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3 Things to Know About Student Loan Consolidation (Told in Under 350 Words)

Do you have three minutes? If you’ve ever considered student loan consolidation or refinancing, it’ll be worth your time. Those terms are often conflated and confused, so we want to set the record straight. Here goes:

1. Consolidation doesn’t always = refinancing

Student loan consolidation is often made to seem synonymous with refinancing, but the two aren’t always identical.

Federal loan consolidation means changing one or more federal student loans into a single new federal Direct Consolidation Loan. Student loan refinancing, which is also sometimes referred to as consolidation, is a way to save money by taking out a new, lower-interest loan to pay off your existing loans.

2. Consolidation won’t necessarily save you money

Refinancing can save you money by lowering your interest rate, but federal loan consolidation can actually cost you more in the long run because it may increase your term length. So why do it?

To access repayment and forgiveness options: Only federal direct loans are eligible for most income-driven repayment plans and Public Service Loan Forgiveness. If you don’t know what kind of loans you have, sign in to your Federal Student Aid account on studentloans.gov to look it up. Consolidating will help you qualify for those programs if you don’t already have a federal loan that qualifies.

To get out of default: Consolidation is one of three ways (along with full repayment and loan rehabilitation) to escape federal loan default. After consolidating, you’ll be able to sign up for an income-driven repayment plan or put your loan in deferment or forbearance, but the default status will remain on your credit report.

3. Consolidating federal loans is free

You may have seen Facebook ads or gotten phone calls about companies offering to consolidate or forgive your debt. They’ll charge you fees to do so, but you can consolidate your federal loans for free by logging in to your Federal Student Aid account and filling out an application.

That’s the CliffsNotes version of student loan consolidation. To dig deeper, read about the pros and cons of consolidation and refinancing.

Teddy Nykiel is a staff writer at NerdWallet, a personal finance website. Email: teddy@nerdwallet.com. Twitter: @teddynykiel.

3 Personal Finance Tips for Small-Business Owners

By Heather Castle, CFP

Learn more about Heather on NerdWallet’s Ask an Advisor 

As entrepreneurs, many small-business owners are comfortable taking risks. But their business is often their biggest asset, as well as the largest source of their household’s income, which means it’s especially important for them to follow basic personal finance and investing guidelines. Not doing so can cause business owners to take on too much risk and endanger their business and income.

Here are three tips that small-business owners should use to guide their personal-finance and investing decisions.

1. Establish an emergency fund

Business is cyclical, meaning there will be times throughout the year when business is better than at other times, and income can vary from month to month.

That’s why it’s critically important to set up an emergency fund account containing enough cash or liquid funds to cover the months when your income does not cover your household’s living expenses. Keeping at least three to six months’ living expenses is a good rule of thumb, and more is even better.

Money market accounts are good places to store this emergency fund, because they give you a better return than most traditional savings accounts while remaining free of stock market volatility, which is important for a short-term savings vehicle.

2. Diversify, diversify, diversify

I’m sure you’ve heard, probably more than once, that diversification is one of the most important concepts in investing. For small-business owners this is a critical point, because many of them invest all of their assets back into their businesses. While investing in your business is a good idea, you should consider setting limits on it.

When small-business owners invest their funds back into their companies, they are concentrating funds into one asset. This increases their level of risk because if something were to happen to their business, it would endanger the household’s financial security.

When reviewing investment options, make sure you invest as much money as possible outside of your business, as well as outside of your industry and sector. Doing this will help protect your portfolio if the markets change and your business’ sector goes out of favor.

3. Customize your investments

Don’t overlook getting help when evaluating investment options. There is no one-size-fits-all investment approach, and it’s easy to get bogged down with research. When reviewing their overall portfolio, business owners sometimes forget to include other investments they hold, such as their companies or real estate investments they may have, as assets. This can lead to less-than-optimal investment decisions.

Working with a professional can help you factor in all of your investment holdings, determine your right time horizon, evaluate your risk tolerance, and weigh your options against your current holdings to help you select an investment strategy that is tailored to you.

Heather Castle is a certified financial planner and the founder of Castle Wealth Advisors LLC in Los Angeles.

Money Order vs. Cashier’s Check: How to Decide

There are times when a personal check doesn’t cut it. You may have an important expense, such as a used-car purchase or a rent deposit, but the person you’re paying won’t accept that little piece of paper from your checkbook.

The recipient may ask instead for some form of guaranteed payment. If you’re not keen on carrying around large amounts of cash, your other options include a money order or a cashier’s check.

The $1,000 question

Money orders generally are cheaper and therefore better for payments under $1,000. Cashier’s checks, sometimes called official checks, are often better for larger amounts.

Many businesses won’t issue a money order above $1,000. So if you have to write a check for more than a grand — say, $5,000 to buy a used car — a cashier’s check may be your best option.

Cashier’s checks can be written for less than $1,000, but they usually cost more than money orders. Money orders can sell for less than $2, while cashier’s checks in any amount often cost around $10.

Wal-Mart has some of the cheapest prices for money orders, charging 70 cents for amounts up to $1,000. The U.S. Postal Service charges between $1.20 and $1.60, depending on the amount. Banks often charge around $5.

Though cashier’s checks cost more, some banks and credit unions waive the fees for customers with premium accounts. It’s worth asking your financial institution if you qualify.

The amount of the check may be the most important factor when choosing between a money order and cashier’s check. But there are other differences between them.

Where to buy money orders and cashier’s checks

You can buy money orders at post offices, retail stores, banks, money transfer outlets and elsewhere. Going to a supermarket to buy milk? You could also pick up a money order at the customer-service counter.

Cashier’s checks, on the other hand, usually are available only from financial institutions.

If you’re hoping to buy either one online, you won’t have much luck. Issuers generally require that you visit a physical location to buy a money order or cashier’s check. You could ask your recipient if you could send money online instead.

Protections of money orders and cashier’s checks

If you lose a cashier’s check or money order, or if it’s stolen, you can take steps to recover your money. You’d generally need to go to the issuer with your receipt and ask for a refund. That makes either option better than carrying cash.

But cashier’s checks offer a bit more protection, since the financial institution fills out the “pay to” line, instead of the purchaser. Compare that with writing a money order, which is similar to writing a check. The purchaser has to fill in the receiver’s name. If the purchaser loses the money order before it’s filled in, anyone could cash it. And once someone cashes that money order, you more than likely won’t get your money back.

If a money order or cashier’s check is cashed fraudulently, the purchaser could contact police and work through the legal system to try to recover the money.

Since it already has the payee’s name typed on it, a cashier’s check provides an extra level of protection for both the sender and the receiver. And an official check drawn up by a financial institution may seem more credible to a receiver than a money order from Chucky’s 24-Hour Market. But either option is a good way to offer guaranteed payment.

Margarette Burnette is a staff writer at NerdWallet, a personal finance website. Email: mburnette@nerdwallet.com. Twitter: @margarette.

6 Crucial Money Tips for Young Entrepreneurs

By Dmitriy Fomichenko

Learn more about Dmitriy on NerdWallet’s Ask An Advisor

Entrepreneurs have to wear many hats. One of their key responsibilities is to understand and properly manage their business’s finances. But they must also be careful with how they handle their own money.

Here are smart financial steps every young entrepreneur should consider.

1. Separate your business and personal funds

It’s common for entrepreneurs to use their personal assets as startup capital. But as your business grows, it’s crucial to separate your personal and business funds. Simply knowing which is which is not enough; you must be able to prove the same to the IRS. For instance, in the case of an IRS audit, a sole proprietor or independent contractor would be required to provide proof of his or her business expenses and income, usually by providing receipts and spending records.

From the beginning, sole proprietors and independent contractors should create separate checking accounts for personal and business funds. If your business is a corporation, you’re required by law to keep business and personal funds separate, and you can’t use business funds for personal expenses. If you’re having a hard time separating these funds, seek professional help.

2. Monitor your expenses

One of the surest ways to go out of business is to have more money going out than coming in. Monitoring and categorizing your expenses can help you find ways to control overhead costs or other spending that doesn’t generate revenue or add to your business’s growth. It may also help you identify and claim tax deductions your business may be eligible for, increasing your tax savings. Maintaining good records of your expenses will also save you the hassle of going through a pile of receipts during tax-filing season.

If you’re an independent contractor, have an owner-only business or have only a handful of employees, using something as simple as a spreadsheet or an online calendar to note your regular or recurring expenses will work. Make sure to include the type of expense — rent, utilities, supplies, etc. — and the recipient of the funds. If your business is expanding, you may need to use accounting software.

It’s equally important to have a budget for your personal spending. You can use something as simple as Mint.com to track your monthly expenses. Because your income is likely to vary, even though your expenses may stay the same, it’s particularly important to pay close attention to cash flow.

3. Build up an emergency fund

Small businesses often experience profit fluctuations over the course of a year. That means entrepreneurship and irregular income go hand in hand. Without a buffer of savings, lean months could add to your mental stress. A lack of business capital could even force you to tap your personal savings, which could leave you with no cushion for emergencies. If you don’t already have a personal emergency fund in place, start working on one.

For entrepreneurs, the key to building an emergency fund is to save during your high-earning months. That will allow you to pass leaner months comfortably while ensuring that you can pay your bills on time.

If you have a spouse or partner who has a stable income, your emergency fund should be around six months’ worth of living expenses. However, if your entire family is relying on your business, you should save at least a year’s worth of expenses.

4. Purchase disability insurance

With a business to run, worrying about your own future may not be a top concern. This mindset may work well for your business, but how do you plan to take care of your family if you become sick or temporarily disabled?

Disability insurance can provide supplemental income to your family while you recover. The type of disabilities covered and amounts of coverage will vary depending on your policy. Adding a cost-of-living-adjustment option to your policy is more expensive but ensures that payouts stay current with inflation.

You’ll also want to protect your business in case you’re ill or unable to work. For this, consider business overhead expense insurance. These policies are designed to help cover recurring business expenses like rent or mortgage payments, employees’ salaries, utilities and taxes during your absence. This can help keep your business going while you’re unable to work.

5. Start a retirement savings plan

Without an employer-sponsored retirement plan, it’s entirely your responsibility to fund your retirement. While that may sound distressing, you may actually have the opportunity to save even more than other workers do for your retired life. There are several qualified retirement plans for business owners that allow you to make sizable contributions toward retirement. In most cases, contribution limits to these plans are higher than traditional individual retirement accounts or employer plans. Some of the prevalent retirement options for entrepreneurs include a SEP IRA, SIMPLE IRA or a self-directed 401(k) plan. The key to building adequate retirement funds is to start as early as possible. Having time on your side is your biggest advantage when saving for retirement.

6. Seek professional financial advice

Small-business owners are often too busy to attend to these important financial matters. Hiring a financial advisor for your business and personal finances might help you avoid costly money mistakes. A financial advisor could help you identify business tax deductions, set up a strategy for your personal finances and even help you create an efficient financial structure for your business.

Dmitriy Fomichenko is president and founder of Sense Financial, a provider of self-directed retirement accounts.

This article also appears on Nasdaq.

Mortgage Rates Today, Sept. 28: Mixed Bag, Cash Sales Drop

Thirty-year mortgage rates inched up, while 15-year fixed and 5/1 ARM rates fell even lower, according to a NerdWallet survey of mortgage rates published by national lenders Wednesday.

Mortgage Rates Today, Tuesday, Sept. 28 (Change from 9/27) 30-year fixed: 3.58% APR (+0.01) 15-year fixed: 2.98% APR (-0.02) 5/1 ARM: 3.41% APR (-0.05) Cash sales hit lowest level since housing crisis began

It looks like investor purchases are taking a back seat in the housing market. Cash sales accounted for 29.3% of total home sales in June 2016, down 2.5 percentage points year over year, according to CoreLogic.

CoreLogic reported that cash sales peaked in January 2011, when cash transactions accounted for nearly half (46.6%) of total home sales in the U.S. During that time, housing markets across the country were just starting a slow but steady recovery following several years of depressed values and a glut of distressed properties on the market.

June 2016 marks the first time that cash sales accounted for under 30% of home purchases since late 2007. Before the downturn, the cash sales share of total home sales averaged approximately 25%. If this downward trend in cash sales continues at the latest rate, the share should hit 25% by mid-2018, wrote Molly Boesel, senior economist at CoreLogic, in a blog post.

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.

More from NerdWallet Compare online mortgage refinance lenders Compare mortgage refinance rates Find a mortgage broker

Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: dkearns@nerdwallet.com. Twitter: @debbie_kearns.

Investment Advantages of Health Savings Accounts

By Mark Struthers

Learn more about Mark on NerdWallet’s Ask an Advisor

Open enrollment, that time of the year when you can make changes to various benefits options at your workplace, is just around the corner. For most companies, it occurs during the last quarter of the year, October through December.

Those of you with a high-deductible health plan, or HDHP (for 2016, that’s a plan with a deductible of at least $1,300 for an individual or $2,600 for a family), may have the option to open a health savings account, or HSA.

How does it work?

If you have an HDHP, you or your employer can contribute money tax-free to your HSA, up to certain limits, so that you can use tax-free funds to pay for noncovered qualified medical expenses, like deductibles, copays, vision and dental care. The 2016 contribution limit is $6,750 for families and $3,350 for an individual.

Why is it a good idea?

One great advantage of these accounts is that you contribute pretax income, the money grows tax-free, and you don’t pay tax when you withdraw it to use it for eligible medical expenses. In addition, because you’re putting pretax money aside, it lowers your overall taxable income. Plus, it offers significant retirement savings and investment options, which we’ll detail in this article.

How is it different from an FSA?

An HSA is not the only tax-advantaged health plan. The flexible spending account, or FSA, is also a popular option. Unlike an FSA, however, an HSA is not a use-it-or-lose-it proposition. The money in an HSA rolls over from year to year, and if used for qualified health care expenses, both contributions and earnings come out tax-fee. There is no other account like it. And this is where the opportunity lies.

More facts about HSAs
  • You don’t have to use the HSA provider associated with your employer’s health insurance company. HSAs are individual accounts that don’t have to go through your employer. You can shop around for the lowest fees and best investment options.
  • You can choose from many different types of investments within an HSA. In addition to low-risk, savings-type accounts, you can invest in the same type of fixed income and equity mutual funds that may be in your 401(k) or IRA.
  • An HSA is portable. If you change employers, your HSA goes with you, unlike a 401(k).
  • You can reimburse yourself anytime. In other words, you are able to pay medical expenses with non-HSA funds and delay reimbursing yourself from the HSA for years. The most obvious reason to delay is to allow your HSA to grow. This flexibility allows you to make the most out of the performance of your HSA.
  • After age 65, you can use HSA funds for any purpose, and you just have to pay ordinary income tax, without an early-withdrawal penalty. Withdrawals before age 65 that are not used for qualified medical expenses are subject to both income tax and a 20% penalty.
  • If you or your spouse is over 55, you can make a yearly catch-up contribution of $1,000 each. Adding this to the normal contribution limit can give a family $8,750 of saving and investing potential.
  • You may be able to use the funds for health care continuation coverage, such as COBRA, if you lose your job.
  • When you die, your HSA can become your spouse’s HSA, tax-free.
  • There are no required minimum distributions for HSAs at age 70½, making tax planning easier.
Using an HSA for retirement savings

In addition to its other advantages, an HSA is a good retirement savings option, especially for high-income earners who can’t make deductible contributions to a traditional IRA or any contributions to a Roth IRA.

As with any investment, pay careful attention to risk. If you are 100% sure you will need the funds for health care, then low-risk, cash-like investments are best. But if you don’t need the funds or can pay expenses from other sources, allowing the HSA to grow, then the account can add to the growth and diversification of your portfolio.

One investment strategy that works well for an HSA is a three-bucket strategy. Each bucket has a different risk level for different time frames:

Bucket 1: Low-risk investments to cover one to two years of medical expenses, if needed. If you know you will need the money in a year or two, don’t take chances. Put your funds in low-risk investments.

Bucket 2: Low-to-medium-risk investments to act as a backup to Bucket 1 and used to replenish Bucket 1.

Bucket 3: Higher-risk, higher-growth investments. These funds are for use in 10 years or more, for example, for ordinary expenses in retirement or to cover things that Medicare doesn’t, including long-term care.

The three-bucket strategy in action

Here’s an example: Virginia and Jason Johnston are 40 years old. They have an HDHP with a deductible of $2,600 and make their maximum 2016 yearly contribution to an HSA of $6,750. They don’t have a lot of medical needs, even with two young kids, and decide on the following investment strategy:

(Note: Please consult with a professional before investing. Rates of return may vary, and loss of principal in buckets 2 and 3 is possible.)

Here’s how the Johnstons might use this approach:

In Year 1, they put $3,375 in Bucket 1 (to cover one to two years of health care expenses, if needed), $843 in Bucket 2 and $2,532 in Bucket 3.

After Year 1, each year they put 25% of their contributions in Bucket 2 and 75% in Bucket 3. If Bucket 1 is used up, it is replenished by contributions or from Bucket 2, and if Bucket 2 is used up, it is replenished by contributions or from Bucket 3.

Here’s an example of the growth potential: If the Johnstons make no distributions from any buckets (because they are able to pay medical expenses through other sources), the three buckets could potentially have more than $400,000 in 25 years, by the time they are 65:

(Note: Assumes a total of $6,750 contributed every year and yearly compounding.)

According to the Employee Benefit Research Institute, the cost of health care in retirement for a 65-year-old couple in poor health could easily top $300,000. If you have the need for long-term care, the costs can go even higher.

With health care costs rising, having access to a large sum that can be used tax-free for health care in retirement and for general retirement funding while paying ordinary income tax is a fantastic option.

It will take a little work to safely integrate a higher-risk HSA into your health care and retirement plan, but your 65-year-old self will thank you.

Mark Struthers, CFA, CFP, is a fee-only planner with Sona Financial in Chanhassen, Minnesota.

Best Small Businesses for ‘Mompreneurs’

Moms wear many hats: chauffeur, nurse, chef, storyteller, slayer of monsters. Donning the entrepreneurial hard hat means adding another responsibility to your ever-evolving tasks. But those in the know say it can be done.

“Every mom is an entrepreneur by nature,” says Ianthe Mauro, founder of Objects With Purpose, a company that makes nontoxic candles that are sold online and in 200 stores across the country.

In both roles, you have to be willing to try new things, Mauro says. Every day as a parent, you have to take risks, pay attention to the information in front of you, process it and solve problems in creative ways. “How is that not an entrepreneur?”

Business ideas for ‘mompreneurs’

If you’re a mom who wants to start a business — whether for reasons of flexibility, fulfillment or financial necessity — play to your strengths and passions. Here are ideas for a range of personalities and skill sets.

Creative moms: Freelance copywriter, Etsy artist or piano teacher.

Whether you’re making use of your writing skills or are up to your elbows in sheet music, a mom with a creative streak has numerous outlets for entrepreneurship. Mauro, an artist, treats her candles — which are scented naturally, without chemicals — as a way to tell a story and “share light” with her customers, a process she finds personally rewarding and impactful. Remember, making and selling your own products is only one way to capitalize on your skills; you can also teach.

Techie moms: Computer repair service, web design or coding contractor.

In our increasingly online world, tech skills, such as coding and website design, are in high demand. Tech-talented moms can reach out to local businesses (or other mompreneurs) to offer help with websites and apps, or run a repair service for broken electronics.

Healthy moms: Fitness studio owner, personal trainer, nutrition consultant.

Moms with a flair for fitness can tap their energy with active pursuits, such as acting as a tour or hiking guide, becoming a personal trainer or running a yoga studio. Note: If health and safety are involved, make sure you are properly licensed, and have your customers sign a waiver.

Mathematical moms: Accounting service, tax preparation, bookkeeping agency.

The best thing about being a math whiz is there will always be people looking to you for help. Starting a one-woman bookkeeping firm, for example, is an option for numbers-savvy moms. Keep in mind that these services may require certification or licensing.

Analytical moms: Consulting or referral services.

Good at writing business plans or developing marketing strategies? Consider turning your skill into a business. For Debra Cohen, a New York entrepreneur, success came in the form of a contractor referral business that she started in 1997; it’s since grown into a million-dollar venture. Solving problems, either as a consultant or by creating a new service, as Cohen did, allows moms to flex their analytical muscles while helping others in the business community.

The rise of mompreneurship

Although adding “mom” to “entrepreneur” may seem like an unnecessary qualifier for women on the path to running their own businesses, it captures a specific segment of the market, one that allows women to utilize their many talents in two complex and sometimes overlapping areas of life.

“‘Entrepreneurship’ and ‘motherhood’ are two of the most revered concepts in this country,” says Jennifer Friedman, vice president of Wolters Kluwer’s BizFilings, which helps entrepreneurs start and grow their businesses. Perhaps, she says, that’s because they both describe roles that are difficult but potentially fulfilling. “Investors, business mentoring and entrepreneurship programs around the country can actively seek more ways to engage this fast-growing, unique and important market.”

According to the most recent Survey of Business Owners, conducted every five years by the U.S. Census Bureau, women-owned businesses generated $1.4 trillion in receipts in 2012, up 18.7% from 2007. Not all female small-business owners are mothers, of course, but Friedman cites the growing mompreneur network, both online and in the real world, as evidence that many are. Organizations such as The Founding Moms and Business Among Moms offer support and advice to mompreneurs in the making.

“Running a house and running a business are very much the same,” says Cohen, president of the contractor referral company Home Remedies of NY Inc. and the creator of the Homeowner Referral Network. “It requires your attention all the time. You have to nurture it; it requires you to bring creativity and give it the proper attention.”

Candle entrepreneur Mauro says her motivation is tied directly to her children. “I wanted to show my children what it looks like to be a mom who also can support the family, sustain a business and create something that then sustains all of us,” she says. “I wanted my son to see what women can do; I wanted my daughter to see what she can do.” Her first two candles, Asher and Dahlia, were named after her children and are perennial best-sellers.

Tips for mompreneurs

Women interviewed for this article offered some tips for making entrepreneurship work for busy mothers.

Make your time count: “I had to be efficient with my time,” Cohen says, “waking up before the babies and making the most of nap times — and not feeling guilty if I was working.”

Consider outsourcing: Instead of trying to focus on both the nitty-gritty of building a business and the nitty-gritty of being a mom, Cohen hired virtual assistants and someone to build her website (all of whom were mompreneurs themselves).

Keep business and family separate: If you plan on growing your business, Friedman says, separating your business and family life physically, financially and professionally is crucial. Have a space dedicated to your business both inside and outside your home. Interacting with others and actively seeking fresh sources of information and new ideas can help keep you energized. Additionally, keep a separate bank account for your business, and distinguish your business assets from your personal assets by incorporating or forming an LLC.

Don’t bite off more than you can chew: As Mauro’s business began to grow, she added seven employees to her staff. “It got out of control,” she says. Finding her routine filled with managerial duties instead of the creative pursuits she enjoyed, she decided to scale back.

“It also came down to cash flow,” she says. “I didn’t have consistent enough cash flow to keep that many people.” She’s now been in business six years, and with the help of a career coach and weekly small-group teleconferences with Justin Krane, founder of Make the Numbers Make Sense, which offers money management support for small-business owners, Mauro feels she has the cash and the knowledge to start growing again — even if it’s scary.

“Thank the fear,” she says. “I know when I’m afraid, it means I have exciting possibilities. Take those risks — don’t let fear stop you.”

Create your own definition of ‘success’: Regardless of whether you choose to grow your business or stay the course, being an entrepreneur means you can set your own metric for success.

“Yes, there are moms who have become multimillionaires from building large businesses,” Friedman says. “But most mompreneurs don’t define their success just by dollars raised or employee head count; their metrics include the quality time they spend with their kids and families.”

Jackie Zimmermann is a staff writer at NerdWallet, a personal finance website. Email: jzimmermann@nerdwallet.com. Twitter: @jackie_zm.

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

Payday Alternative LendUp Owes $6.3 Million for Misleading Borrowers

LendUp, an online lender that promised friendlier alternatives to high-cost payday loans, will pay $6.33 million in refunds and fines for violating consumer finance laws.

LendUp, which operates in 24 states, will refund $1.83 million to more than 50,000 borrowers as part of the federal settlement, the Consumer Financial Protection Bureau announced Tuesday. In addition, LendUp will refund California customers $1.62 million as part of a separate settlement with the California Department of Business Oversight.

The company will also pay $1.8 million and $1.06 million to the federal bureau and California department, respectively, to cover penalties and other costs.

What LendUp promised

The San Francisco-based lender is part of a wave of tech companies that promote a less toxic form of payday loans.

Traditional payday loans don’t require credit checks, but do carry triple-digit interest rates and are due in a lump sum on the borrower’s next payday. Borrowers can renew them at the same high rate by paying the interest. Payday lenders don’t report on-time payments to credit bureaus, but delinquent payments can be a black mark on borrowers’ credit reports.

LendUp promised its customers they could build credit or improve their credit scores using its small-dollar loans, which carry annual percentage rates of more than 100%. Borrowers who finished education courses and improved their scores could move on to less expensive loans, climbing what LendUp called the “LendUp Ladder.”

But LendUp didn’t properly report payments to credit bureaus for at least two years after it began issuing loans, preventing borrowers from improving credit, according to the bureau.

Though widely advertised, the company’s cheaper loan products weren’t available to all borrowers, and LendUp didn’t clearly disclose some fees in its APR, the bureau said.

In a statement, LendUp said the bureau’s review “addresses legacy issues that mostly date back to 2012 and 2013, when we were a seed-stage startup with limited resources and as few as five employees. In those days we didn’t have a fully built-out compliance department. We should have.”

What customers can expect

LendUp will contact customers about their refunds in the coming months, according to the bureau. The lender’s website was inoperable at least part of Tuesday, but it offered contact information for affected customers. Borrowers with questions about the settlement can call 1-855-2LENDUP or email questions@lendup.com.

California residents have already received $1.08 million of the $1.62 million LendUp owes, the California Department of Business Oversight said. Those who haven’t gotten refunds yet will receive an email and must respond with bank account information or a home address within 20 days to receive their money.

In California, the company is required to maintain evidence that customers were notified about and received their refunds.

Nationally, LendUp will make changes to its fee and rate disclosures and discontinue some products and advertisements.

Alternatives to payday loans

Payday loans are useful when you have poor credit and need cash quickly, but they come at a heavy price. Seventy percent of borrowers take out a second loan and more than a third of borrowers end up defaulting, according to CFPB data.

Even lenders with good intentions, including LendUp, charge high APRs. Fig Loans, Oportun and other payday alternative lenders all charge rates of more than 100%.

Consumer advocates warn customers to be cautious about new lenders and avoid loans that carry rates of more than 36%, widely considered the upper limit of affordability.

“The LendUp case makes clear why a 36% rate cap is the only solid protection against high-cost lending,” says Lauren Saunders, associate director at the National Consumer Law Center, a nonprofit advocacy organization.

If you’re considering any kind of payday loan, look into other alternatives first:

Longer term, start building your emergency fund. Even $500 is enough to deal with most financial surprises, says NerdWallet personal finance columnist Liz Weston.

Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: ajayakumar@nerdwallet.com. Twitter: @ajbombay.

Sean Talks Credit: Is 20 Cards Too Many? Here’s How to Streamline Your Wallet

I have a lot of credit cards. Between my wife and me, we have 20, to be exact. We’ve each had cards in our names since we started college and have added to the collection nearly every year since.

But we don’t actively use many of those cards, so I decided to streamline our wallets. My goal? Decrease the number of cards without jeopardizing our credit scores. My target was to keep three to five of the accounts.

My first step was to identify all the cards we use regularly. The next steps were designed to protect our credit scores: Set aside our oldest cards to preserve our longest-lived accounts. Then, out of what was left, save the cards with significant credit lines, with the goal of protecting our overall credit line and utilization ratios.

After all that, I realized my target was wildly off. Turns out we’re keeping 14. Here’s why.

Keeping the cards you use

I generally recommend consumers carry about three cards in their wallet, including:

  • One that optimizes for your top spending categories, like travel, dining or groceries.
  • One that optimizes for your favorite merchants, like stores, airlines or hotels.
  • One that earns a good flat rate on everything else.

To apply that logic to our 20 cards, we have two for our top spending categories: the Discover it® - Cashback Match™, my favorite rotating category cash-back card, and the Chase Sapphire Reserve℠, for travel and dining. For favorite merchants, we have three store cards and one airline card: the Amazon Prime Store Card, the Gap credit card, Target RedCard and the United MileagePlus® Explorer Card. Finally, we have the Citi®Double Cash Card – 18 month BT offer, my favorite flat-rate card, for everything else. That’s seven cards for our core wallet.

One more to add: I bought a Mac computer on a deferred-interest store credit card deal last February. It’s not a great card, and the credit limit is low, so I’ll close the card as soon as the balance is paid off. (Side note: Take care with deferred-interest credit card deals. If any balance remains when the introductory period closes, the entire interest balance is due. Always pay the balance off in full before the deferral period ends.)

If you’re keeping score, that’s eight cards retained so far.

Keeping cards for their old age

An important input to your credit score is the average age of your accounts, which basically helps the credit bureaus know how long you’ve been able to stay on top of your financial obligations. The higher this average is, the better, so retaining your older cards can help keep that average high, even as you open new cards.

Three of my cards are staying in my wallet — or, more accurately, my safe — only because I’ve had them forever. My wife and I each have a Wells Fargo Platinum Visa® Credit Card, mine with 11.3 years to my name and my wife’s with 8.1, making it the oldest card for each of us. I also have a Citi Simplicity® Card - No Late Fees Ever with 11 years of service, so I’ll keep that one, too.

An important note for keeping old cards on your credit report: You still need to use them periodically for them to help your score, for two reasons. First, if you ignore the card for too long, your bank can close it without notice. To avoid that, I recommend using each of your cards at least annually. Second, cards that have been inactive for even a couple of months are often not factored into credit scoring algorithms, even if they still appear on your credit report.

To avoid both of these problems, I make sure to spread all of my recurring bills like internet, Netflix, utilities, etc. across my otherwise inactive cards. This ensures regular, monthly charges, with virtually no thought on my part. It also has the added benefit that in case one of my regular-use cards is compromised, I don’t need to go through bill-pay setup all over again.

So that’s three more cards retained thus far, for a total of 11.

Keeping cards for their credit limit

Two important metrics in your credit score are overall credit line and credit utilization ratios. The second of those, especially, is a mouthful, but both are fairly straightforward.

Overall credit line is the total of all of your credit lines and essentially measures how much money banks trust you with. The higher, the better.

Credit utilization measures the amount of that total limit you actually use, essentially how much of it you need. This is measured both on a per-card basis and as the sum of all of your cards. The lower you can get this ratio, the better, but a rough rule of thumb is to try to keep both your per-card balances and the sum of all card balances below 30% of their limits.

A quick aside to illustrate: A few weeks ago I put a hotel stay on a card with a low credit limit, immediately bringing the balance to over 50% of the card’s limit. That mistake cost my credit score 15 points immediately.

Any cards I close at this point will hurt my credit by decreasing my overall credit limit and drive my credit utilization ratio up. So I want to make sure that none of the cards I cut is contributing significantly to these metrics.

After running my 20 cards through the two passes above, I was left with nine cards, three of which have significant credit lines. My Capital One® Venture® Rewards Credit Card makes up 16% of my overall credit limit; US Bank’s REI MasterCard® Credit Card makes up 12%; and my Chase Sapphire makes up 10%. So I’ll keep those around as well.

An important caveat on keeping cards just to protect your credit limit: If a card has an annual fee, it’s not worth it. Out of these three, the Capital One® Venture® Rewards Credit Card does have an annual fee, but I plan to try to get the fee waived or downgrade to a card that doesn’t charge that fee. If that approach doesn’t work, I’ll close the card and accept the credit ding.

So add three more cards, and the final tally comes out to 14.

Bottom line: Should you close spare cards?

There are a number of fair objections to closing cards; in most cases it’s best to keep them open. But for me, the only negative factor in my credit score is my low average history of accounts — meaning I’ve opened too many cards in recent years — so I want to boost that average. By cutting the six cards that didn’t make it through the three passes above, I’m increasing my average card history from 4.7 years to 5.4, which, according to NerdWallet’s credit dashboard, moves me from the “poor” to “average” range.

On the downside, cutting those six cards decreases my overall credit line by 17%. That’s a real loss, but since my overall credit utilization ratio will remain in the “excellent” range and I’ll boost my average history of accounts, I view this as a worthwhile trade with minimal negative impact to my credit score.

I can feel one nagging question remaining: Isn’t 14 cards still excessive? Yes, it is. But at this point I can’t backtrack without sacrificing my credit score, and I have little, if anything, to gain by that loss.

Fourteen accounts means a lot to keep track of, but it’s doable, by listing important account details in a spreadsheet and tracking each card’s transactions in a budgeting app. If you don’t think you can balance so many cards, or simply don’t want to, stick with a few cards you know you’ll stay on top of.

Ultimately, the right number of cards for you is, like all of personal finance, a personal decision. Pick cards that give you the most back for your purchases and keep less-favored cards in the lineup if only to boost your credit score. More rewards and a higher credit score are key ingredients to our common goal: financial freedom. Good luck.

Sean McQuay is a credit cards expert at NerdWallet. A former strategist with Visa, McQuay now helps consumers use their credit cards more effectively. If you have a question about credit, shoot him an email at asksean@nerdwallet.com. The answer might show up in a future column.

See How Much House $300,000 Can Buy Across the U.S.

Have you ever asked yourself, “How much house can I afford?” in different cities across the country? Well, in conjunction with Realtor.com, we’ve crunched the numbers for you to find out what $300,000 buys in the 20 largest metro markets in the United States.

What’s more, we’ve figured out how much you’d need to earn in those cities to afford a $300,000 home, assuming you can find one. You can thank us later.

In the gallery below, you can see actual listings from Realtor.com, as of Aug. 30, 2016, with an asking price of roughly $300,000. Click on the first image to open the gallery view and see the listing data for each property.

As you can see, your money goes a lot further in states like Texas and Georgia, with more than 3,000 square feet of legroom in some stately suburban McMansions. But in places like San Francisco, Los Angeles and Seattle, you’d be feeling a bit cramped; you’d be lucky to find anything over 800 square feet in those cities at this price point. Ouch.

To take the nerdy number crunching a step further, we asked Realtor.com to find out the minimum annual income needed to buy a $300,000 home in these markets. The income estimates are not a one-size-fits-all solution for each situation; the figures depend heavily on the size of your down payment, and they don’t take into account other debts a homebuyer might have. Keep in mind that the more money you put down, the less your loan amount will be — and that eases the pressure on how much you’d need to earn to afford a $300,000 in the nation’s 20 largest metros.

It’s clear that you’ll get more for your money buying in the South and the Midwest than on the East or West coasts, but the latter options have cities with booming economies and job markets that make them more attractive than some of their Southern neighbors, especially to millennials.

Keep in mind, though, that price isn’t the only consideration of where you choose to live. Think about job opportunities, crime, the local economy, schools, distance from family and friends, and home styles — all factors that might influence your happiness in a new home. Choose wisely, friends!

More from NerdWallet How to sell your houseCompare mortgage rates Find a mortgage broker

Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: dkearns@nerdwallet.com. Twitter: @debbie_kearnsNerdWallet writer Caren Weiner Campbell contributed to this report.

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