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How to Decide When to Claim Social Security Benefits

By Blake Fambrough

Learn more about Blake on NerdWallet’s Ask an Advisor

Should I start receiving Social Security benefits at 62, or wait a few years? How does my decision affect my spouse’s benefits?

Every day tens of thousands of people are making decisions about when they will start receiving Social Security — and these decisions affect the amount they will receive. However, many people do not know what options are available to maximize their benefits.

Since Social Security represents about 39% of the income for the elderly population, understanding the benefit-claiming options is important in an overall retirement plan. Here are some guidelines to help you decide when you should start receiving benefits.

Benefits of delaying

While you can start receiving benefits at 62, it typically makes the most sense to delay until the age of 70. Delaying is a great strategy for two reasons:

• Social Security increases your benefit for each month between age 62 and 70 that you delay the start of your earned benefit. This increase in benefit is called delayed retirement credits. If you were born in 1943 or later, your annual benefit increase is 8%.

• In a married couple, when the higher wage earner dies, the widowed spouse will receive a monthly survivor’s benefit. The amount will be based on the Social Security income that the higher wage earner was receiving during his or her lifetime (which will reflect any delayed retirement credits). Therefore, to maximize benefits for your spouse after you pass away, delaying your benefits until 70 is a good strategy.

• Additionally, your annual cost-of-living adjustment, or COLA, is based on your monthly payments; if you begin benefits at 62, your COLA will be lower as well.

Important note: If you decide to delay your retirement, be sure to apply for Medicare only at age 65. Otherwise your Medicare coverage may be delayed and cost more.

To decide the optimal time to receive your Social Security benefits, it’s important to take health into consideration. Spouses in poor health should start their benefits early, and spouses in excellent health may want to delay their benefits. Keep in mind that Social Security benefits for a nonworking spouse cannot be started until the working spouse begins his or her own benefits.

It can be tempting to take your Social Security benefits at 62, the earliest time possible. But unless you absolutely need the income sooner due to expenses and health issues, delaying is generally the better option.

Changing your mind

If you start receiving Social Security benefits, you have the option to change your mind. You can then restart benefits at a later date to take advantage of the higher payout. However, you only have a 12-month window after you start receiving benefits to make this choice, and you can only do it once in your lifetime. If you take advantage of this one-time option, you must repay all the benefits you have already received.

Loopholes eliminated

If you’re nearing the point of making decisions on when to claim your benefits, it’s also important to know about recent changes in Social Security law. Last November, Congress passed the Bipartisan Budget Act of 2015, which phased out two popular Social Security claiming strategies for married couples. The Social Security Administration eliminated “file-and-suspend” and “restricted application,” two strategies that were viewed as loopholes and that allowed married couples to claim thousands more dollars in lifetime Social Security benefits than they ordinarily would have.

The file-and-suspend strategy allowed the higher-earning member of a married couple to file for benefits upon reaching full retirement age, then suspend those benefits. This allowed the benefits to grow at 8% annually, while also allowing the recipient’s spouse to begin receiving spousal benefits, which are half the amount of the higher-earning spouse’s benefits.

Restricted application, a related strategy that mainly focused on married couples who were both income earners, allowed recipients who are full retirement age to receive their spousal benefits and then switch to their personal benefit at age 70 as a way to maximize benefits.

The restricted application option will no longer be available to anyone who was born after January 1, 1954. If a married couple is already taking advantage of file-and-suspend and restricted application, they will be grandfathered in and unaffected.

The bottom line

If you are in excellent health and have adequate income to sustain your lifestyle until full retirement age or to the age of 70, it is probably best to delay your Social Security benefits. There are many factors to take into consideration, however, and it’s a good idea to meet with a financial professional who can walk you through your claiming strategies to maximize your benefits.

Blake Fambrough, CFP, is a financial advisor with Dubots Capital Management in Temecula, California.

Low-Earning Bank Accounts Aren’t the Best Spot for All Your Money

A bank is a nice security blanket: It keeps your money safe, accessible and insured, ready to pay regular bills or cover an unexpected expense.

But the warmth and fuzziness can wear off quickly when you realize low interest rates on bank accounts are holding your money back. Once you have your bill-paying funds and emergency savings covered, look at alternatives such as investments that can grow the rest of your money faster.

Here’s how to know when to pivot from bank accounts to other savings options.

Set up your safety net …

Your emergency fund needs a foolproof plan and a security guard, and the Federal Deposit Insurance Corp. provides that for many bank accounts. The FDIC insures banks, so consumers’ deposits are protected if a bank fails. But the highest rates you’ll get on savings accounts range between 1% and 2%, compared with potential average annual returns of up to 7% on investments.

»MORE: How to switch banks

Keep only what you need for bills and emergencies in a bank. For checking accounts, the minimum balance plus a $500 cushion for unforeseen expenses should be left after you pay bills. For your emergency fund, save three to six months of income, more if you’re self-employed. Once you reach these goals, take your extra money elsewhere.

»MORE: Compound interest calculator

… Then build a portfolio

With your money for expenses and emergencies safe in a bank, it’s time to consider long-term options that can offer better returns. Compound interest — the interest you earn on prior interest — adds up over time. The sooner you get started, the more you can earn. Here’s how to start building your investment portfolio.

  • Pay off high-interest debt: If you have credit cards with interest rates approaching 20%, for example, paying them off will give you an immediate return by avoiding or reducing those interest payments.
  • Save for retirement: Contribute to your 401(k). If you’re still paying off debt, contribute just enough to get the employer match, and continue your payoff plan. Once you’re caught up, put additional savings in an IRA or a Roth IRA. Aim to save between 10% and 15% of your gross income to stay on track for retirement.
  • Open a brokerage account: This is a good option if you’ve maxed out contributions to your retirement fund or you want to save for other long-term goals, such as a dream vacation or your daughter’s wedding. Depending on the broker, you can buy and sell stocks, bonds, mutual funds, currency, futures and options contracts.

»MORE: What is a brokerage account and how do I open one?

Calculate risk

With investments you can earn more, but you can also lose more because your money isn’t insured like it is at most banks. Diversify your portfolio by putting your money into investments that vary across countries, industries, asset classes or company size. A well-balanced portfolio can minimize risk.

Your goals and age will determine the best options among short-term or long-term investments, and you’ll adjust as you get older. For example, as you approach retirement you may want to minimize risk by increasing the proportion of bonds in your portfolio and decreasing your allocation toward stocks.

Weigh the options and choose the plan that best suits your financial goals.

Melissa Lambarena is a staff writer at NerdWallet, a personal finance website. Email: mlambarena@nerdwallet.com. Twitter:@LissaLambarena.

This article was written by NerdWallet and was originally published by USA Today.

 

Poor Credit History? There Are Ways to Recover

By Roslyn Lash

Learn more about Roslyn on NerdWallet’s Ask an Advisor 

In an ideal world, everyone could afford to pay cash for all items. Until that day arrives, establishing and maintaining good credit is important, because often we need credit to purchase high-priced items such as houses, cars and furniture.

Maybe you had some tough times in the past and now you’re paying the price for a poor credit history. The good news is that there are things you can do to rebuild your credit, even if you can’t get a loan or conventional credit card.

How a credit score works

Credit scores are three-digit numbers, typically ranging from 300 to 850, that creditors use to rate your creditworthiness. Scores are based on how responsibly you’ve paid off loans in the past. The higher your score, the more likely you will obtain a loan with good terms, because you’ve proven there’s less risk that you will default.

There are three major credit scoring bureaus: Equifax, TransUnion and Experian. Each agency uses different algorithms to calculate credit scores, so each bureau’s score may differ.

How to repair your credit

One good option is to get a secured credit card, which requires that you make a refundable deposit into an account as collateral. Usually your credit limit will be identical to how much you deposited. Although this is not ideal, it does allow you to open a credit account despite a poor credit history and, more importantly, rebuild your credit.

Ideally you would pay the full balance off each month, though that’s not required. You must do two things if you want to rebuild your credit, though: Remit the required payment on time each month, and maintain a balance of no more than 30% of your credit limit. This balance-to-limit ratio is known as the utilization rate.

To illustrate the utilization rate, let’s say you have a secured credit card with a limit of $1,000, because you have deposited $1,000 into the account. To keep the utilization rate below 30%, your balance should not exceed $300.

As you repeatedly pay the bill on time and keep your utilization rate under 30%, your credit rating should increase. Many lenders will report your account activity to the credit bureaus, which can increase your credit score. Before you apply for a secured card, check if the issuer reports to the bureaus.

» MORE: Best secured credit cards of 2016

The effects of bad credit

Not only can a subpar credit score affect your ability to get mortgages and car loans, or get good terms on those loans, it can also affect other areas of your life:

Insurance: Insurance companies routinely check credit reports in order to determine premiums for home and auto insurance. These premiums may be higher because of your payment history.

Employment: Many employers perform a credit check as part of the hiring process. It’s a controversial practice, but advocates say these credit checks are an important indicator of maturity, discipline and trustworthiness.

Housing: A low score can influence a landlord’s decision during the application process. Your credit report shows your monthly debts, and landlords review the report to see whether you could afford to pay rent. A bad credit score may not automatically exclude you from becoming a tenant, but delinquencies or accounts in collections may influence the decision. And if you owe money to another landlord, your chances of leasing the property are slim.

The road back to good credit may seem long, and you certainly won’t complete it overnight, but by taking some solid steps you will begin to find your way.

Roslyn Lash, AFC, is a financial educator and coach at Youth Smart Financial Education Services.

Most People Need Not Worry About Estate Taxes

By Rachel Podnos, CFP

Learn more about Rachel on NerdWallet’s Ask an Advisor

Welcome news: As of 2016, if you die with less than $5.45 million in assets — or $10.9 million if you’re married — your estate won’t owe federal estate tax.

Surprised? Most people are. As a financial planner, I come across many people who list avoiding estate tax as a top priority in their financial plan. But in reality, very few people accumulate enough wealth to make federal estate tax an issue.

Small minority hit with tax

Some people might be concerned about estate tax because the federal exemption amount used to be much lower. As recently as 2008, it was $2 million. In 2001, it was $675,000.

But since the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act passed in 2010, the estate tax exemption has been $5 million and higher. The amount increases each year to adjust for inflation.

The top estate tax bracket is 40%, so this high exemption amount saves a lot of people a lot of money. In fact, according to the Tax Policy Center, only 5,300 estates were expected to be taxable in 2015. That is, out of the 2.6 million people who were expected to die last year, only 1 out of every 495 was projected to have a taxable estate.

What’s more, you can also make tax-free gifts of up to $14,000 to any number of persons each year. And you can leave an unlimited amount of assets to your spouse or a charity without triggering federal estate tax.

If you will die with enough assets to have a taxable estate, rest assured that there are many loopholes, strategies and estate planning tools you can use to shelter your wealth. That’s a topic for another article.

The need for estate planning

So does all of this mean that you don’t need an estate plan? Absolutely not. I would argue that virtually everyone needs some elements of an estate plan, such as an advanced health care directive and a durable power of attorney.

Most people should also have at least a basic will to establish what will happen with their minor children and assets when they die.

Keep in mind that estate tax rules might be changing: Presidential candidates Hillary Clinton and Donald Trump have proposed changes, and a new IRS proposal could raise estate taxes for wealthy business owners.

Keep in mind, too, that you may have a state estate tax: Currently, 15 states and the District of Columbia do. However, all of them have an exemption amount and maximum tax rates that are far lower than the federal rate of 40%. New Jersey has the lowest exemption amount ($675,000), and Washington has the highest maximum estate tax rate (20%).

When it comes to estate planning, tax isn’t the key thing for most people to worry about — it’s making sure the other elements of your estate plan are in order.

Rachel Podnos is a fee-only financial planner with Wealth Care LLC.

Swapping a Lease and Other Ways to End a Car Lease Early

When life throws you a curveball and you need to tighten your budget, you might need to break your car lease.

People generally lease cars because they prefer the flexibility of making only a three-year commitment and want less expensive monthly payments than if they bought an equivalent car. It often becomes less convenient and inexpensive if you want to exit the contract early.

Returning the vehicle before the lease expires is an option, but not a good one. You’re still on the hook for all the remaining payments, plus substantial fees and penalties for early termination.

“Any lease payment is made up of three parts. One is depreciation, one is your ‘cost of money’ or interest factor, and in most cases there’s a tax component,” says Scot Hall, executive vice president of Swapalease, a lease-trading site. “And if you wanted to end a lease early, you’re not going to see a discount on any one of those three factors, and have to make those remaining payments.”

Still, it’s not impossible to avoid the penalties when you end your lease early — and you may even save some money in the process. Here are three ways to do it:

1. Swap your lease

You might be able to transfer your lease to someone else who’ll take over the car and payments for the remainder of the contract. You can find potential takers by advertising the car yourself or posting on a lease-trading website. This sounds like a magical fix, but a lot depends on your automaker.

Check the leasing contract

Every automaker has its own financing company with slightly different leasing rules. Some, such as Hyundai and Kia, don’t allow transfers. Others have rules about when you can transfer, such as not within the first 12 months.

Even if you can transfer, you might have to worry about liability. A few automakers, including Volkswagen and Audi, hold the original lease holder responsible if the new lease holder stops making payments or totals the car.

All automakers check the credit of oncoming lessees.

Lease contracts often have a transfer fee of between $300 and $500, Hall says.

How to transfer your lease

Despite these fees, lease swapping can be the most cost-effective and simplest way to break your lease.

The easiest approach is to pay for a listing on a lease-swapping website that will find someone to pick up your lease and handle all the paperwork. Swapalease and Leasetrader are industry leaders.

“We’re like a dating service for car leases,” Hall says. “Our primary goal is to match up a person who wants out with a person who wants to take over.”

You might also consider searching Craigslist for prospective lease transfers or transferring your lease to a family member, co-worker or friend. This may alleviate the stress if you’ll remain responsible in the eyes of your automaker.

2. Buy the car and then sell it

At any point during your lease you have the option to buy the vehicle, called an “early buyout.” The leasing company will determine the price based on your remaining payments and the car’s residual value.

Some automakers still require you to pay early termination or “buyout” fees, which vary depending on your contract. But you’ll avoid mileage or wear-and-tear fees.

Ask your leasing company for the car’s current buyout price. Then use a pricing guide, such as Kelley Blue Book, to determine if that’s above or below its current market value. If the car’s buyout price is lower than its market value, you’re in good shape because you have some equity. If the buyout price is higher than the car’s value, you have to accept the loss or find another way of breaking the lease.

Once you’ve bought out the lease contract, you can sell the car in one of two ways:

sell to the dealership

Take the car to any dealership and, if it wants your car, it will make you an offer. If you agree, the dealership will buy out your contract with the leasing company and send you a check for whatever money is left over. No sales tax is involved in this transaction. Remember, dealerships only pay you the wholesale — or trade-in — price, which will net you less than if you sold the car yourself to a private buyer.

Sell to a Private party 

You can also sell your vehicle to a private buyer through a website such as Craigslist or Autotrader. But if you do, you might have to pay sales tax. Ask your local department of motor vehicles about your state’s rules.

3. Trade in your vehicle for another vehicle

You might be able to roll your current lease into another one at the dealership. You’ll still need to pay early exit fees, but they’ll be included in the monthly payments of your new car contract.

This option is ideal if you’re not having a major cash crisis but you want a different vehicle — for example, if you leased a luxury SUV but would now prefer a smaller, less expensive sedan.

Proceed with caution and check all the numbers in the contract to make sure you understand what you’re signing.

Other options:
  • Lease pull-ahead: Some dealerships offer these incentive programs, which allow you to skip your last three payments if you immediately lease another vehicle. These deals aren’t available year round or through every automaker, but if you can find one, it’s a good way to jump into a lease that better suits your lifestyle. It’s also a good way to avoid paying a penalty for going over your mileage if you’re reaching your limit early.
  • Getting a dealership buyout: Some dealerships might also offer to do this if you purchase another car from them, usually in the last year of your lease. Again, read the contract carefully to make sure the dealer hasn’t charged you for a lease transfer. You’re obligated to lease or buy another vehicle from the same manufacturer, but your final payments are forgiven, and you can transition into a more affordable vehicle if needed.
Your decision

Breaking your lease can be complex, and many people ultimately lose money in the situation. If you’re simply bored with your vehicle, it might not be worth the extra work.

But if your lifestyle changes dramatically, you might have to break a lease. Swapping your lease, buying the car or rolling it into a new lease can be a hassle — but the hassle can be worth it if you save a ton of dough on payments.

Nicole Arata is a staff writer at NerdWallet, a personal finance website. Email: narata@nerdwallet.com.

3 Ways to Pay Off a Debt in Collections

A debt in collections will crimp your credit and leave you open to pestering phone calls from debt collectors. Paying it off can get debt collectors off your back and put you on the path to rebuilding your credit and reclaiming your finances.

Before you make a payment on a debt, first determine whether it’s past the statute of limitations so you can handle it properly. If it’s not, you have three main options to pay off a debt in collections:

  • Create a payment plan.
  • Pay it off in one lump sum.
  • Settle the debt for less than you owe.

Here’s a breakdown of each tactic, including pros and cons. No matter which route you take, make sure you get the agreement between you and the debt collector in writing to ensure both parties stick to the plan.

Create a payment plan Pros Cons You can create a payment amount and schedule that works for your budget. Missing a payment can derail the plan. Paying off your debt will help your credit report and credit score. If your payment amount is unrealistic, a small emergency could blow up your budget.

Creating a payment plan lets you set a payment schedule and amount that works for your budget.

Comb through your finances to see how much you can afford to pay each week or month, whether it’s $20 or $100. Then contact the debt collector by phone or mail to propose the plan. If the collection agency agrees, it should send you a document outlining the deal. Make sure the terms of this agreement are correct before making a single payment.

This option can help you pay off the debt in a manageable way. It also can lead to the debt being marked “paid in full” on your credit reports, which can offset some of the damage done by delinquent debt.

Be sure you set an amount and schedule that won’t strain your budget to the breaking point. If you miss a payment, the debt collector may abandon the agreement and try to sue you for payment, which can lead to wage garnishment.

Pay it off in one lump sum Pros Cons Debt is gone in one payment. Can be hard to pull together the money. Paid-off debt helps your credit report and score. Diverts money from other needs.

If you come into money through a tax refund or inheritance, or if you just hustle to earn the money, paying off the debt with a single payment can quickly resolve your debt collection woes.

First, make sure this fits your financial situation. Weigh the pros and cons of funneling money into wiping out debt versus the loss of money for other expenses.

Paying in full can get the debt off your back for good, but make sure you get the agreement in writing first. Keep this proof in case the payment isn’t recorded correctly or the debt somehow gets resold to another collector.

Settle the debt for less than you owe Pros Cons You pay a lump sum that’s less than originally owed. Can be hard to strike a deal. Faster than a payment plan. Can look bad on credit report. Debt collectors might not hold up their end of the deal.

Negotiating a settlement for a single payment of less than you originally owed can make the debt easier to pay off. You can do this yourself, even though many debt settlement companies will try to get you to pay them for this service.

There are risks. Ramon Khan, a former debt collector in Texas who now works in online marketing, says it’s routine for debt collectors to tell a consumer that they will take a partial payment as a settlement, only to sell the remainder of the balance to another debt collecting company.

“It can put you in a vicious cycle where you still have to pay the rest of the debt, but now there’s another company that’s calling to collect the rest of it,” Khan says.

Negotiating a settlement takes persuasion and caution. Explain why you can’t make full payment. The greater the debt — and the longer it’s been in collections — the more likely the creditor is to accept a settlement. As with any negotiation, start lower than your target. If you want to settle for 50% of what you owe, for example, try starting at 30%.

Khan advises being explicit about the terms of the settlement and getting everything in writing. You can start the conversation on the phone, but don’t make the payment until the debt collection company sends you a written agreement. It should state:

  • That the agreed-upon amount is sufficient payment for the entirety of the debt.
  • How the debt collector will report the debt to credit bureaus. It will likely report it as “partial payment” rather than “paid in full,” but make sure you know before you agree. A “partial payment” on your credit report will crimp your credit, but it’s better than an unpaid debt.
Next steps

Any of these three options can help you pay off your debt in collections for good. If your debt is unmanageable, however, you may want to consider a debt relief option, such as bankruptcy or credit counseling

Once you have your debt under control, you can work on good financial habits like setting a budget, building an emergency fund and working to rebuild your credit.

Sean Pyles is a staff writer at NerdWallet, a personal finance website. Email: spyles@nerdwallet.com.

How to Deal With Debt Collectors

Debt collectors generally are third-party companies seeking payment on a consumer debt they bought from your original creditor for pennies on the dollar. Their tactics for seeking payment can be annoying at best and predatory — even illegal — at worst.

It’s important to know how to handle debt collectors so you can assert your rights and choose the best way to manage your debt. Before you say anything or make any payments:

  • Think before you act, to avoid making the situation worse.
  • Gather the facts.
  • Know your rights.
  • Plan how you’ll deal with the debt.

Here’s what you need to know about debt collection, plus strategies for handling debt collectors.

What to know about debt collection

When a debt goes unpaid for a period of time, usually starting 30 days after the due date, it may be reported as delinquent. At some point, usually after 180 days, the creditor — such as a credit card company, bank or medical provider — gives up on trying to collect. It may sell your debt to a third-party debt collector in order to get at least some money and take the debt off its books.

Before, you were getting bills from a creditor you recognized. Now you’re getting debt collection notices from a different company. You still owe payment on the debt, but a third party has bought the right to collect.

You’re not alone: 35% of Americans, or about 77 million people, have a debt in collections on their credit report, according to a 2014 report by the Urban Institute.

A debt in collections will leave a mark on your credit report for up to seven years, making new lines of credit harder to get and more expensive.

How to handle a debt in collections 1. Think before you act

Just as you wouldn’t jump into a contract without understanding its terms, don’t rush to make a payment when a debt collector contacts you. Take time to think through your options.

“A lot of people are ashamed of having their debt, and that’s what debt collectors prey on,” says Ramon Khan, a former debt collector from Texas who now works in online marketing.

“They create that urgency and prey on those pain points to get you to pay something. At the end of the day, if you owe $50,000 or $100,000, they don’t really care that you’re going to pay all of it. If they can get you to pay part of it, that still works toward their quota.”

Strategy: Don’t give in to pressure to pay on first contact.

Making even a single payment — even just $5 or $10 — is an acknowledgment of the debt and can have serious repercussions. If the debt is past the statute of limitations, for example, making a payment will reset that clock and could lead to a lawsuit or wage garnishment.

Don’t pay, don’t promise to pay and don’t give any payment information the collector may use later. Ask for information on the debt and say you’ll call back to discuss it later.

2. Gather the facts

As debts are sold by the original creditor to a third party and potentially resold many more times, record keeping often falls by the wayside. Many sold debts have errors about the amount owed or even who owes it.

Debt collection practices are the largest source of consumer complaints to the Consumer Financial Protection Bureau as a result. Over 85,000 complaints were filed in 2015; the biggest reason was consumers being asked to pay debt they didn’t owe.

Strategy: Gather information from the debt collector and your own records.

  • Request a validation letter from the debt collector if you don’t receive one within five business days of first contact. It should include details on the debt, the collection company and how to challenge the debt.
  • Gather your own records on the debt, if it’s yours, including information on the original creditor and your history of payments.
  • Keep good records of communication with the debt collector and any payments previously made. You may want to use certified mail for the best documentation.
3. Know your rights

The Fair Debt Collection Practices Act is your ally. This law outlines your rights as a consumer and shields you from predatory collection tactics. For instance:

  • Communication: You can request how and when debt collectors contact you — including that they cease communication altogether. Debt collectors are prohibited from using profane language or threatening violence.
  • Honesty: Debt collectors cannot mislead you about who they are, how much money you owe or the legal repercussions of not paying your debt — for instance, by threatening arrest.
  • Challenging the debt: You have a right to dispute the debt. If you challenge the debt within 30 days of first contact, the collector cannot ask for payment until the dispute is settled. After 30 days you can still challenge the debt, but the collector can seek payment while the dispute is being investigated.

Your state may offer additional consumer protections. Check with legal aid in your area or your state attorney general’s office.

You may want to file a complaint with the CFPB if your protections under the law have been violated.

Strategy: Brush up on your consumer rights — and know how to use them.

  • Understand your federal and state protections in the debt collection process. Your state’s Attorney General and the Federal Trade Commission are informative resources.
  • Whether it’s sending a letter to debt collectors to request more information on the debt or demanding that a debt collector cease contact with you, know how to exercise your consumer rights — and don’t be afraid to do so.
4. Plan your next steps

After you’ve taken time to survey your debt and brushed up on your consumer rights, compare the options for handling a debt that’s in collections:

  • Look into ways to pay off the debt.
  • Challenge it. Read the validation letter from the collector for information on how to dispute the debt.
  • Pursue a debt relief option, such as credit counseling.
  • If your debts are unmanageable and you see no way to pay them off within five years, you may want to consider bankruptcy.

Strategy: Assess each option and how it would affect your finances. Seek legal advice or credit counseling if needed.

Sean Pyles is a staff writer at NerdWallet, a personal finance website. Email: spyles@nerdwallet.com.

This article was updated Sept. 19, 2016.

Mortgage Rates Today, Monday, Sept. 19: Little Movement

Thirty-year and 15-year fixed mortgages were down slightly, while 5/1 ARM rates were unchanged Monday, according to a NerdWallet survey of mortgage rates published by national lenders.

Mortgage rates have barely budged for nearly a week.

NerdWallet is a free tool to find you the best credit cards, cd rates, savings, checking accounts, scholarships, healthcare and airlines. Start here to maximize your rewards or minimize your interest rates. Hal M. Bundrick, CFP Mortgage Rates Today, Monday, Sept. 19 (Change from 9/16) 30-year fixed: 3.67% APR (-0.02) 15-year fixed: 3.08% APR (-0.01) 5/1 ARM: 3.54% APR (NC) Mortgage lenders waiting on the Fed

Lenders have been making only minor adjustments to their rate sheets in the past few days, no doubt due to some anticipation of this week’s Federal Reserve meeting. It’s the main event on the financial horizon.

“This week brings us the release of only three monthly economic reports, none of which are considered to be highly important. The main focus of the week will be the Federal Reserve and their midweek events,” Al Bowman, a mortgage rate analyst in Tampa, Florida, said in an analysis distributed to clients. “We can expect to see some portfolio positioning as that day comes closer, meaning the next couple of days could still bring changes to mortgage rates despite the lack of important data.”

The chances that the Fed’s Federal Open Market Committee will raise rates at this week’s meeting are small, Bowman said.

“It is my opinion that they will hold off making a move at this time, opting to wait for more economic data domestically and internationally,” he said. “There is a November FOMC meeting, but the Fed traditionally does not make a monetary policy move around a presidential election. Therefore, if no increase comes this week, it likely will not come until at least December’s meeting.”

Homeowners looking to lower their mortgage rate can shop for refinance lenders here.

NerdWallet daily mortgage rates are an average of the published APR with the lowest points for each loan term offered by a sampling of major national lenders. Annual percentage rate quotes reflect an interest rate plus points, fees and other expenses, providing the most accurate view of the costs a borrower might pay.

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: hal@nerdwallet.com. Twitter: @halmbundrick

Fed Rate Hike: When and How Much It Will Cost You

The hand wringing over a quarter-point Fed rate hike is on. That’s the amount the Federal Reserve is expected to raise short-term interest rates; the question is, when? The Fed meets this week, announces its decision on Wednesday and meets twice more before the end of the year.

When the Fed pulls the trigger, here’s what to expect.

It’s a matter of time

Steve Rick, chief economist at CUNA Mutual Group, a trade association for credit unions, believes the nation’s central bank will wait on raising short-term interest rates until its December meeting.

“Wages are still rising by 2.6% year over year, and unemployment is kind of stuck at 4.9% and hasn’t dropped much. And so, with inflation still running low and wage pressures not building, I think that gives the Fed the leeway to have a little bit more patience and keep interest rates at exceptionally low levels for another two to three months,” Rick says.

Robert Dietz, chief economist for the National Association of Home Builders, is another December believer.

“We are forecasting one rate hike in 2016, after the December meeting,” Dietz says. “NAHB believes that mortgage interest rates will remain at historically low levels in the quarters ahead. Income growth and solid job creation are positive tailwinds for the housing market, and we are finally seeing evidence of builders moving into the entry-level market.”

Seeing the futures

These two economists aren’t the only ones betting the Fed won’t move on interest rates until December. Big money runners do, too.

Institutional investors, hedge funds and the like stake a claim on the price of something on a future date. These “futures” are time and price investment contracts sold on everything from pork bellies to the weather — and Federal Reserve short-term interest rate hikes.

Based on recent futures activity, the greatest share of Wall Street is betting on a Fed move no sooner than December, as you can see in the graph below.

Banks stand to benefit from a Fed rate hike

Jamie Dimon, CEO of JPMorgan Chase, believes it’s time for the Fed to start raising interest rates — now. “Twenty-five basis points (0.25 percentage point) is a drop in the bucket. Let’s just raise rates,” he said, speaking at the Economic Club of Washington last week.

Of course, most lenders would likely agree. When interest rates finally move up, banks, credit unions and other financial institutions will earn more in interest on the capital they have to lend, which enhances their profit margins, Rick says.

“Plus, short-term Treasury yields would go up,” he adds. “Plus, things like adjustable-rate credit cards will reprice, adjustable-rate mortgages will reprice, home equity loans will reprice. It will help the banking system. Banks and credit unions will be able to build capital faster, which will strengthen our banking system.”

Guess who pays for all of that repricing. Consumers do.

With a rate hike, how much more will you pay?

A just-released TransUnion study measured the impact of interest rate increases on consumers. “[We] analyzed consumers with variable-rate products such as credit cards, HELOCs, and some mortgages and personal loans,” says Nidhi Verma, senior director of research and consulting for TransUnion.

The study showed that with an expected 0.25 percentage point rate increase by the Fed, more than 92 million U.S. consumers holding variable rate credit products will see their monthly payments rise, but only by an average of $6.45.

More than 9 million consumers will be at risk

However, TransUnion says 10% of these borrowers — over 9.3 million people — will not be able to absorb the additional cost.

“A portion of those consumers have an adjustable rate mortgage that will reset in the future or may have other variable rate products that could adjust in the future,” Verma says.

And if the Fed proceeds with additional hikes into 2017, as is widely expected, TransUnion’s study found that with interest rates rising just 1 percentage point, an additional 2.5 million consumers might not have the financial capacity to absorb the “payment shock.”

That’s a total of 11.8 million consumers at risk of falling behind on their payment obligations.

But there are also consumers who would be unaffected by rising interest rates, TransUnion says.

“For instance, some consumers are transactors — they pay their balances in full each month,” Verma said in a press release. “Some already have an APR of 29.99%, the highest permissible rate. Our data show there will indeed be an impact from potential interest rate rises, but it’s far less widespread than many anticipate.”

A looming boon?

Even if higher interest rates loom, Jeff Taylor, managing director of Digital Risk, an independent processor of home loans, isn’t looking for a major boon to home sales or mortgage refinances.

“Rates have been historically low for so long that most people who want to refinance have already done so and buyers looking to purchase may have trouble finding a house, given skyrocketing home prices and low inventory in many markets,” Taylor says.

The Fed raising interest rates is an indication of a healthier economy, Taylor says, which spurs more consumer confidence and encourages consumers to purchase or refinance homes. And that might mean a boost in mortgage lending this fall and winter, traditionally slower seasons for homebuying and lending.

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: hal@nerdwallet.com. Twitter: @halmbundrick

The Best Birthday Discounts and Freebies

Your birthday is a day for you to be spoiled by loved ones. You many not know, though, that some restaurants and retailers will spoil you, too.

To celebrate loyal consumers and reward new ones, some companies give discounts or freebies for their customers’ special day.

Whether you’re searching for birthday deals for your children, yourself or even your pets, you can find a wide range of promotions on our list. Consider it a present from us.

Food
  • Abuelo’sEnjoy Abuelo’s Mexican cuisine with a special gift on your birthday and anniversary. Sign up for the Mi Abuelo’s Rewards program to receive your offers.
  • Barnes & Noble. Barnes & Noble celebrates your children’s birthdays with a free cupcake or cookie from its café. Only members of the Barnes & Nobles Kids’ Club are eligible for the gift.
  • Baskin-RobbinsCreate a Baskin-Robbins account and get a free ice cream scoop on your birthday.
  • BenihanaRegister for the Chef’s Table email program and Benihana will send you a $30 discount certificate during your birthday month.
  • Bojangles’Bojangles’ will send you a coupon for a free biscuit on your birthday if you enroll in its E-Club.
  • Cold Stone Creamery. Join Cold Stone’s My Cold Stone Club to receive an emailed coupon for a buy-one-get-one-free creation for your birthday.
  • Dairy QueenTreat yourself to one (or two) of Dairy Queen’s famous Blizzard desserts. Join the company’s Blizzard Fan Club to receive a buy-one-get-one-free coupon on your big day.
  • Del Taco. Indulge with a free premium vanilla, chocolate or strawberry shake on your birthday at Del Taco. Register for the Raving Fan eClub to receive the freebie.
  • Denny’s. Denny’s treats you to a hearty Grand Slam breakfast on your birthday.
  • Dippin’ DotsRefresh with a free, small cup of Dippin’ Dots ice cream snack after signing up for the Dot Crazy email club.
  • Firehouse Subs. Celebrate your birthday with a free medium-sized sub. Add your kids to your Firehouse Rewards account to get an offer for their birthdays, too.
  • FuddruckersReceive specials, discounts and more on your birthday when you subscribe to Fuddruckers’ newsletter.
  • Jersey Mike’s Subs. Register for Jersey Mike’s email club to get a free sub and drink coupon.
  • Moe’s Southwest Grill. Subscribe to Moe’s eWorld program and receive a free birthday burrito.
  • PinkberryReceive a complimentary Pinkberry yogurt on your birthday by registering for a free Pinkcard.
  • Red RobinChow down on a free burger from Red Robin by joining its Royalty rewards program.
  • SubwayBecome an Eat Fresh Club member and Subway will treat you to a birthday lunch.
  • Wingstop. Sign up for Wingstop’s email club to receive a free birthday gift.
  • Zaxby’s. Get a free Nibbler on your birthday after you join the Zax Mail Club.
Apparel and shoes
  • American EagleGet 15% off at American Eagle or Aerie during your birthday month. Join the AERewards program to qualify.
  • BebeJoin the rewards club to earn a special birthday offer.
  • Brooks Brothers. When you sign up for a Brooks Card, you’ll receive a $20 Brooks Brothers credit for your birthday.
  • DSW. Shop for shoes with a complimentary $5 certificate from DSW. Become a DSW rewards member to receive your special certificate.
  • J. CrewSubscribe to J. Crew’s Factory First newsletter and get 20% off your purchase and free shipping on your birthday.
  • Victoria’s Secret. If you have any of the three Victoria’s Secret Angel Cards, the retailer will send you a birthday gift.
Beauty and personal care
  • Benefit Cosmetics. Visit select Benefit locations during your birthday week for a free brow arch service.
  • Sephora. Sign up for Sephora’s Beauty Insider program reminder to get a birthday gift.
  • SmashBox. The cosmetics retailer will send members of its loyalty program a birthday gift.
  • The Body Shop. Receive a birthday coupon for $10 off your purchase at The Body Shop. Join the company’s The Love Your Body Program first.
  • UltaMembers of the Ultamate Rewards program will get a free gift and earn double points on purchases made throughout their birthday month.
Entertainment
  • Chuck E. Cheese. Chuck E. Cheese offers a surprise on your child’s birthday. Join the email club to receive the coupon.
  • Medieval TimesCelebrate your birthday with some old-fashioned entertainment at Medieval Times shows. Sign up for the firm’s Birthday Fellowship program to obtain a free admission during your birthday month.
  • Redbox. Create a Redbox Play Pass account to score a free one-night game or movie rental for your birthday.
Other discounts
  • Journeys Kidz. Sign up for the Journeys Kidz Birthday Club and receive different offers every year for your child’s birthday. This year, members will get a 15% off coupon.
  • Little Tikes. After registering for the Little Tikes’ Birthday Bonus program, you’ll receive a special offer for your child’s birthday.
  • Petco. Give your furry friend a free birthday treat courtesy of Petco and receive an additional coupon by signing up for the Pals Rewards program.
  • Toys R UsEnroll in Geoffrey’s Birthday Club and your child will score a free gift until age 10. Your kid will also get a balloon and crown if you visit a Toys R Us store on the birthday.

Many of these promotions are sent through email, so make sure to sign up well in advance of your birthday to receive the offer. If you’re concerned about spam, consider setting up a new email account just for your freebies and offers.

Happy birthday, and as always, happy discount hunting!

Updated Sept. 19, 2016.

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