interest

Apache is functioning normally

Many small businesses provide goods or services to their customers and issue invoices for payment. These invoices usually have payment terms that specify when the customer should pay, such as 30 days. However, waiting for customers to pay can create a cash flow gap for the business. They may need funds to cover immediate expenses like payroll, purchasing inventory, or paying suppliers.

One solution is invoice financing. With this alternative type of business financing, a company is able to use its unpaid invoices as collateral to obtain a loan or line of credit from a financial institution, such as a bank or a specialized lender. This allows the business to improve its cash flow while waiting for customers to make outstanding payments.

But before you sign on the dotted line, it’s essential to carefully consider the costs and terms associated with invoice financing to ensure it’s the right financial solution for your needs. Here’s a closer look at how invoice financing works, its pros and cons, plus other financing options you may want to consider.

What Is Invoice Financing?

Invoicing financing is a type of short-term small business financing where companies leverage their unpaid invoices to access immediate cash. Instead of waiting for customers to settle their bills, the business uses these outstanding invoices as security to obtain a loan or credit line. Essentially, it’s like getting an advance on money owed by customers, which can help businesses address short-term cash flow needs without having to wait for payment.

While it’s not designed for all types of businesses, invoice financing (also sometimes referred to as accounts receivable financing) can help many companies with longer billing cycles.

How Does Invoice Financing Work?

Invoice financing primarily benefits B2B companies rather than B2C companies, which generally rely on individual customers who buy products through a point-of-sale system. Instead, it’s designed to let companies borrow against outstanding invoices for customer orders.

To qualify for invoice financing, you generally need to have accounts receivable from creditworthy customers that have a history of paying invoices on time. While the lender may also look at your company’s credit and financials, they usually aren’t their main concern. A personal guarantee isn’t usually required, but check the terms of your loan just to make sure.

Some lenders allow you to finance 100% of the invoice amount, while others limit you to borrowing up to a certain percentage of your outstanding invoices. When your customer pays the invoice, you’ll pay the lender back the amount loaned plus fees and interest.

The fee structure varies depending on your loan agreement, but typically invoice financing companies charge a flat percentage (1% to 5%) of the invoice value. This percentage may be charged for every week or every month it takes your customer to pay. So if your customers are slow to pay, costs can escalate; if they default, you may end up having to cover their invoices.

You may also encounter other kinds of fees with invoice financing, depending on the lender. There may be new account and renewal fees, a minimum volume fee, and/or an early termination fee if you decide to stop using the service. It’s always a good idea to check out the full cost of financing before you sign a contract.

Example of How Invoice Financing Works

Let’s say you decide to finance a $50,000 invoice with 30-day terms. You submit this invoice to a lender as collateral. The invoice financing company approves the invoice and provides you with a cash advance of 90% of the invoice ($45,000). The lender charges a 3% fee for each month the invoice is outstanding. Your customer pays the $50,000 invoice in three weeks, so your total fee for the advance is $1,350. Once you receive the customer’s payment, you repay the lender the money you borrowed plus fees ($46,350) and keep $3,650.

Recommended: Business Cash Management, Explained

Invoice Financing vs Invoice Factoring

Invoice financing and invoice factoring are terms that are easy to confuse. While you might even see them used interchangeably, they aren’t the same thing.

Invoice factoring, also known as accounts receivable factoring, differs from invoice financing both in terms of structure and repayment process. With invoice factoring, you sell your outstanding invoices to a factoring company at a discount. The company gives you a percentage of the invoice amount up front and then assumes responsibility for collecting the full amount from your customer. Once the customer pays the invoice to the factoring company, you receive the remaining balance minus a factoring fee that is withheld by the factoring company.

If you opt for invoice factoring vs. invoice financing, your customers will likely know that you’ve outsourced this part of your business. Some businesses may prefer to keep the collection process in-house to maintain their customer relationships.

Both invoice financing and invoice factoring involve ongoing fees. Typically, the longer each invoice goes unpaid, the more you’ll be charged. That adds some uncertainty to how much you’ll actually owe.

Recommended: What Is a Business Liability?

Pros and Cons of Invoice Financing

Invoice financing can potentially help your business in a number of ways, but it also has its drawbacks.

Pros of Invoice Financing

Here’s a look at some of the advantages of using invoice financing.

•  Improved cash flow: Invoice financing provides quick access to cash, which can help businesses cover day-to-day expenses, invest in growth, or handle unexpected costs.

•  No debt: Invoice financing is not a loan, so it doesn’t add debt to your balance sheet. It’s a way to unlock the value of your invoices without taking on long-term debt.

•  Flexible: You can use invoice financing as needed, depending on your cash flow situation. There’s no requirement to finance every invoice or maintain a minimum level of financing.

•  Accessible: Invoice financing is often easier to qualify for than traditional loans since it’s primarily based on the value of your invoices and the creditworthiness of your customers.

Cons of Invoice Financing

There are, of course, some downsides to consider as well.

•  Cost: Invoice financing can be more expensive than traditional loans or lines of credit. You’ll typically pay a fee plus interest on the advanced amount.

•  Dependence on customers: Since invoice financing relies on your customers paying their invoices, you’re somewhat dependent on their payment behavior. If they pay late or default, it can affect your financing costs.

•  Not suitable for all businesses: Invoice financing works best for businesses that have a steady stream of invoices from creditworthy customers. If your business doesn’t meet these criteria, you may not be able to use invoice financing.

•  Potential for confusion with customers: If you opt for invoice factoring, some customers may be confused or concerned if they receive payment requests from a financing company instead of directly from you.

Is Invoice Financing a Good Idea?

Invoice financing can be a useful financial tool in some cases.

If your company has seasonal fluctuations, a lengthy billing cycle, or inconsistent revenues, but also has clients who reliably pay their invoices in a timely way, invoice financing may be a good way to keep a regular cash flow through the highs and lows.

If your business has less reliable clients, using funding like this could end up costing you in the long run.

Recommended: What You Should Know About Short-Term Business Loans

Alternatives to Invoice Financing

Invoice financing is far from the only type of financing out there. Here are a few other small business loan options to consider before you make a decision.

Inventory Financing

Inventory financing is short term, asset-based financing that’s used exclusively to buy the inventory or products your business sells. The loan (or credit line) is secured by the inventory or products that you’re purchasing. That means you don’t have to offer the lender any personal collateral. But if you default on the loan, the lender can repossess the inventory you purchased as payment.

Some lenders may finance 100% of the inventory value, but more typically a lender will offer somewhere between 50% and 80% of the inventory’s value.

Inventory financing can be useful before a busy season or when you experience sudden demand for your product. But like invoice financing, inventory financing typically comes with higher costs than a regular business loan. You’ll likely also need to demonstrate a high inventory turnover rate to qualify for higher loan amounts.

Merchant Cash Advance

A merchant cash advance can be better suited to businesses with B2C sales. You borrow a lump sum and then the lender automatically deducts a portion of your credit and debit card sales until the loan (plus accrued fees) is repaid.

As with invoice factoring, a factor rate is used with a merchant cash advance instead of an interest rate. Another similarity is that your sales history, rather than your credit history, is typically the most important factor in qualifying for a merchant cash advance. Generally, approval also happens pretty quickly, allowing you to get fast access to funding. Just keep in mind that the cost of borrowing is typically higher than other types of business financing.

Recommended: Recommended: Guide to Merchant Bank Accounts

Traditional Business Line of Credit

A business line of credit is a flexible type of financing that allows a small business to borrow money up to a predetermined limit and will only charge interest on the amount of money borrowed (similar to the way a credit card works). Unlike a term loan, where you receive a lump sum of money upfront, a business line of credit allows you to borrow only the amount you need, when you need it. This can be useful for managing cash flow or covering unexpected expenses.

Business lines of credit typically have variable interest rates and can be either secured or unsecured, depending on the lender and the borrower’s creditworthiness.

Traditional Term Business Loan

Term loans provide a lump sum of money that is repaid over a fixed term, typically with a fixed interest rate (which is often lower than other types of small business financing). The funds can be used for a variety of purposes, including working capital, equipment purchases, and expansion.

This is a common type of business loan offered by banks, credit unions, and online lenders. Newer businesses typically have a better chance of approval through online lenders because they typically offer more flexible qualification requirements. However, interest rates tend to be higher.

Your business’s history, annual revenue, and creditworthiness (including your personal credit) typically determine which loan terms you’ll have access to and how much you can borrow.

Recommended: A Guide to Trade Credit in Business

The Takeaway

Cash flow can be an issue for many small businesses. If your business is a good candidate for invoice financing and you need cash quickly, this type of funding may be able to help tide you over. Just keep in mind that costs can run higher than traditional banks loans and lines of credit.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.

Photo credit: iStock/pixdeluxe

SoFi’s marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOSB-Q224-1874390-V1

Source: sofi.com

Apache is functioning normally

I got active on Twitter over the past year and change and to my surprise (not sure why it’s surprising really), encountered lots of housing bears on the platform.

Many were/still are convinced that the next housing crash is right around the corner.

The reasons vary, whether it’s an Airbnbust, a high share of investor purchases, high mortgage rates, a lack of affordability, low home sales volume, rising inventory, etc. etc.

And the reasons seem to change as each year goes on, all without a housing crash…

So, now that we’re halfway through 2024, the obvious next question is will the housing market crash in 2025? Next year’s got to be the year, right?

But First, What Is a Housing Crash?

The phrase “housing crash” is a subjective one, with no real clear definition agreed to by all.

For some, it’s 2008 all over again. Cascading home price declines nationwide, millions of mortgage defaults, short sales, foreclosures, and so on.

For others, it might just be a sizable decline in home prices. But how much? And where?

Are we talking about national home prices or regional prices? A certain metro, state, or the nation at large?

Personally, I don’t think it’s a crash simply because home prices go down. Though it is a pretty uncommon occurrence to see nominal (non-inflation adjusted) prices fall.

Over the past few years, we’ve already experienced so-called home price corrections, where prices fell by 10%.

In 2022, we were apparently in a housing correction, defined as a drop in price of 10% or more, but not more than 20%.

Ostensibly, this means a drop of 20%+ is something much worse, perhaps a true housing crash.

But you have to look at the associated damage. If home prices fall 20% and there aren’t many distressed sales, is it still a crash?

Some might argue that there’s simply no other outcome if prices fall that much. And maybe they’d be right. The point is a crash needs to have major consequences.

If Homeowner Joe sells his home for $500,000 instead of $600,000, it’s not necessarily a disaster if he bought it for $300,000 a few years earlier.

He’s not happy about it, obviously, but it’s not a problem if he can still sell via traditional channels and even bank a tidy profit.

Of course, this means others who had to sell wouldn’t be so lucky, since their purchase price would likely be higher.

Still, this hinges on a major decline in prices, which historically is uncommon outside of the Global Financial Crisis (GFC).

Stop Comparing Now to 2008

One thing I see a lot is housing bears comparing today to 2008. It seems to be the go-to move in the doomer playbook.

I get it, it’s the most recent example and thus feels the most relevant. But if you weren’t there, and didn’t live it, you simply can’t understand it.

And if you weren’t, it’s hard to distinguish that time from now. But if you were, it’s clear as day.

There are myriad differences, even though they’re quick to mock those who say “this time is different.”

I could go on all day about it, but it’s best to focus on some main points.

At the moment, housing affordability is poor thanks to a combination of high home prices and equally high mortgage rates, as seen in the chart above from ICE.

Despite a big rise in prices over the past decade, the high mortgage rates have done little to slow down the party.

Yes, the rate of home price appreciation has slowed, but given the fact that mortgage rates rose from sub-3% to 8% in less than two years, you’d expect a lot worse.

It’s just that there’s really no correlation between home prices and mortgage rates. They can go up together, down together, or move in opposite directions.

Now, proponents of a housing crash often point to buying conditions right now. It’s a horrible time to buy a house from a payment-to-income perspective. I don’t necessarily disagree (it’s very expensive).

But that completely ignores the existing homeowner pool. And by doing so, it’s a totally different thesis.

You can say it’s a bad time to buy but that the average homeowner is in great shape. These statements can coexist, even though everyone wants you to take one side or the other.

Look at the Entire Homeowner Universe

To put this perspective, consider the many millions of existing homeowners coupled with prospective home buyers.

Your average homeowner today has a 30-year fixed-rate mortgage set somewhere between 2-4%.

In addition, most purchased their properties prior to 2022, when home prices were a lot lower.

So your typical homeowner has a rock-bottom interest rate and a relatively small loan amount, collectively a very attractive monthly payment.

To make matters even better for the foundation of the housing market, which is existing homeowners, most have very low loan-to-value ratios (LTVs).

They’ve also got boring old 30-year fixed-rate loans, not option ARMs or some other crazy loan program that wasn’t sustainable, as we found out quickly in 2008.

These homeowners also haven’t tapped their equity nearly as much as homeowners did in the early 2000s, despite home equity being at record high levels (see above).

This is partially because banks and mortgage lenders are a lot stricter today. And partially because of mortgage rate lock-in. They don’t want to give up their low mortgage rate.

In other words, the low mortgage rate not only makes their payment cheap, it also deters taking on more debt! And more of each payment pays down principal. So these loans (and their borrowers) become less and less risky.

Some have turned to home equity loans and HELOCs, but again, these loans are much more restrictive, typically maxing out at 80% combined loan-to-value (CLTV).

In 2006, your typical homeowner did a cash-out refinance to 100% CLTV (no equity left!) while new home buyers were coming in with zero down payment as home prices hit record highs.

Take a moment to think about that. If that’s not bad enough, consider the mortgage underwriting at that time. Stated income, no doc, you name it.

So you had virtually all homeowners fully levered along with a complete lack of sound underwriting.

Slumping Home Sales in the Face of Poor Affordability Is Actually Healthy

That brings us to home sales, which have slumped since the high mortgage rates took hold. This is normal because reduced affordability leads to fewer transactions.

The worry is when this happens supply could outpace demand, resulting in home price declines.

Instead, we’ve seen low demand meet low supply in most metros, resulting in rising home prices, albeit at a slower clip.

While housing bears might argue that falling volume signals a crash, it’s really just evidence that it’s hard to afford a home today.

And the same shenanigans seen in the early 2000s to stretch into a home you can’t afford don’t fly anymore. You actually need to be properly qualified for a mortgage in 2024!

If lenders had the same risk tolerance they had back in 2006, the home sales would keep flowing in spite of 7-8% mortgage rates. And prices would move ever higher.

That spike in home sales in the early 2000s, seen in the chart above from Trading Economics, shouldn’t have happened. Fortunately, it’s not happening now.

At the same time, existing homeowners would be pulling cash out in droves, adding even more risk to an already risky housing market.

Instead, sales have slowed and prices have moderated in many markets. Meanwhile, existing owners are sitting tight and paying down their boring 30-year fixed mortgages.

And with any luck, we’ll see more balance between buyers and sellers in the housing market in 2025 and beyond.

More for-sale inventory at prices people can afford, without a crash due to toxic financing like what we saw in the prior cycle.

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on Twitter for hot takes.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Good dental health can be essential to your overall well-being, but the cost of dental work — even after dental insurance — can make it challenging to pay upfront. According to the American Dental Association (ADA), the average cost of a porcelain or ceramic crown is $1,213, while the cost of a root canal can range as high as $1,539 for a single session.

A dental credit card is a white-label version of a credit card intended to be used on dental care expenses. It is one way to cover these costs in smaller, more manageable installment payments. Although a credit card for dental work can serve as a useful financing tool, it’s also important to be mindful of the caveats of using credit for dental care.

What Is a Dental Credit Card?

A dental credit card is a credit card that’s designed specifically to pay for your out-of-pocket dental health care costs. These cards are typically offered in dental offices that accept the particular medical card it advertises as a form of payment.

Like a basic credit card, a dental credit card requires patients to undergo a credit check for qualification. The card’s use is limited to dental offices within the card issuer’s network for the purpose of financing your dental bills.

Dental care credit cards typically have high interest rates, even if they offer a temporary deferred interest period.

Recommended: Tips for Using a Credit Card Responsibly

How Do Dental Credit Cards Work?

Your dental provider’s office might mention a dental credit card as a payment option if you’re unable to cover the expense in one lump sum. Typically, the office facilitates the process of completing your application for credit approval, but it is not financing the cost directly. In other words, your dental office isn’t the lender.

Instead, credit for dental care is provided by a third-party credit card issuer. Similar to how a conventional credit card works, your application is reviewed by the issuer’s underwriting team, and your credit history and score are evaluated.

If you’re approved, the card issuer will send you a physical credit card that you can use for services at an in-network health care office up to your approved credit card limit. Your dental provider is paid in full by the card issuer, and you’ll repay the issuer through monthly payments, plus interest if you carry a balance.

Deferred Interest Periods on Dental Credit Cards

Some credit cards for dental work offer zero interest charges for a limited period, also called deferred interest. This option can be advantageous if you’re confident that you can successfully repay the full balance before the deferment period ends.

However, if there’s a remaining balance after the deferment period ends, interest charges that accrued throughout the deferment period are added to the principal balance that’s due. Additionally, the new higher balance continues to accrue interest charges at the dental credit card’s APR, or annual percentage rate.

Because of this, use medical credit cards for dental work cautiously, as it’s a high-interest financing option that can lead to higher medical debt if you’re unable to repay your dental expenses quickly.

Recommended: What Is a Charge Card

Choosing a Dental Credit Card

When applying for a credit card specifically for dental care expenses, make sure you ask about the card’s features, terms, annual percentage rate (APR), and how it calculates interest during and after any deferment period.

If you’re approved, ensure that your dental office provides you with a copy of your dental credit card’s disclosure agreement. Also pay attention to the agreed-upon amount for any dental services you receive so you can verify that the card was charged for the correct amount.

You’ll want to note the deferment dates for your card, if any, and the interest rate you’re offered. That way, you can make enough monthly payments to repay your balance in full before interest kicks in.

Paying for Dental Care If You Have Bad Credit

Getting approved for a dental care credit card might be challenging if you have bad credit. If you’re in a difficult position and need help paying for expensive dental work now, here are some options to explore:

•   Inquire about a low-fee payment plan. Even if your dental provider doesn’t typically offer payment plans, it’s worth asking. They might accommodate you.

•   Shop around with other dental providers. Prices vary across dental offices, so compare costs across a handful of affordable sources. You might consider a non-profit dental clinic or a dentistry school.

•   Seek help from a family member. Ask a relative if they’re willing to offer a low-interest loan for your dental care.

•   Explore local government programs. Some state and local governments offer low-cost dental care programs to residents.

Alternatives to Dental Credit Cards

If a dental credit card isn’t an option for you, there are a handful of other financing options to cover dental work, such as the cost of a root canal.

Credit Cards With 0% Interest Rates

Other types of credit cards, like a 0% APR card, are a good alternative to dental care credit cards. They offer a promotional period — sometimes from six months to 18 months — during which you don’t incur interest charges.

This kind of card may differ from deferred interest programs. With some promotional APR cards, interest only starts accruing on your outstanding balance after the promotional period ends. Still, the credit card rule applies to try to pay off your balance in full before the promotional period ends to avoid paying interest.

Payment Plans Through Your Provider

Some medical providers offer a payment plan at no additional cost or at a small installment fee. In this situation, you’re arranging low installment payments directly through your dental office until you’ve repaid your balance in full.

Not all dental offices offer this type of payment plan. But if yours does, it can work with you to create a custom monthly payment amount and due date that’s manageable for your finances.

Personal Loans

Compared to a dental credit card, personal loans might offer lower interest rates for qualified borrowers. A low-interest personal loan achieves the same result as a credit card for dental work in that you can chip away at your outstanding balance in small increments, plus interest.

Among the main differences: You’ll receive a lump-sum loan disbursement from your lender that can be used to pay your dental office upfront. Also, you may find that a personal loan has a lower interest rate than what a credit card would charge you.

Recommended: How to Avoid Interest On a Credit Card

Help From Relatives

Seeking financial assistance from a close relative can help you avoid dental care debt. When asking for help, clarify whether any available funds are a gift or need to be repaid.

If it’s the latter, discuss the repayment window and additional interest (if any). Also talk about expectations if you’re suddenly unable to make payments due to, say, an injury or job loss.

The Takeaway

Getting a credit card designed to pay for dental work can be useful if you’re faced with an urgent oral treatment or procedure and need fast financing. However, the high interest rates of credit cards for dental work compared to other financing options can make it a financially risky option.

Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What credit score do I need to get a dental credit card?

Credit score requirements vary by credit card issuer, but generally, you’ll need at least fair credit. However, a higher score can help you qualify for more competitive interest rates.

Is a dental care credit card hard to get?

Dental care credit cards are commonly offered online or at your provider’s dental office, so applying for a card is typically straightforward. However, being approved for a dental credit card involves many factors, like your credit history, income, debt-to-income ratio, and other factors.

Should I pay for dental care with a credit card?

If you don’t have the cash flow to pay for your dental costs upfront, using a dental credit card helps you cover costs in small, monthly payments. That being said, doing so might cause you to incur high interest charges, so evaluate your financial situation and your options.

Can I get a dental loan with bad credit?

Dental loans for patients with bad credit are available, though they might come with high interest rates, low limits, or other restrictive factors.

Photo credit: iStock/zadveri

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOCC-Q324-006

Source: sofi.com

Apache is functioning normally

Almost half of all Americans carry a balance on their credit card, month after month. If you’re among their ranks, you know that the combination of high prices and high credit card interest rates can make it challenging to pay that debt off in full.

Many cardholders have seen their interest rates creep up in recent years, in line with the Federal Reserve’s recent rate increases. That means interest payments are gobbling up a bigger share of credit card balances. And those credit card balances can be major. This kind of debt hit a staggering $1.12 trillion for the first quarter of 2024, according to data from the Federal Reserve Bank of New York.

But the situation isn’t hopeless, however. If you’re one of the cardholders who can’t pay credit card debt in full, here are five steps you can take to address it.

Step 1: Check your Credit Card Interest Rate

If you haven’t carried a credit card balance before, you may not be aware of what interest rate your credit card is charging. But it’s important to know exactly how much you’re getting charged so if you need to, you can budget for interest expense as well as your purchases.

The average credit card interest rate for all new card offers was 24.84% in mid-2024. (Depending on what type of credit card you have, your credit score, and your credit history, you may have a higher or lower interest rate than the average.)

With interest rates this high, it can be a real financial setback to carry a balance for an extended length of time, making only the minimum credit card payment. You may find that you are only paying interest and making little headway in paying off what you actually spent.

Recommended: What Is a Charge Card

Step 2: Understand How Your Grace Period Works

If you pay your credit card statement balance in full by the due date, a credit card grace period will usually take effect for the next billing cycle. That means you won’t owe interest on new purchases until the due date for the next billing cycle. If you pay that statement balance in full by the next due date, the grace period will continue into the next cycle, and on and on.

But, if you make only the minimum payment or a partial payment on the full statement balance by the credit card due date, you’ll get charged interest on the remaining balance and lose your grace period for the next billing cycle. This means you’ll owe interest on any purchase immediately. Even if you go back to paying the full balance, your grace period may not renew for several more cycles, depending on the specific terms of your credit card.

If you’re in a position where you can’t pay credit card bills and must move to partial payments, make sure you’re aware of the additional interest expense you’ll incur on the remaining credit card balance. Try your best to stop making new purchases with that card since interest will be charged on those purchases immediately.

Step 3: Look at Changing Your Due Date

If you’re feeling overwhelmed because many of your bills are due at the same time, talk to your credit card company about changing your due date. You might be able to move your credit card due date to a day of the month that works better for your budget, so the payments you owe are a bit more staggered.

While this switch might not help immediately to pay down credit card debt, it could offer some relief in the long run.

Recommended: How to Avoid Interest On a Credit Card

Step 4: Explore Ways to Pay Off Your Balance Faster

You may find that with higher interest rates and inflationary spending, you need a more efficient way to pay off your credit card debt, such as by refinancing credit card debt. Luckily, there are some options for how to pay off credit card debt, though keep in mind the best way to pay off credit card debt will depend on your financial specifics.

Balance transfer credit cards that offer a limited time low or sometimes even 0% interest rate can help — especially if you think you can pay the balance in full during the promotional low-rate period.

Another option you might consider is applying for a low-interest personal loan to pay off credit card debt in full. This could help you secure a lower interest rate, and by consolidating your credit card debt, you’d have fewer due dates to keep track of. Keep in mind, however, that there are pros and cons of personal loans to pay off credit card debt.

Recommended: Tips for Using a Credit Card Responsibly

Step 5: Consider Using a Budgeting Tool

If you’re finding it hard to make your credit card payments, that can be a signal it’s time to take a close look at your spending, perhaps with the help of one of the many online budgeting tools available.

Personal finance tools can help you understand just how much your cost of living has risen in recent months and make it easier to flag places you can cut back. Some can help to pinpoint fees you may be paying unwittingly or the automatic payments you’re making on your credit card that could get trimmed. Cutting these costs can then make it easier to pay off credit card debt.

The Takeaway

If you’re struggling with a credit card balance you can’t pay off, taking steps to pay off credit card debt faster and budget smarter can help. These can involve understanding your rate, changing your payment due date, and other moves.

Whether you’re looking to build credit, apply for a new credit card, or save money with the cards you have, it’s important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is a fast way to pay off credit card debt?

You might be able to use a balance-transfer credit card and pay down your debt during the 0% APR promotional period. Or you might consider securing a personal loan to pay off the debt. You would then pay off the personal loan, which could have a lower interest rate.

Can you change your credit card payment due date?

You may be able to change your payment due date. See if your card’s website or app allows this kind of shift, or contact customer service.

Do most Americans carry credit card debt?

According to recent data, approximately 49% of Americans carry credit card debt.

Photo credit: iStock/Sneksy

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOCC-Q324-010

Source: sofi.com

Apache is functioning normally

By now you’ve heard the news. President Biden dropped out of the 2024 presidential race and paved the way for current VP Kamala Harris to run in his place.

That was big news that shook up the election overnight, and now there is a renewed focus on Harris, including her financial disclosures.

The WSJ ran a story today about how she manages her money, pointing out her penchant for index funds and her ultra-low rate 2.625% mortgage.

I dug a little deeper to see what kind of mortgage she had, along with when and where she got it.

And it turns out it’s an adjustable-rate mortgage, which we all know aren’t for the faint of heart.

Kamala Seems to Really Love the 7-Year ARM

With regard to that 2.625% mortgage Kamala Harris holds, it turns out it’s a 7-year adjustable-rate mortgage (ARM).

This is a popular type of ARM these days because it provides 84 months of interest rate stability before the first adjustment.

In that respect, homeowners can take one out and not worry about their rate increasing for many years.

And in the meantime, either sell their property or refinance the mortgage if need be.

Harris obtained her latest mortgage in 2020 and was able to get a very low interest rate set at 2.625% until the year 2027.

It’s unclear what the exact loan amount is, but it was revealed to be somewhere between $1,000,000 and $5,000,000.

We also know that the lender in question is Wells Fargo, which has had its share of controversies over the past decade, including improper mortgage lock fees.

What’s even more interesting is this isn’t Harris’ first 7-year ARM. A prior financial disclosure revealed that she took out the same type of loan in 2016 as well.

It featured the same exact mortgage rate, 2.625%. And you guessed it, also came from San Francisco-based bank Wells Fargo.

But wait, there’s more! If we go back to 2012, she took out another 7/1 ARM set at an even lower 2.5%.

In total, that’s three 7-year ARMs in a row dating back about 12 years. Based on that timing, you’d expect a fourth around now, but mortgage rates are no longer cheap.

Unfortunately, a typical 7-year ARM might now go for closer to 5% or higher, making it a pretty terrible deal. So until rates improve, she’ll likely be holding onto the 2020 loan.

She’s Got Another Three Years to Figure Out Her Next Move

It’s not uncommon for homeowners to take out ARMs and refinance them over and over into new ARMs.

The logic is that an ARM is typically cheaper than a fixed-rate mortgage, and if you refinance it before it becomes adjustable, you get the upside (lower rate) without any of the downside (higher rate adjustment).

The one caveat is the closing costs each time you refinance, though a no cost refinance can work if rates remain cheap.

There’s also the time aspect, as it can take about a month to get a mortgage, and it can be a pain to go through the process.

But if you don’t mind all that, you can get a cheaper mortgage and allocate the savings elsewhere, such as an index fund.

You also get a smaller payment over time if you refinance into a new 30-year loan term since the loan amount will be smaller thanks to several years of paying it down.

Anyway, it seems Harris employed this strategy for the past decade while mortgage rates hit record lows and it worked out favorably.

However, it appears her next move won’t be as easy now that mortgage rates have more than doubled in the past few years.

Her Mortgage Rate Could Jump to 4.625% in 2027

Come 2027, her 7-year ARM will see its first adjustment, and that means it’ll likely rise from 2.625% to 4.625%.

There are typically caps in place that limit initial movement by 2%, and subsequent adjustments by 2%, with a lifetime cap that can’t be exceeded.

So beyond that first adjustment, it could go even higher than 4.625%, perhaps to 6.625% if the associated mortgage index is still inflated at that time.

Assuming that happens, she’d want out of the loan and into something cheaper.

But if mortgage rates are still high then, it might remain her best option, despite being more expensive than her original loan.

This is the big risk of taking out an ARM vs. a fixed-rate loan. With the latter, you never have to worry about a rate adjustment, though you do pay a premium for that assurance.

If all else fails, there’s always the option to sell the property, which solves the adjustable-rate problem.

And if she’s living in the White House, that might work out just fine.

Read on: Are adjustable-rate mortgages finally a good deal again?

(photo: Gage Skidmore)

Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the home loan process.
Latest posts by Colin Robertson (see all)

Source: thetruthaboutmortgage.com