A Guide to Consolidating and Refinancing Student Loans

Student loan consolidation and refinancing can help you manage your debts, reducing monthly payments, creating more favorable terms, and ensuring you have more money in your pocket at the end of the month. 

But how do these payoff strategies work, what are the differences between private loans and federal loans, and how much money can consolidation save you?

Private and Federal Student Loan Consolidation

Federal student loan consolidation can combine multiple federal loans into one. Private consolidation can combine both federal loans and private loans into a new private loan. The act of consolidation can improve your debt-to-income ratio, which can help when applying for a mortgage and greatly improve your financial situation.

Which Loans Qualify for Student Loan Consolidation?

You can generally consolidate all student loans, including Federal Perkins loans, Direct loans, and other federal loans, as well as those from private lenders. You cannot consolidate private loans with federal loans, but you can consolidate them with other private loans.

What Should you Think About Before Consolidating Student Loans?

Consolidating isn’t just something to consider if you’re struggling to meet current terms. In fact, private lenders often require a minimum credit score in the high-600s and you’ll also need to have a stable income (or a cosigner) and a history of at least a few punctual payments.

Federal student loans are a little easier to consolidate and available to more borrowers, including those looking to qualify for income-based repayment or student loan forgiveness schemes.

In either case, it can reduce your monthly payments, making your loans more manageable.

How to Consolidate Private Student Loans

Some of the private lenders offering this service include:

  • LendKey
  • Citizens One
  • CommonBond
  • SoFi
  • Earnest

The rate you receive will depend on your credit score and whether you opt for a variable interest rate or a fixed interest rate, but generally, they range from 3% to 8%. Each lender has their own set of terms and requirements, but they’ll often require you to:

  • Be at least 18 years old
  • Have no more than $150,000 in debt
  • Be the main borrower (not the cosigner)
  • Complete a credit check

The lender will run some basic checks to determine your creditworthiness before offering you a consolidation sum that will clear your debts and leave you with a single monthly payment. There are different types of private loan depending on whether you’re applying to consolidate just private loans or both federal loans and private loans.

If you only have federal loans, you should apply for federal student loan consolidation instead.

What Will I Pay?

The main goal of student loan consolidation is to reduce your monthly payment. If you have a strong credit score you can get a reduced interest rate and may even benefit from a reduced repayment term. However, as with most forms of consolidation, it’s all about reducing that monthly payment, improving your debt to income ratio and increasing the money you have leftover every month.

Shop around, consider all loan terms carefully, run some calculations to make sure you can meet the monthly payment, and compare repayment options to find something suitable for you.

Don’t feel like you need to jump at the first offer you receive. A personal loan application can show on your credit report and reduce your credit score by as much as 5 points, but multiple applications with multiple private lenders will be classed as “rate shopping”, providing they all occur within 14 days (some credit scoring systems allow for 30 or 45 days).

How Federal Debt Consolidation Loan Works

Federal student loan consolidation won’t reduce your interest rate, but it does make your repayments easier by rolling multiple payments into one and there is no minimum credit score requirement either.

When you consolidate federal student loans, the government basically clears your existing debt and then replaces it with a Direct Consolidation Loan.

You can consolidate directly through the government, with the loan being handled by the Department of Education. There are companies out there that claim to provide federal student loan consolidation on behalf of the government, but some of these are scams and the others are unnecessary—you can do it all yourself.

You can apply for consolidation once you graduate or leave school and you will be given an extended loan term between 10 and 30 years.

Just visit the StudentLoans.gov website to go through this process and find a repayment plan that suits you.

What is Student Loan Refinancing?

Student loan refinancing is very similar to consolidation and the two are often used interchangeably. In both cases, you apply for a new loan and this is used to pay off the old one(s), but refinancing is only offered by private lenders and can be used to “refinance” a single loan.

The process is the same for both and in most cases, you’ll see “consolidation” being used for federal loans and “refinancing” for private loans.

Student Loan Forgiveness and Other Options

You may qualify to have your federal student loans fully or partially forgiven. This is true whether you have previously been accepted or refused for repayment plans and it can help to lift this significant burden off your shoulders.

  • Public Service Loan Forgiveness (PSLF): Offered to government workers and employees with qualifying non-profit companies. You can have your federal loans forgiven after making 120-payments. This program works best with income-focused repayment plans, otherwise, you may have very little left to forgive (if anything) after that period.
  • Teacher Loan Forgiveness: Teachers can have their federal student loans partially forgiven if they have been employed in low-income schools for at least five years. They can have up to $17,500 forgiven.
  • Student Loan Forgiveness for Nurses: Nurses can qualify for PSLF and this is often the best option for getting federal student loans forgiven or reduced. However, there are a couple of highly competitive options, including the NURSE Corps Loan Repayment Program.

There are also Income-Driven Repayment Plans, which is definitely an option worth considering.

Income-Driven Repayment Plans

An income-focused repayment plan is tied to your earnings, taking between 10% and 20% of your earnings, before being forgiven completely after 20 or 25 years. There are four plans:

  • Pay as you Earn (PAYE): If you have graduate loans and are married with two incomes then you may qualify.
  • Revised Pay as you Earn (REPAYE): Offered to individuals who are single, don’t have graduate loans, and have the potential to become high earners.
  • Income-Based Repayment: If you have federal student loans but don’t qualify for PAYE.
  • Income-Contingent Repayment: If you have Parent Plus loans and are seeking a reduced monthly payment.

These programs can greatly reduce your monthly payment and your obligations, but they are not without their disadvantages. For instance, they will seek to extend the repayment term to over 20 years, which will greatly increase the total interest you pay. If anything is forgiven, you may also pay taxes on the forgiven amount.

You can discuss the right option for you with your loan servicer, looking at the payment term in addition to your current circumstances and projected income as well as your student loan terms.

Conclusion: Help and More Information

Student loan refinancing and consolidation can help whether you’re struggling with federal loans or private loans, and there are multiple options available, as discussed in this guide. If you have credit card debt, personal loan debt, and other obligations weighing you down, you may also benefit from a debt management plan, balance transfer credit card, or a debt settlement program.

You can find information on all these programs on this site, as well as everything else you could ever want to know about federal student loans and private loans.

A Guide to Consolidating and Refinancing Student Loans is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

What Are the Consequences of Not Having Life Insurance?

Before I started writing in the personal finance space, I spent nearly 8 years working alongside my husband in a funeral home. My husband Greg worked as a mortician, and I was the Director of Family Services. I learned so much about living and dying during my years in the mortuary business, but there’s one that stuck with me — the real-life consequences of not having life insurance. 

I clearly remember speaking with dumbfounded families who couldn’t believe their husband or father (or wife or mother) never had life insurance in place. Some didn’t have enough money to cover final expenses like the funeral bill, and others confided in me they had no idea how they would pay their bills.

This saddened me greatly since I know first-hand how inexpensive life insurance can be — especially if you’re young and healthy. After all, I’m a 40-year-old woman and I currently have two term policies worth $1 million dollars that set me back a grand total of $53 per month. 

Why People Don’t Buy Life Insurance

The main reason consumers don’t buy this important coverage is simple — they get busy and forget. Most of us know we need life insurance in place during our working years, and that’s especially true for those of us with kids. But it’s easy to let life get in the way, and for the purchase of life insurance to wind up on a list of other to-dos that we never get to. 

Not only that, but people don’t want to think about dying. I specifically remember a family I met in the funeral home who just lost a husband and father who wasn’t even 40-years-old. In tears, his wife explained that he had told her he was going to buy life insurance dozens of times, but that he hated even dealing with death. He had a $20,000 life insurance policy through work, and he knew he needed more, but he didn’t want to face his mortality in his free time. Unfortunately, his family paid dearly for that decision.

A final reason people don’t buy life insurance is cost. The thing is, term coverage is so cheap that almost anyone can afford it. People just think it’s expensive, so they shy away from taking the next steps. Life insurance is also just another bill to pay, and many can barely keep up with the bills they have.

That’s probably why so few people have enough coverage. Here are some statistics that should scare you:

  • Only around 60 percent of Americans had life insurance in 2018, according to LIMRA’s 2018 Insurance Barometer Study
  • Among those with life insurance, 1 in 5 people know they do not have enough
  • Consumers surveyed tend to overprice life insurance; millennials in particular believe that life insurance costs 5x the actual amount for a policy

Consequences of Not Having Life Insurance

Based on those statistics, not enough people have life insurance and those who do may not have enough coverage to last. But, what can this mean for your family? Here are the main downsides you’ll face when you don’t buy life insurance now, before it’s too late:

Your Income Disappears

Income replacement is one of the most compelling reasons to buy life insurance, and that’s especially true if you have kids. You don’t want your income to suddenly disappear, leaving your family in the lurch. However, this is exactly what happens when you die without life insurance. All of a sudden, your family is left trying to cover regular bills and living expenses without your income.

That’s why many experts suggest buying at least 10x your income in term life insurance coverage. This way, your family will have some cash they can use to replace your income while they mourn and get back on their feet.

Your Debts Don’t 

Your income may disappear when you die, but your debts certainly don’t. With that in mind, you should buy life insurance coverage that will cover major debts you have like your home mortgage, your family car loans, and any credit card debt you have.

If you don’t buy life insurance and you die before your time, your family will be left trying to cover all your debts without your help. It’s shameful to leave them in this position — especially when term life insurance coverage can easily be purchased for the price of a dinner out per month. 

Your Family Could Need a GoFundMe to Pay for Your Funeral

During my final years in the funeral industry, GoFundMe came about. I cannot tell you how many families came in to plan their services without any money only to find that, no, the funeral home wouldn’t let them make payments. After that, they’d set up a GoFundMe and solicit donations from family and friends to pay for a service. 

This always made me sad, mostly because families shouldn’t have to struggle or fundraise to pay for final expenses. I always thought that, if only their loved one had a small term life insurance policy, they would have been able to grieve without the added stress.

You Will Not Leave a Legacy

Finally, life insurance offers you the chance to leave a legacy behind. This could mean leaving enough money to pay for college tuition for your children, or having a broad enough policy so your spouse or partner never needs to work again, paving the way for them to stay home and nurture your kids. When you have enough life insurance so your family is taken care of, they will never forget it.

The opposite is also true. Many whose loved ones die without life insurance wind up angry and resentful at their partner for leaving them in such a position. I know because I saw it with my own eyes, and I felt their exasperation as they tried to figure out what to do.

Purchase Life Insurance the Painless Way

Here’s the thing: Buying life insurance doesn’t have to be complicated or stressful. I know because I have purchased $1 million in life insurance coverage, and because the second policy I bought online didn’t even require a medical exam. 

The purchase of life insurance can be painless and fast if you plan to buy basic term coverage, and it can also be significantly cheaper than you think it would be. These tips can help you get the coverage you need without any added hassle or stress.

1. Shop Around and Compare Quotes Online

First, you should absolutely shop around and compare life insurance quotes online, mostly because this is such an easy task. A range of online life insurance providers including Haven Life and Bestow make it easy to price out a policy in a matter of minutes online. 

To get a quote from Bestow or Haven Life, for example, all you need to supply is your birth date, your height, your weight, and your zip code. You don’t even need to enter your contact information or your email to get a free quote with either company.

You can also check out our guide to the Best Life Insurance Companies of 2021, which lets you read reviews of all the top providers and compare rates from multiple providers in one place. 

Whatever you do, don’t go with the first life insurance company you come across. Make sure you compare policies in terms of their monthly cost, the amount of coverage, and how long it lasts. Then, and only then, can you know you’re getting the best deal.

2. Play Around with Coverage Amounts

You also need to have a general idea of how much coverage you want and need. We mentioned that most experts suggest buying at least 10x your income in life insurance coverage, but it may be prudent to buy more term coverage than you need. After all, there’s no such thing as having too much life insurance in place, but you can definitely not have enough.

You’ll also want to decide how long you want your policy to last. Most term life insurance policies last for 10, 15, 20, or 30 years, letting you tailor your policy to your needs.

If you’re young and you have young kids, you may want a 30-year policy that will provide income replacement for your entire working life. If you’re in your 40’s and you plan to retire at 55, on the other hand, you may feel comfortable with a policy that lasts for 15 or 20 years. There is no “right” or “wrong” answer, but these are factors you should consider.

3. Look for Providers that Don’t Require a Medical Exam

According to LIMRA’s 2018 Insurance Barometer Study, half of all consumers say they are “more likely to purchase life insurance if priced without a physical examination.” And, can you blame them? Medical exams require a blood draw, and you have to set aside time in your schedule for them to boot. It’s easy to procrastinate and never buy a policy when a medical exam is required.

Fortunately, many life insurance providers don’t require a medical exam. Instead, they rely on algorithms to determine who is the greatest risk, and who can purchase coverage that begins right away. The second policy I purchased for myself came from Haven Life, and it did not require a medical exam. 

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I was in my late 30’s when I purchased this policy for $750,000, and I only pay around $27 per month. I applied for this policy online and had coverage the next day, and all without seeing a nurse or facing the dreaded needle prick.

The Bottom Line

Since you took the time to read this piece, you are probably on the verge of buying life insurance. You already know you need it, so don’t let another day go buy without coverage. You may not think something could happen to you in the next week or the next few months, but life doesn’t always go as planned. If you’re unlucky, your untimely death may be no exception.

Take the time to get a quote for life insurance, and you’ll never have to wonder what your family would do if you died. Life insurance lets you continue providing for them even after you’ve left this Earth, and there’s nothing more thoughtful and loving than that. 

The post What Are the Consequences of Not Having Life Insurance? appeared first on Good Financial Cents®.

Source: goodfinancialcents.com

What is Credit Card Churning? Dangers and Benefits

Credit card issuers have consumers right where they want them, lending money at high-interest rates and earning money from many different fees. Even reward cards benefit the issuers, because all the additional perks and rewards they provide are covered by the increased merchant fees, which essentially means the credit card company offers you extra money to incentivize you to spend, and then demands this money from the retailers.

It’s a good gig, but some consumers believe they can beat the credit card companies and one of the ways they do this is via something known as credit card churning.

What is Credit Card Churning?

Many reward cards offer sign-up bonuses to entice consumers to apply. Not only can you get regular cash back, statement credit, and air miles, but you’ll often get a reward just for signing up. For instance, many rewards credit cards offer a lump sum payment to all consumers who spend a specific sum of money during the first three months.

Credit card churning is about taking advantage of these bonuses, and getting maximum benefits with as little cost as possible.

“Churners” will sign up for multiple different reward cards in a short space of time, collect as many of these bonuses as they can, clear the card balance, and then reap the rewards.

Does Credit Card Churning Work?

Credit card churning does work, to an extent. Reward credit cards typically don’t require you to spend that much money to receive the sign up bonus, with most bonuses activated for a spend of just $500 to $1,000 over those first three months. This is easily achievable for most credit card users, as the average spend for reward cards is over $800 a month.

If you have good credit, it’s possible to sign up to multiple credit cards, collect bonus offers without increasing your usual spend, and get everything from hotel stays to free flights, cash back, gift cards, statement credit, and more.

However, it’s something that many credit card companies are trying to stop, as they don’t benefit from users who collect sign-up bonuses, don’t accumulate debt, and then pay off their balance in full. As a result, you may face restrictions with regards to how many bonuses you can collect within a specified timeframe. 

What’s more, there are several things that can go wrong when you’re playing with multiple new accounts like this, as all information is sent to the credit bureaus and could leave a significant mark on your credit report.

Dangers of Churning

Even if the credit card companies don’t prevent you from acquiring multiple new credit cards, there are several issues you could face, ones that will offset any benefits achieved from those generous sign-up bonuses, including:

1. You Could be Hit with Hefty Fees

Many reward credit cards have annual fees, and these average around $95 each, with some premium rewards cards going as high as $250 and even $500. At best, these fees will reduce the amount of money you receive, at worst they will completely offset all the benefits and leave you with a negative balance.

Annual fees aren’t the only fees that will reduce your profits. You may also be charged fees every time you withdraw cash, gamble, make a foreign transaction or miss a payment,

2. Your Credit Score Will Drop

Every time you apply for a new credit card, you will receive a hard inquiry, which will show on your credit report and reduce your FICO score by anywhere from 2 to 5 points. Rate shopping, which bundles multiple inquiries into one, doesn’t apply to credit card applications, so credit card churners tend to receive many hard inquiries.

A new account can also reduce your credit score. 15% of your score is based on the length of your accounts while 10% is based on how many new accounts you have. As soon as that credit card account opens, your average age will drop, you’ll have another new account, and your credit score will suffer as a result.

The damage done by a new credit card isn’t as severe as you might think, but if you keep applying and adding those new accounts, the score reduction will be noticeable. You could go from Excellent Credit to Good Credit, or from Good to Fair, and that makes a massive difference if you have a home loan or auto loan application on the horizon.

Your credit utilization ratio also plays a role here. This ratio is calculated by comparing your total debt to your available credit. If you have a debt of $3,000 spread across three credit cards with a total credit limit of $6,000, your credit utilization ratio is 50%. The higher this score is, the more of an impact it will have on your credit score, and this is key, as credit utilization accounts for a whopping 30% of your score.

Your credit utilization ratio is actually one of the reasons your credit score doesn’t take that big of a hit when you open new cards, because you’re adding a new credit limit that has yet to accumulate debt, which means this ratio grows. However, if you max that card out, this ratio will take a hit, and if you then clear the debt and close it, all those initial benefits will disappear.

You can keep the card active, of course, but this is not recommended if you’re churning.

3. You’re at Risk of Accumulating Credit Card Debt

Every new card you open and every time your credit limit grows, you run the risk of falling into a cycle of persistent debt. This is especially true where credit card rewards are concerned, as consumers spend much more on these cards than they do on non-reward credit cards.

Very few consumers accumulate credit card debt out of choice. It’s not like a loan—it’s not something they acquire because they want to make a big purchase they can’t afford. In most cases, the debt creeps up steadily. They pay it off in full every month, only to hit a rough patch. Once that happens, they miss a month and promise themselves they’ll cover everything the next month, only for it to grow bigger and bigger.

Before they realize it, they have a mass of credit card debt and are stuck paying little more than the minimum every month. 

If you start using a credit card just to accumulate rewards and you have several on the go, it’s very easy to get stuck in this cycle, at which point you’ll start paying interest and it will likely cost you more than the rewards earn you.

4. It’s Hard to Keep Track

Opening one credit card after another isn’t too difficult, providing you clear the balances in full and then close the card. However, if you’re opening several cards at once then you may lose track, in which case you could forget about balances, fees, and interest charges, and miss your chance to collect airline miles cash back, and other rewards.

How to Credit Churn Effectively

To credit churn effectively, look for the best rewards and most generous credit card offers, making sure they:

  • Suit Your Needs: A travel rewards card is useless if you don’t travel; a store card is no good if you don’t shop at that store. Look for rewards programs that benefit you personally, as opposed to simply focusing on the ones with the highest rates of return.
  • Avoid Annual Fees: An annual fee can undo all your hard work and should, therefore, be avoided. Many cards have a $0 annual fee, others charge $95 but waive the fee for the first year. Both of these are good options for credit card churning.
  • Don’t Accumulate Fees: Understand how and why you might be charged cash advance fees and foreign transaction fees and avoid them at all costs. The fees are not as straightforward as you might think and are charged for multiple purchases.
  • Plan Ahead: Make a note of the bonus offer and terms, plan ahead, and make sure you meet these terms by the due dates and that you cover the balance in full before interest has a chance to accumulate.
  • Don’t Spend for the Sake of It: Finally, and most importantly, don’t spend money just to accumulate more rewards. As soon as you start increasing your spending just to earn a few extra bucks, you’ve lost. If you spend an average of $500 a month, don’t sign up for a card that requires you to spend $3,000 in the first three months, as it will encourage bad habits. 

What Should You do if it Goes Wrong?

There are many ways that credit card churning could go wrong, some more serious than others. Fortunately, there are solutions to all these problems, even for cardholders who are completely new to this technique:

Spending Requirements Aren’t Met 

If you fail to meet the requirements of the bonus, all is not lost. Your score has taken a minor hit, but providing you followed the guidelines above, you shouldn’t have lost any money.

You now have two options: You can either clear the balance as normal and move onto your next card, taking what you have learned and trying again, or you can keep the card as a back-up or a long-term option. 

Credit card churning requires you to cycle through multiple issuers and rewards programs, never sticking with a single card for more than a few months. But you need some stability as well, so if you don’t already have a credit card to use as a backup, and if that card doesn’t charge high fees or rates, keep it and use it for emergency purchases or general use.

Creditor Refuses the Application

Creditors can refuse an application for a number of reasons. If this isn’t your first experience of churning, there’s a chance they know what you’re doing and are concerned about how the card will be used. However, this is rare, and in most cases, you’ll be refused because your credit score is too low.

Many reward credit cards have a minimum FICO score requirement of 670, others, including premium American Express cards, require scores above 700. You can find more details about credit score requirements in the fine print of all credit card offers.

Your Credit Score Takes a Hit

As discussed already, credit card churning can reduce your credit score by a handful of points and the higher your score is, the more points you are likely to lose. Fortunately, all of this is reversible.

Firstly, try not to panic and focus on the bigger picture. While new accounts and credit length account for 25% of your total score, payment history and credit utilization account for 65%, so if you keep making payments on your accounts and don’t accumulate too much credit card debt, your score will stabilize.

You Accumulate Too Much Debt

Credit card debt is really the only lasting and serious issue that can result from credit card churning. You’ll still earn benefits on a rolling balance, but your interest charges and fees will typically cost you much more than the benefits provide, and this is true even for the best credit cards and the most generous reward programs.

If this happens, it’s time to put credit card churning on the back-burner and focus on clearing your debts instead. Sign up for a balance transfer credit card and move your debt to a card that has a 0% APR for at least 15 months. This will give you time to assess your situation, take control of your credit history, and start chipping away at that debt.

What is Credit Card Churning? Dangers and Benefits is a post from Pocket Your Dollars.

Source: pocketyourdollars.com