the Federal Reserve's primary duties is to keep purchasing power in check and they accomplish this through raising interest rates" Explains Sarah Foster, senior U.S. economy reporter for Bankrate. To achieve this goal to achieve this goal, the Fed raised rates again in March, setting the benchmark rate to 4.75-5 percent. This increase meets an already tight car market as supply chain issues are keeping vehicle prices at a high, with an average of $48,300 in August according to . The rising rates of interest make it more expensive to lend money, says Foster. The result is that costs for financing for vehicles dramatically higher than previous years. Since the beginning of 2022 the average interest rate for vehicles have been rising: 1.77 percentage points for 60-month new vehicle loan and 1.78 percentage points to get a 48-month used loan as per a national Bankrate survey of rates. Higher interest rates are just one outcome of the Feds policy to reduce inflation. "Higher cost of borrowing doesn't simply discourage spending, but also squeeze people out of the ability to afford big-ticket items, causing an economic slowdown," Foster says. "The hopes are that, in the end, these increased rates will reduce the market so that inflation eventually drops," Foster says. But that doesn't come with risk "An economy that isn't able to consume often means a recession, which isn't fun for anybody." With all of the above in mind motorists are likely to be greeted with higher rates because the Fed continues to control high inflation. It is now the time to prepare for raising costs. Data taken from Bankrate

8/10/2022 rate for a 30-month new car loan

4.94%

10/12/2022 rate for a 30-month new car loan

5.56%

As you can see, rates have jumped significantly from August in line with the Fed meetings. The increase could be due to the increase in the benchmark rate, as well as the more expensive cars. Keep abreast of changing news and the impact it has on your financial position on . How to get a deal when interest rates are high Although the rate you get is contingent on many factors, including the uncontrollable inflation rate however, there are some moves you can make to made through the Fed. Shop around Most lenders will have higher rates currently, but that doesn't negate the benefits of looking around. and terms from at minimum three lenders in order to determine which one is the best fit for your needs. Be aware of the available APR along with the repayment period. Determine the true cost of ownership. As vehicle prices hit record highs it is crucial to keep an eye on your budget when shopping. Without much wiggle room, it is best to how much you can truly afford before setting out to the dealership. So you can determine what you'll need to borrow in order to purchase your new vehicle. Bankrate tip

Be sure to shop for the full loan amount, not just the monthly payment. While it might be appealing to take out a and less expensive monthly payment but it could be expensive in the long run.

Think about an electric car initial cost is usually higher, but they do carry added benefits outside of the cost of gas. When you apply for a loan and receiving it, you could earn back any money that may be lost due higher interest rates. Lock in expected financing One of the best ways to get a good bargain is to get a loan that will provide you with an accurate idea of what your expected rate will cost. There are a few lenders that offer this step, so look out for it when you shop for a loan. If you are buying a second-hand car, unfortunately new and used cars have higher rates, but used vehicles are a bit lower. If you have any flexibility regarding the kind of car you want, can save you money on the cost of your monthly payments. Refinancing after rates drop One of the most effective occasions to think about the possibility of refinancing your automobile loan can be at a time when interest rates have dropped while your credit has increased. This is a lot like the steps taken in applying for your first loan. Evaluate current loan. Before starting your refinancing journey, it is essential to examine your current loan and the terms and rates. Utilize this information to determine potential monthly savings after you have these figures in your mind. Check your credit. By understanding your you can determine where you land in relation to the lenders you can choose from. If you are looking to refinance -- just like with any other loan the higher your credit, the more affordable your rates will be. Determine the value of your vehicle. Based on the worth of your car refinancing may not be the most efficient financial decision. If you've almost finished paying off your vehicle and are looking to refinance, it's not a good idea to refinance. Explore. at least three different lenders is the key to finding a bargain. A great starting point could be the financial institution, or lender that you first signed off with -- there may be specials for existing customers. However, not all lenders will let to refinance your existing loan. Get new terms. After providing the documentation required and, in certain cases, paying a penalty for prepayment, you will receive your new conditions. When you close the chapter, this procedure, make sure you settle your previous lender. Now might not be the best time to buy although many don't want to wait to purchase a vehicle and patience might be your best option when it comes to making money now. , which likely will rise even higher following the next Fed meeting combined with rising costs for vehicles make this an uneasy time to purchase. It is better to wait until rates drop. Learn more

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Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the ins and outs of securely taking out loans to purchase the car they want.

The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to manage their finances through providing precise, well-researched and researched facts that break down complicated topics into bite-sized pieces.

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Cash Advances Are Still a Pain However, what about the Credit Card Loan? Maybe Less So

Advertiser disclosure You're our first priority. Everytime. We believe that everyone should be able make financial decisions with confidence. While our website does not feature every business or financial product that is available in the marketplace however, we're confident that the guidance we offer as well as the advice we provide and the tools we create are impartial, independent easy to use and cost-free. So how do we earn money? Our partners compensate us. This can influence the products we review and write about (and where they are featured on our website), but it doesn't affect our suggestions or recommendations that are based on thousands of hours of research. Our partners cannot promise us favorable review of their services or products. .

Cash Advances Still Sting, but the Card Loan with a Credit Card Loan? Maybe Less So

Alternatives to borrowing to your credit limitdepending on whether your card provides these features, they can be less expensive than using your card at an ATM to withdraw fast cash.

By Sara Rathner Senior Writer/Spokesperson | Travel rewards, credit cards credit cards, debt repayment Sara Rathner is a NerdWallet expert on credit and travel cards. She has been featured on the "Today" show, as well as CNBC's "Nightly Business Report" and has been featured on The New York Times, The Washington Post, The Wall Street Journal, Yahoo Finance, Time, Reuters, NBC News, Business Insider and MarketWatch. Before becoming a part of NerdWallet, Sara worked at The Motley Fool for nearly 10 years. She also worked as a personal finance writer freelance and paraplanner , and holds a bachelor's education in Journalism from Northwestern University.

Updated Feb 7, 2023 at 6:43 AM PST.

Written by Kenley Young, Assigning Editor Credit cards, credit scores Kenley Young oversees the daily coverage of credit cards for NerdWallet. Previously, he was an editor of the homepage and digital content producer for Fox Sports, and before that , a front page editor at Yahoo. He has years of experience in digital and print media, with stints as a copy desk chief as well as a wire editor, and metro editor for the McClatchy newspapers chain.

The majority or all of the products featured here are from our partners who pay us. This influences which products we review and where and how the product is displayed on a page. However, this does not influence our opinions. Our views are entirely ours. Here's a list of and .

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When you lack the money in the bank account to deal with an unexpected expense A cash advance is one option to quickly access required funds, however there are some serious drawbacks. You'll be responsible to pay cash advances and ATM fees, along with interest that will begin accruing the moment you get the money.

In regards to that interest: According to data from the Federal Reserve of St. Louis, average APRs among cards that charged interest exceeded 20.4% in November 2022. That's pretty high already and, in many cases, interest rates specifically for cash advances are higher than this.

Also, this cash advance will cost you.

However, you might have other, less expensive optionswith credit card loan programs that allow you to take advantage of your existing credit limit -- which is what you're doing when you apply for a traditional cash advance. But unlike a cash advance the newer loan programs offer a number of advantages:

Fixed interest rates for the duration of the loan.

There is no separate loan application or credit check is required.

In many cases, there are no charges, beyond your interest payments (or any possible late payments).

An open procedure that allows you to see what options you'd be qualified for and what the monthly cost of each one would be.

New ways to take advantage of your credit limit to borrow

Of the major lenders among major lenders, each of Chase and Citi offer these types of loans to cardholders who meet the criteria. You can determine if you'd likely have the ability to get by signing into your account online or through the Chase or Citi applications.

My Chase Loan

The card allows you to take out up to 500 dollars. You'll have the option of several payment plans of different terms. For example, you might be able to choose one of the six-month or 12-month plan, potentially at a much lower APR (think single digits) than the card's regular variable rate for purchases. (Your rate and conditions will vary based upon your creditworthiness.) Also, you'll be able to see what the monthly payment would be with every loan option. Your loan installment will become part of your credit card minimum payment each month until you've paid it off. There's no penalty if decide to pay off your loan early. Terms apply.

Citi Flex Loan

A is similar to borrowing at least $500 with a fixed APR for a specified period of time. You'll be able to choose from loans that vary in amount and lengths. You'll also be able to see how much your monthly payment will be in accordance with the terms you choose. Your payment will be included with your minimum credit card installment each month. Conditions apply.

Beyond these loan programs from big companies, you might have other options. For instance, hybrid products offered by a start-up known as Upgrade can be used to purchase items, just as you would do with a traditional credit card. However, you pay off your bill in installments fixed at an APR that is fixed, just as you would with the personal loan. You may also be able to take out a loan against your credit limit by asking for cash to be deposited in your account. APRs and terms vary however it could be cheaper than a cash advance.

Potential disadvantages

Both loan programs allow access to money relatively quickly for a lower cost than a cash advance However, there are disadvantages to both:

You don't get cash in hand immediately. If you have a Chase Loan the loaned money could require between one and two business days before it is directly transferred in your checking account. Citi Flex Loans can also be accessed via direct deposit which can be as quick as a working day or a mail-in check that takes however long the mail takes.

Rates of interest may not be as competitive as personal loans. Depending on what you qualify for, you may be able to get lower interest rates on other types of loans (though for personal loan you will need to make an application and pass a credit check). If you have a little more time to research and compare rates, it's worthwhile to consider other ways you can access the funds you require.

You'll still pay interest. If you require cash for upcoming purchases, there are other possible ways to pay with no fees, although you might be charged a fee.

Options to think about

If you've got expensive purchase coming up, there are ways to use credit cards to hold off interest payments or divide payments:

A -like plan through the credit card you use -- like My Chase Plan or Citi Flex Pay -- allows you to divide a bigger amount into monthly installments that are added to the bill for your credit card. With Chase, you'll pay a monthly fixed fee for the plan, while with Citi's, you'll be charged interest. Numerous other major issuers provide various versions that includes these types of plans. If you decide to join an installment plan with your credit card, or an unaffiliated buy now, pay later service, take care. A September 2022 report from the Consumer Financial Protection Bureau identifies risky and costly plans, including the likelihood of spending more, as well as the risk of being unable to afford the payments if you pile on several loans at once.

A credit card that has the 0% interest rate on new purchases can give you up to a year, according to the card, to settle any balances interest-free. Just know that if you have any remaining debt when the promotion is over, you'll begin to be subject to the usual interest rate.

Author bios: Sara Rathner is a NerdWallet credit and travel expert. She has appeared on the "Today" program, Nasdaq along with CNBC's "Nightly Business Report."

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4 min read Published September 21 2022

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Experts suggest a down payment of at least 20 percent for the purchase of a brand new vehicle 10 percent for a car you're buying a used. It's not bad to put down more to maximize interest savings However, only if you have the money to.

Five benefits to making a payment Down down payments are often required by lenders. They generally require at minimum 10 percent down. But even if it is not required, it's nevertheless worth it. It will save you money each month and allow you to pay less interest. 1. Lower monthly payments Since putting money down reduces the amount you'll need to pay, you are likely to pay less every month, which means lower monthly payments. It's easy to see the mathematical. You can use an app to estimate monthly payments. If you loan $30,000 at 5 percent interest over the duration of 48 months, then you'll be paying $691 a month. With a 20 percent down payment of $6,000, you'll lower the amount you'll need to borrow down to $24,000. And that results in an average monthly payment of $553. 2. A higher equity level when you first start out. Equity is the difference between the amount you have for a car and its potential price at sale. The larger down payment will increase your equity because you won't require financing more via a lender. Cars are an investment . As the value of your car declines, you're more likely to end up upside-down on your loan -- if you owe more than the value of your car. A greater down payment guards against depreciation because it acts as buffer. Since you own a bigger portion of your car from the start with a higher down payment, you are less likely to be with the loan that is higher than what you could sell your car for. 3. Lower interest costs The main advantage of a substantial deposit is the fact that it decreases the amount you need to take out. If you're borrowing less you will are paying less. More money in your pocket -- and less in the lender's -it's always a good thing. Just like with the example of a monthly payment 20 percent down payment can make a huge difference in the cost of an auto loan. If you take out $30,000 with a 5 percent interest rate for two years, then you'll pay 3162 dollars in interest. With a $6,000 downpayment that's only $2,530 over the life of your loan. 4. Potentially better rates Certain lenders may be willing to offer the opportunity to get a loan if you've made substantial down payments. Because a downpayment shows you know how to handle money and you'll be less of a risk for the lender. There are many aspects that impact your interest rate, including credit score and income, so this is far from guaranteed. But a significant amount of downpayment is one lenders look at and could aid in covering areas where you aren't so strong in. 5. Higher acceptance rate If you have excellent or good credit, not putting any money down could not be a problem. However, a lower credit score means you'll pay a higher interest rate or, even worse, be turned down for an loan. However, if you're able pay a down payment, you can increase your approval odds or get the lender to give you more competitive financing terms. Experts suggest putting at least 20 percent of the cost. The most common advice is to pay 20 percent or more on an automobile. More, of course, is preferred. The less you need to finance the less you have to finance, the better. However, it's an enormous amount of money. In 2022, the average new car price topped out slightly over $40,000 in the month of June as per Kelley Blue Book (KBB). A 20 % down payment on that is equal to $9,600. Even used cars averaged out to -- that amounts to $5,600 for a 20 percent down payment. These are averages, so you will certainly be able to find less expensive alternatives. Be aware that prices are likely to go up because of the global shortage of essential components like semiconductors. You certainly don't want to deplete your savings for a downpayment. Take advantage of discounts if you're looking to purchase a new car and then search for . Selling it or trading it at a dealership could go a long way towards getting to that desired 20 percent threshold. If you are unable to afford 20 percent, it's okay to put down as little 10. Some dealers that work with might only require a $1,000 down amount. No matter what, make sure to deposit as much as you can to keep from taking out a huge loan which could put you in a position of being upside down. Don't put any money down. must always have an amount of money to pay down when purchasing a car. Some experts believe it may not be needed if you're able to score however the majority of people will not be able to qualify for that. Dealers provide zero-down financing since they can earn the highest interest. After all, it is the opposite of a large down cost. With low interest rates, you will wind in needing to finance more. This means you will pay more interest and a higher chance of being . A zero-down offer may also come with a to help offset the cost of monthly payments. This is the most dangerous trap. The longer the loan period, the more you have to pay the lender. Next steps The more you are able to pay in advance and the more secure you will be. A down payment of 20 percent is the standard however, you are able to make a bigger deposit depending on your budget. Just avoid paying less than 10 percent or $1000 particularly if you have -- so you can still enjoy a favorable interest rate. Take the time to compare automobile loans and locate financing prior to you begin shopping for a car. This way, you'll be aware of the amount you can afford and also how much you'll need to pay for a substantial down amount. Learn more

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Allison Martin's work began over 10 years ago when she was an online content strategist and she's since been published in a variety of top financial publications which include The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers to control their finances through providing precise, well-studied details that cut complex topics into manageable bites.

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The cost of not having a bank account is Hundreds of Dollars per Year, Always one step behind.

Advertiser disclosure You're our first priority. Everytime. We believe that everyone should be able to make financial decisions without hesitation. And while our site does not include every company or financial product available in the marketplace however, we're confident that the advice we provide as well as the advice we provide and the tools we create are objective, independent easy to use and free. So how do we earn money? Our partners pay us. This may influence which products we write about (and the places they are featured on our website) However, it does not affect our recommendations or advice that are based on many hours of study. Our partners cannot pay us to guarantee favorable reviews of their products or services. .

The cost of not having a bank account is Hundreds of Dollars per Year, Always One Step behind.

By Tony Armstrong Lead Assigning Editor | Banking Tony Armstrong leads the banking team at NerdWallet. He has been covering personal finance for nearly 10 years. Tony started his career at NerdWallet as a journalist and worked his way up to assistant assigning editor and later to lead editor. The writing of Tony has been featured by The Los Angeles Times, MarketWatch, Mashable, Nasdaq.com, USA Today and VentureBeat. Tony lives in Minneapolis, Minnesota.

Updated September 13th 2016, 2016

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Banks can bring about a fair amount of problems However, the lack of access to a bank is even worse for your financial wellbeing. In the absence of an institution offering basic services, such as cashing checks and loans with reasonable rates of interest Consumers who are not banked have to rely on other financial-service providers to cash their checks and cash away money order. The accompanying fees cost these households hundreds of dollars per year.

In addition to the significant daily costs, not belonging to an institution like a credit union or bank can have negative long-term consequences. Unbanked households, as the FDIC define as the ones who do not have an account with an insured institution, cannot make use of savings accounts to accumulate emergency funds. They are also unable to turn to time-saving tools to perform things like paying bills and transferring money.

"The bank system that is traditional is out of reach for many millions of Americans," says Sean McQuay the NerdWallet's banking expert experts and expert on credit. "While it might seem impossible, using an bank account can be the first step in breaking your cycle of going from from paycheck to paycheck, and thus pave the way to financial independence."

More than of households that do not have an bank account say the main reason is they don't have enough funds. The average post-tax income for these households is $18,203, according to NerdWallet's analysis of data obtained from Federal Deposit Insurance Corp. The high cost of other financial services can only make things even more expensive.

There are also cheaper options and using these can help reduce unnecessary costs.

The key findings

The cost per year of not having a bank account is $196.50 for customers who utilize a prepaid debit card that has direct deposit. That figure jumps to $497.33 if the card doesn't offer direct deposit.

Customers who only deal in cash are subject to annual expenses of $198.83 for cashing checks as well as money-order services.

With an estimated 9 million unbanked households living in the United States, down from 9.5 million in 2013, the aggregate annual cost to the families of these households is between $1.8 billion between $1.8 billion and $4.5 billion.

In the absence of an bank account forces people to use alternative financial services; people who are not banked are 6 times as likely use costly .

Transacting "off grid" can be costly

"In many ways you can compare the needs of unbanked households with those of banked households," says John Thompson who is the senior vice-president of the Center for Financial Services Innovation which is a non-profit consulting firm in the field of financial services. Certain transactions must take place however for consumers who aren't banked, they don't happen through the bank, Thompson says. This is where they become costly.

Take cashing a check, for example. When done by a bank or credit union, the task is as easy as it is affordable. However, that convenience is lost if you don't belong to an established financial institution and the alternative can be hair-raisingly expensive.

Check-cashing firms generally cost between 1% and 10 percent of the value of a check which means that unbanked consumers who don't use the prepaid cards that offer direct deposit, pay an average of $182.03 per year just to access their cash as per NerdWallet's analysis of FDIC data , and taking that a fee of one percent of the value of the check. The people who don't have bank accounts are 6 times more likely use check-cashing services than people who have.

"Relying on services like cashing checks and money orders is costly and it's the Americans who can't afford the cost and inconvenience that find themselves unbanked," McQuay says.

In lieu the checking accounts that are available, certain people utilize pre-paid debit cards. They are offered at supermarket stores as well as other retailers such as Target, Walgreens and Wal-Mart. This type of plastic is fairly uncomplicated: Users are able to spend only the amount they have loaded onto the card.

Checking account costs

The accounts, which are able to pay lower overdraft fees and no monthly fees, cost customers around $30 annually. A typical checking account costs customers around $150 annually, when factoring in monthly maintenance charges as well as two overdraft fees.

" Relying on services like money orders and check cashing is expensive, and it's the Americans who can least afford these costs and hassles who find themselves unbanked. " Sean McQuay , NerdWallet expert on banking and credit

However the prepaid cards tend to be more expensive than standard checking accounts. They cost an average of either $179.70 or $298.50 per year, depending on whether the card is equipped with an automatic direct deposit service. If it does not, cardholders face steep cash-loading fees. Additionally, prepaid cards usually come with monthly or per transaction costs as well as ATM fees for withdrawals.

Anyone who does not have an account for checking nor an prepaid card will be charged annual charges of $198.83 for cashing checks and money order services.

In addition to their cost, prepaid cards come with other drawbacks. They aren't able to be used to build credit and federal law does not require that prepaid cards provide fraud protection like they do for regular debit cards. That said, networks like American Express, Discover, MasterCard and Visa typically offer a specific number of purchase protections but they don't offer protection for ATM and some online transactions.

What's more, most checking accounts are guaranteed by the federal government, which means that the account holders will not lose money, up to $250,000, should the institution went bankrupt. The people who use prepaid debit cards are protected in the event that they're made by a banking institution, however, even then they might not receive the entire amount back. If they got their plastic from a company that isn't covered by the FDIC and this is not uncommon, the issuer's rules determine the degree of protection offered and whether the card will be paid back.

Indirect costs are a major factor as well.

The dangers of not having an bank account go beyond the expensive costs of other financial services. For one, not belonging to a bank takes extra time. Consumers who aren't banked and don't have credit cards with a prepaid option don't have access to the many conveniences that come with mobile and online banking such as automatic bill pay and free money-transfer services. Prepaid cards might offer these options, but they usually aren't free, unlike those offered by credit unions and banks.

"If you're not a member of an institution of financial service, you can't bank on your time," Thompson says, saying that this can make people take time off work, which can affect their pay. If employees have to travel to take care of financial obligations, they incur transportation costs also, he says.

Inability to access traditional banking products can be detrimental in different ways, too. A bank gives people access to tools to assist them in maintaining or improving their financial health, like deposits, certificates of deposit, and secured credit cards. They can, for instance, help them create an emergency fund or build credit, which helps to reduce the requirement for expensive payday loans.

The median sum borrowed by payday lenders is just $350 as per a report the report. This is a figure that those who belong to a bank or credit union can build by using a savings account, or use a secured credit card to cover. That will allow the borrower to stay away from predatory loans that have the median interest rate of around .

With savings accounts and secured cards, it's easy to maintain a healthy credit score. The expense of borrowing lower; the most well-known secured credit cards generally offer rates of interest at around 20%.

"We have systems that allow us to generate information about past credit habits," says Gregory B. Fairchild who is associate professor of management in the University of Virginia Darden School of Business. "Absent those information, the real cost for people is that they're always a risk."

"Everyone's an individual danger," he says, however, the risk for those with no credit history "is highly uncertain."

The risk of a lapse in judgement can cause a trickle-down effect into other aspects of life and affect their ability to get loans credit cards, take out loans or even begin an business.

Without a credit history entrepreneurs with small businesses are less likely to get credit lines, according to Tara Robinson, chief development officer at Mission Asset Fund, a non-profit organization that provides loans and other financial products for previously unserved families. A lack of credit history could restrict the potential of earning as she explains.

"You are a bit stuck before you can even get started," Robinson says.

Better options for unbanked consumers

If you do not have a bank account, it may appear as if costly alternative financial services are the only options. But that's not necessarily the situation. Here are some ideas to consider.

Make use of second-chance checks If you've experienced an account closed or a check bounced, or you shut down an account prior to paying a bank charge, you could be listed on a consumer report agency. A negative record is typically the only thing that can cause a bank to turn down your request for opening a new account.

However, some banks provide second chance checking accounts. They eliminate the requirement to use check-cashing services and money orders, both of which cost unbanked consumers approximately $17 annually. These products are available to anyone who is listed in ChexSystems and can be used to establish a clean banking history. Once you've managed to do that, think about opening a savings account to help build and better manage your emergency funds. To open either account, you'll need to show proof of identification, and may be asked to deposit an initial sum of anywhere from $10 to $100.

>> MORE:

Get a secured credit card: When you purchase secured cards you pay a deposit, typically at least $300 or $200, which you can later borrow against. After using a secured card responsibly for about one year, you may be offered an upgrade to a credit card.

In addition, you will have improved your credit score during the process, thus becoming more appealing to lenders. This is assuming you, of course, you make your monthly payments on time and completely.

>> MORE:

Join an lending circle or join a small, community lender The process of borrowing money and paying it back on time improves your credit rating, and taking out traditional loans from banks and credit unions isn't the only option. Mission Asset Fund, Robinson's employer, facilitates and oversees lending circles, which provide a special type of zero-interest loan.

"Each loan is typically around $1,000," Robinson says. "You have 10 people come together, and they put in $100 every month, with one person receiving the loan each month. The process continues until everyone receives an loan."

Like most organizations that oversee the lending circle, Mission Asset reports repayment behaviors to credit bureaus monthly. For those with poor credit, who pay punctually can raise their scores to about 700 after just six months, Robinson says.

"It's the perfect opportunity to allow folks with no credit scores to get credit fast and for those with damaged scores , to assist in beginning to rebuild them with an unsecured line of credit," she adds.

Find out if there's an existing community lender or nonprofit within your town that offers these types of loans or similar financial services.

>> MORE:

Joining the financial mainstream

From depositing checks to using savings accounts, the reasons that people choose to bank may not sound particularly appealing. Ultimately, though banks are crucial pillars in families' financial lives. If you're not connected to one to manage your finances, managing your financial obligations can be difficult and almost certainly will be more expensive.

That's what makes second-chance checking accounts and secured credit cards community lenders and lending circles extremely valuable. They give families access to financial services traditional to which they could otherwise miss out on, paving the way for a more secure financial future.

NerdWallet analysts of data Sreekar Jasthi and writer Spencer Tierney were the authors of this study.

The METHODOLOGY

In order to calculate the average earnings for unbanked households We used information taken from 2015's FDIC Nationwide Survey of Unbanked and Underbanked Households. It was revealed that 7% of households had no bank accounts. To calculate the cost of cashing checks for unbanked households using prepaid debit cards without direct deposit, and for households with cash only, we assumed two paychecks cashed per month and a 1% charge of the check's total value. We also assumed that one money order is each month, with an average cost of $1.40.

For banking costs associated with using a NerdWallet-recommended checking account, we assumed two overdrafts per year costing $15 each and no other fees. For the average check account we assumed two overdrafts per calendar year for $30 each as well as the maintenance fee in the amount of $7.50 per month. To determine average check cashing and money order fee We used the FDIC's statistics regarding how often alternative financial services use by type of household (banked or non-banked) Then, we used the lower frequency of usage among households with bank accounts to the average costs.

For the calculation of the annual average cost of debit cards that are prepaid, we looked at 69 cards, which were based on major issuersand high search volumes Pew Charitable Trust's, as well as the offerings of cards on the websites of and. For cards with different plans, we counted each plan as an individual card.

The analysis includes the annual cost of an prepaid debit card and without direct deposit for payroll. The median monthly fee was $4.98, and the median out-of-network ATM cost was $2.50. We employed the maximum cash load fee of $4.95.

In the case of direct deposit we assumed 12 monthly fees along with two outside-of-network ATM fees per month. In the case of the non-direct deposit option, we assumed 12 monthly fees, the four ATM fee per month and two cash load charges each month. PIN- and signature-based purchase transaction fees usually don't apply to cards that have monthly charges, which is why they weren't included.

The author's bio: Tony Armstrong is a banking editor at NerdWallet. The work of Tony Armstrong has been covered on The Los Angeles Times, Mashable and USA Today.

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Find a savings account that is more efficient

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Can You Be Arrested For Debt?

Advertiser disclosure You're our first priority. Every time. We believe that everyone should be able make financial decisions without hesitation. Although our site does not include every company or financial product available on the market, we're proud that the advice we provide, the information we provide and the tools we create are objective, independent simple, and cost-free. How do we earn money? Our partners compensate us. This can influence the products we write about (and where those products appear on the site) However, it does not affect our advice or suggestions that are based on many hours of research. Our partners cannot promise us favorable review of their services or products. .

Are you able to be arrested for Debt?

You aren't typically arrested for debts, only sued, but in some states, you may be charged for not observing a court-ordered judgment.

Written by Sean Pyles Senior Writer | Personal finances debt Sean Pyles leads podcasting at NerdWallet as the producer and host of NerdWallet's "Smart Money" podcast. In "Smart Money" Sean talks with Nerds from NerdWallet's NerdWallet Content team to answer listeners' personal finance questions. With a focus on thoughtful and practical advice on money, Sean provides real-world guidance to help people improve in their finances. Beyond answering listeners' money questions on "Smart Money," Sean also interviews guests who are not part of NerdWallet and produces special segments that explore subjects such as the racial wealth gap, how to start investing and the background of student loans.

Before Sean took over podcasting for NerdWallet He also covered issues concerning consumer debt. His work has appeared throughout the media including USA Today, The New York Times and other publications. When Sean isn't writing about personal finance, Sean can be found working in the garden, taking walks, or taking his dog on long walks. He is based at Ocean Shores, Washington.

Last updated Aug 5, 2021 at 2:46 PM PDT.

Edited by Kathy Hinson Lead Assigning Editor Personal finance, credit scoring, debt and money management Kathy Hinson leads the Core Personal Finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years working at The Oregonian in Portland in positions such as copy desk chief and team director of design and editing. Her previous experience included editing copy and news for various Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor's in mass communication and journalism from The University of Iowa.

The majority or all of the products we feature come from our partners who pay us. This impacts the types of products we write about as well as the place and way the product is featured on the page. However, this does not affect our opinions. Our opinions are entirely our own. Here's a list and .

You aren't liable to arrest just because you owe money on what you might consider to be consumer debt, such as a debt on your credit card or loan or medical bill. Legally, can't even threaten the person with arrest. But they do have other legal recourse for you, like suing to collect a payment.

In some rare cases, this kind of debt may result in arrest for other charges, like fraud, theft or ignoring a court order.

Watch your debts dwindle

Create an account that allows you to connect your credit cards, loans and accounts to keep them all in one place.

Affidavits of arrest from collectors are illegal

At one time, people were able to be imprisoned due to owing money, however debtors' prisons have been banned throughout the United States since the mid-1800s.

In addition, the legislation of 1977 bans debt collectors from intimidating or deceiving consumers, and that includes threats of arrest. In addition to the regulations on what collectors can say they can say, the law restricts how and when they can contact you.

However, debt collectors may make use of the legal system.

Debt collectors cannot be arrested, but they can demand payment from you which is often their most efficient legal recourse. Hundreds of thousands of civil suits over debt are filed annually even with no evidence to verify how much is due and who is liable.

Less than 10% of the debtors have an attorney represented when sued for a debt. A lot of people don't respond to lawsuits in any way and, in the end, they'll get the default judgment, which can lead to , an levy on the bank or both.

If you're sued, by default.

If you receive a court summons, don't ignore it. Sometimes, just going to an attorney and asking for the collection agency to prove that they have sued the correct person in the proper amount will end the case, or to get it resolved for less.

Legal loopholes can lead an arrest

There are a couple of instances in which aggressive creditors could use legal loopholes to obtain or threaten to arrest for related debts:

In about one third of the states that debtors may be detained in the event of their failure to follow a court ruling that was a result of the filing of a lawsuit. In other words that a debtor was dismissed from the case in court or failed to make an appearance, or was told to pay, but failed to. The arrest is for defying the court, not for owing the money.

Certain payday lenders pursue or threaten to arrest if a consumer's payment check fails to clear, often claiming it was deliberate fraud.

Rent-to-own furniture companies sometimes pursue arrest for consumers who fail to pay but refuse to be able to return furniture.

What can you do

If you're being harassed by an aggressive debt collector:

Be cautious: Get the facts straight, including whether the debt is yours and the correct amount by .

Be firm Beware of being pushed into a hasty decision. Spend time figuring out the most effective way to proceed .

Make sure you are protected: Contact debt collectors who are harassing you to the .

>> MORE:

The author's bio: Sean Pyles is the host and executive producer of the NerdWallet's Smart Money podcast. His writing has been featured in The New York Times, USA Today and elsewhere.

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Be sure to check your DMs for debt Collectors and Scams

Advertiser disclosure You're our first priority. Each time. We believe everyone should be able to make financial decisions with confidence. While our website doesn't include every financial or company product that is available We're pleased of the advice we provide and the information we offer and the tools we create are impartial, independent simple, and completely free. How do we earn money? Our partners pay us. This may influence which products we write about (and the way they appear on our website) however it in no way affects our recommendations or advice, which are grounded in hundreds of hours of research. Our partners do not be paid to ensure positive ratings of their goods or services. .

Make sure you check your DMs for Debt Scams and Collections

By Lauren Schwahn Lead Writer | Personal finances and the debt Lauren Schwahn is a writer at NerdWallet who covers budgeting, debt and money-saving strategies. She contributes to the "Millennial Money" column in The Associated Press. The work she has contributed to was featured in USA Today, MarketWatch and more. Lauren holds a bachelor's level degrees in historical studies from the University of California, Santa Cruz. She is located within San Francisco.

The article was published on February 11, 2022 at 4:05 AM PST

Editor: Kathy Hinson Lead Assigning Editor Personal finances, credit scoring debt and money management Kathy Hinson leads the Core Personal Finance team at NerdWallet. In the past, she worked for 18 years with The Oregonian in Portland in positions such as copy desk chief and team leader for design and editing. Her previous experience includes copy editing and news for various Southern California newspapers, including the Los Angeles Times. She earned a bachelor's degree in journalism and mass communications from The University of Iowa.

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Social media is where you watch cooking videos, look at photos of dreamy travel destinations , and read endless news headlines. Today, websites such as Instagram, Facebook and Twitter could also be the place where debt collectors are able to sneak into your DMs.

In 2021's final year, the rule changes under the went in force that define how debt collectors from third parties can communicate via social media, email and text messages.

Consumer advocates like April Kuehnhoff, a staff attorney at the National Consumer Law Center, are concerned that the new rules could cause confusion and an uptick in scams.

"It's far less expensive to make use of electronic communication for reaching out to more people. There will be a surge in the number of illegitimate actors who are impersonating debt collectors, and sending emails, direct messaging or texting people to get them to pay for debts they do not actually have to pay," Kuehnhoff says.

Being aware of the signs and understanding your rights can help guard against unfair and fraudulent practices. Here's what to look out for and how to stay secure while you go through all notifications.

Recognize red flags

Several warning signs can alert you to fraudulent behavior or scams:

The message isn't private.

Debt collectors may ask to join your followers or friends as in the event that they inform you they're debt collection agencies. However the FDCPA requires that all communication must be private. That means messages can't be accessible to the public or to anyone else who are part of your network via the platform. If you receive a message others can see, that could indicate that you're a bad person.

Critical information is missing

Collectors of debt are legally required to disclose specific information regarding the debt, including the amount owed as well as the name of the creditor and information about your rights. They'll typically provide this information, known as a validation notice the first time they reach you or within 5 days.

"If someone is simply saying "I'm a collection agency', and not doing anything else, I'd be suspicious from the beginning," says Katie Bossler, a quality assurance specialist at GreenPath an organization that is not for profit. GreenPath is a credit counseling agency.

You're threatened or harassed

"Sometimes scammers threaten consumers with arrest or deportation or attempt to convince them into paying in a hurry," Kuehnhoff says. It's not illegal for collectors to use threats or use abusive or vulgar words.

A collector is also unable to legally sue you if your debt is barred by time or is past the time limit for suing. What can you do to determine whether your debt is time-barred? Research your state's laws and check your payment history on your credit reports. You can also seek assistance from your or a nonprofit Credit counseling service.

You're required to make an unusual payment

Fraudsters often seek fast payment through difficult-to-recover methods. A legitimate debt collector won't pressure you to pay using questionable means such as a Bitcoin terminal, money transfer or prepaid cards, Kuehnhoff claims. "They will not tell you to go to the Apple store and purchase an Apple [gift] card."

Do not pay for anything until verifying that the debt and the collector are genuine. You can learn more about on the Federal Trade Commission.

Know and protect your rights

The FDCPA gives you certain security features. You can, for instance, choose to not receive messages. Collectors are required to offer an easy, no-cost method to stop contact with social media. It won't completely erase the debt, however.

Additionally, you have the right to challenge a debt you believe to be incorrect or not yours. However, you'll have to submit a written request within 30 days from receiving notice in order to contest or obtain more information regarding the debt. Details on how you can do either must be included in the initial letter sent by the collector to you.

How can you verify the creditor and the debtor? Bossler suggests starting with pulling your free credit reports from AnnualCreditReport.com. "Make a list of all the outstanding debts you owe: the creditors, the balances, accounts numbers. The debt collectors will typically use the last four digits of the Account number" Bossler says.

You could be working with a collection company for the creditor who originally made the loan, making it easy to connect the information. However, the original creditor might have sold the debt to an outside firm. That third-party collector should give information like their name, business name and address for mailing. Use these details to double-check their authenticity.

"Several states have debt collection licenses recorded at the NMLS, the National Multistate Licensing [System]," Kuehnhoff says. "Even even if your state does not utilize it, it could be an excellent resource to determine if the name is a legitimate debt collection name that's registered in other states."

Even if everything checks out Don't be you are obligated to pay immediately. Paying off a debt could bring back a debt that was past the statute of limitations. Instead, give yourself time to create plans that work for your financial situation and personal budget.

If a debt collection agency violates your rights or you encounter a scam, you can make a complaint to the FTC, the Consumer Financial Protection Bureau or your state attorney general's office.

The article was written by NerdWallet and was originally printed through The Associated Press.

The author's bio: Lauren Schwahn covers consumer credit and debt at NerdWallet. The work she has written for NerdWallet was featured by USA Today and The Associated Press.

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Chapter 7 and. Chapter 13: Which Bankruptcy option is Right for You?

Advertiser disclosure You're our first priority. Everytime. We believe that every person should be able make financial decisions with confidence. Although our site doesn't include every business or financial product in the marketplace, we're proud that the advice we provide as well as the advice we provide as well as the tools we design are objective, independent easy to use and completely free. How do we earn money? Our partners pay us. This can influence the products we write about (and where they are featured on the website) however it does not affect our suggestions or recommendations, which are grounded in many hours of study. Our partners do not pay us to guarantee favorable ratings of their goods or services. .

Chapter 7 vs. Chapter 13: Which Bankruptcy Option Is Best for You?

Chapter 7 bankruptcy is faster and less expensive than Chapter 13 bankruptcy, but it's not the ideal choice for everyone.

by Sean Pyles Senior Writer | Personal financial, debt Sean Pyles leads podcasting at NerdWallet as the producer and host of NerdWallet's "Smart Money" podcast. In "Smart Money," Sean talks with Nerds from the NerdWallet Content team to answer the questions of listeners about their personal finances. With a focus on shrewd and actionable money advice, Sean provides real-world guidance that can help consumers better their financial lives. In addition to answering listeners' financial concerns on "Smart Money," Sean also interviews guests outside of NerdWallet and creates special segments on topics such as the racial gap in wealth as well as how to get started investing, and the background of college loans.

Before Sean lead podcasting for NerdWallet the company, he also wrote about topics that dealt with consumer debt. His work has appeared in USA Today, The New York Times and other publications. When he's not writing about personal finance, Sean can be found working in his garden, going for walks, or walking his dog for long walks. He lives at Ocean Shores, Washington.

Last updated Dec 14th, 2021 at at 4:51 PM PST

Editor: Kathy Hinson Lead Assigning Editor Personal finances, credit scoring managing money and debt Kathy Hinson leads the Core Personal Finance team at NerdWallet. In the past, she worked for 18 years at The Oregonian in Portland in positions such as copy desk chief and team director of design and editing. Prior experience includes news and copy editing at various Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor's in mass communications and journalism at The University of Iowa.

A majority of the items featured on this page are provided by our partners who compensate us. This affects the products we write about and where and how the product is featured on a page. However, this does not influence our opinions. Our views are our own. Here's a list and .

The bankruptcy process is among the most efficient and fastest ways to find . The majority of people who choose this route are able to file to file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. The choice of which is the best one depends on the person's assets and financial goals.

To help you comprehend the distinction in Chapter 7 and Chapter 13 bankruptcy, here's a breakdown of each and the people are the best for. Whichever you decide to go with, it's best if:

Your monthly payments to your consumer debt are greater than 50% of your monthly take-home pay.

You're facing lawsuits from creditors.

You see no way to pay off your debt in five years.

What's what's the distinction in Chapter 7 and Chapter 13 bankruptcy?

The major differences between the two types of. bankruptcy is the conditions for eligibility, how debts are settled and the length of time.

Take a look at this table for an understanding in a glance:

Chapter 7

Chapter 13

Form of bankruptcy: Liquidation.

Form of bankruptcy: Reorganization.

Eligibility:

You have to pass the means test, which looks at your expenses, income and the size of your family.

It is not possible to have had a prior Chapter 7 discharge in the or a Chapter 13 in the past six years.

It is not possible to have filed bankruptcy papers (Chapter 7, 13) within the last 180 days, and it was rejected for a variety of reasons for example, failing to show up in court or to comply with court orders.

Eligibility:

Unsecured debt cannot exceed $419,275, and secured debt can't exceed $1,257,850.

Regular income is required and must have current tax returns.

Could not have filed any Chapter 13 filing in the last two years, or Chapter 7 within the last four years.

You cannot have filed a bankruptcy petition (7 or 13) in the previous 180 days that was dismissed for certain reasons, for example, failing to appear or comply with court or court orders.

How long does it take to get a discharged: It is usually less than six months.

How long it takes to achieve a discharge: Usually, three to five years, based on the repayment program.

The credit report's mark: Remains the credit score for after the date of the filing.

Mark on credit report The mark remains the credit score for after the date of the filing.

Benefits:

A quick methods to resolve overwhelming debt.

Filing a bankruptcy petition halts collection efforts and legal action from creditors.

Benefits:

Can help you resolve your debts while retaining certain assets or getting caught up on secured debts, such as the auto loan or mortgage.

Filing a bankruptcy petition halts the collection process and prevents legal action from creditors.

Drawbacks:

Although it is rare, trustees is able to sell property that is not exempt.

Generally for unsecured debt; is not protected from repossession or foreclosure.

Drawbacks:

The duration and price for the plan are challenging and a lot of filers find it difficult.

Which is better? 7 or Chapter 7 or Chapter 13?

Which form of is best for you will depend on your financial situation and your goals.

For determining whether Chapter 7 or Chapter 13 bankruptcy is best to you . It is important to make sure that your debt problems can be resolved through bankruptcy and you're in a position to benefit from the new beginning bankruptcy offers.

The majority of consumers choose Chapter 7 bankruptcy, which is quicker and less expensive as compared to Chapter 13. Most people who file for bankruptcy qualify in Chapter 7 after taking the examination of the family's income, expenditures and size to determine eligibility. Chapter 7 bankruptcy discharges, or eliminates, debts that are eligible such as credit card bills medical debt, personal loans. However, other debts, such as student loans and taxes, typically aren't eligible. Also, Chapter 7 doesn't offer a option to pay on secured loan repayments, such as the mortgage or auto loan but it does not safeguard these assets from foreclosure or repossession.

In certain instances the bankruptcy trusteean administrator who collaborates in conjunction with bankruptcy courts to represent the estate of the debtor can sell nonexempt items, meaning items that aren't protected during bankruptcy. Nonexempt items are defined according to the law of the state.

Chapter 13 bankruptcy may be ideal for those who don't be eligible for Chapter 7 bankruptcy. Chapter 7 filing, for instance, if their income is too high. And some who qualify to file for Chapter 7 may still choose to apply to file Chapter 13 because they want to protect certain assets or catch up on their mortgage payments. But, Chapter 13 repayment plans are challenging: All leftover income after certain allowances has to be directed toward repaying debt over three up to 5 years.

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Author bios: Sean Pyles is the host and executive producer on the NerdWallet's Smart Money podcast. His writing has been featured on The New York Times, USA Today and elsewhere.

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