Income-Driven Repayment Plans for Federal Student Loans – Guide

According to first-quarter data released in May 2021 by the Federal Reserve Bank of New York, student loans are now the second-largest source of consumer debt, outpacing both credit card and car loan debt and second only to mortgage debt. And for many Americans, that debt has become unmanageable. According to CNBC, more than 1 million borrowers default on their student loans every year. And the nonprofit public-policy research organization Brookings expects up to 40% of all borrowers to go into default before 2023.

Unfortunately, defaulting on student loans can have dire consequences, including wage garnishment and destruction of your credit, making it nearly impossible to get another loan — private or federal.

Fortunately, there are multiple repayment options for federal student loan borrowers, including deferment and forbearance, student loan consolidation, and income-driven repayment (IDR) plans. If your federal student loan payments exceed your monthly income or are so high it’s difficult to afford basic necessities, you can lower your monthly student loan payment by taking advantage of one of the various IDR plans.

Pro Tip: If you have private student loans, the federal options are unavailable to you. But you can refinance them through Credible to earn a $750 bonus exclusive to Money Crashers’ readers. Learn more about refinancing through Credible.

How Income-Driven Repayment Plans Work

The default repayment schedule for federal student loans is 10 years. But if you have a high debt balance, low income, or both, the standard repayment plan probably isn’t affordable for you.

But if your payments are more than 10% of your calculated discretionary income, you qualify for the federal definition of “partial financial hardship.” That makes you eligible to have your monthly payments reduced.

That’s where IDR plans come in. Instead of setting payments according to your student loan balance and repayment term length, IDR plans set them according to your income and family size. Even better, if you have a balance remaining after completing your set number of payments, your debt may be forgiven.

These plans are beneficial for graduates right out of school who are not yet employed, are underemployed, or are working in a low-salary field. For these graduates, their paychecks often aren’t enough to cover their monthly student loan payments, and IDR means the difference between managing their student loan debt and facing default.

How IDR Plans Calculate Your Discretionary Income

IDR plans calculate your payment as a percentage of your discretionary income. The calculation is different for every plan, but your discretionary income is the difference between your adjusted gross income (AGI) and a certain percentage of the poverty level for your family size and state of residence.

Your AGI is your annual income (pretax) minus certain deductions, like student loan interest, alimony payments, or retirement fund contributions. To find the federal poverty threshold for your family size, visit the U.S. Department of Health and Human Services.

Using these guidelines, some borrowers even qualify for a $0 repayment on an IDR plan. That’s hugely beneficial for people dealing with unemployment or low wages. It allows them to stay on their IDR plan rather than opt for deferment or forbearance.

And there are two good reasons to take that option. Unless it’s an economic hardship deferment, which is limited to a total of three years, time spent in forbearance or deferment doesn’t count toward your forgiveness clock. However, any $0 repayments do count toward the total number of payments required for forgiveness.

Additionally, interest that accrues on your unsubsidized loans during periods of deferment and on all your loans during a forbearance capitalizes once the deferment or forbearance ends. Capitalization means the loan servicer adds interest to the principal balance. When that happens, you pay interest on the new higher balance — in other words, interest on top of interest.

But with IDR, if you’re making $0 payments — or payments that are lower than the amount of interest that accrues on your loans every month — most plans won’t capitalize any accrued interest unless you leave the program or hit an income cap. The income-contingent repayment plan (a type of IDR) is the sole exception. It capitalizes interest annually.

Student Loan Forgiveness

Any of your student loans enrolled in an IDR program are eligible for student loan forgiveness. Forgiveness means that if you make the required number of payments for your IDR plan and you have any balance remaining at the end of your term, the government wipes out the debt, and you don’t have to repay it. For example, let’s say your plan requires you to make 240 payments. After doing so, you still have $30,000 left on your loan. If you’re eligible for forgiveness, you don’t have to repay that last $30,000.

There are two types of forgiveness available to those in an IDR program: the basic forgiveness available to any borrower enrolled in IDR and public service loan forgiveness (PSLF).

Public Service Loan Forgiveness

The PSLF program forgives the remaining balance of borrowers who’ve made as few as 120 qualifying payments while enrolled in IDR. To qualify, borrowers must make payments while working full-time for a public service agency or nonprofit. Public service includes doctors working in public health, lawyers working in public law, and teachers working in public education, in addition to almost any other type of government organization at any level — local, state, and federal. Nonprofits include any organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. They do not include labor unions, partisan political organizations, or government contractors working for profit.

PSLF can potentially benefit those required to have extensive education to work in low-income fields, like teachers. Unfortunately, it’s notoriously difficult to get. According to Insider, the program is still rejecting 98% of applicants after an ongoing history of rejecting borrowers who believed they qualified but weren’t granted forgiveness.

But there may be hope. In May 2021, the Biden administration announced ongoing plans to review and overhaul all the federal student loan repayment, cancellation, discharge, and forgiveness programs, including public service loan forgiveness, to better benefit borrowers, according to Insider.

For the best chance at receiving PSLF, the ED recommends you fill out an employment certification form annually and every time you change jobs. Additionally, once you reach 120 qualifying payments, you must complete a PSLF application to receive the forgiveness.

IDR Loan Forgiveness

For all other IDR borrowers, each program requires them to make a set number of payments — from 240 to 300 — before they qualify to have their loan balances forgiven. At this time, because the program isn’t yet 20 years old and no borrowers have qualified, there is no specific application process for student loan forgiveness.

According to the ED, your loan servicer tracks your number of qualifying payments and notifies you when you get close to the forgiveness date. No one yet knows if there will be a standard application form or if it will be automatic. Hopefully, as the program reaches the age when borrowers can start using the benefit, the process will become standardized.

Drawbacks to Forgiveness

Forgiveness is one of the biggest advantages of IDR, especially for borrowers with high balances relative to their income. But there are pros and cons of standard student loan forgiveness. First, while forgiveness sounds like it could be a significant financial benefit, the reality is after making 20 to 25 years of IDR payments, the average borrower doesn’t have any balance remaining to forgive.

And if the government does forgive your balance, the IRS counts that as income, which means you have to pay income taxes on the amount forgiven. If you have a high balance remaining and can’t pay your taxes in full, that means making multiple additional payments — this time to the IRS — just when you thought you were finally done with your student loans.

The American Rescue Plan Act of 2021, signed into law by President Joe Biden on March 11, 2021, makes a crucial change to this student loan policy. According to Section 9675, borrowers receiving a discharge of their student loans no longer have to pay income tax on any balances forgiven through Dec. 31, 2025.

That won’t help most borrowers currently enrolled or who plan to enroll in IDR. The first to become eligible for forgiveness only did so in 2019 — those who’ve been enrolled in income-contingent repayment since its beginning in 1994, as noted by the National Consumer Law Center. But some experts believe this change could become permanent, according to CNBC.

Note that balances forgiven through PSLF are always tax-exempt.

What Loans Are Eligible for IDR?

You can only repay federal direct loans under most IDR plans. But if you have an older federal family education loan (FFEL), which includes Stafford loans, or federal Perkins loan — two now-discontinued loan types — you can qualify for these IDR plans by consolidating your student loans with a federal direct consolidation loan.

Note, however, that consolidation is not the right choice for all borrowers. For example, if you consolidate a federal Perkins loan with a direct consolidation loan, you lose access to any Perkins loan forgiveness or discharge programs. Further, if you consolidate a parent PLUS loan with any other student loans, the new consolidation loan becomes ineligible for most IDR plans.

Private financial institutions have their own programs for repayment. But they aren’t eligible for any federal repayment program.


4 Types of Income-Driven Repayment Plans

There are four IDR plans for managing federal student loan debt. They all let you make a monthly payment based on your income and family size. But each differs according to who’s eligible, how your loan servicer calculates your payments, and how many payments you have to make before you qualify for forgiveness.

If you’re married, some calculations can depend on your spouse’s income if you file jointly. Because you can lose some tax benefits if you file separately, consult with a tax professional to see whether married filing jointly or married filing separately is more advantageous for your situation.

Regardless of your marital status, each IDR plan works differently. Your loan servicer can help you choose the plan that’s best for you. But it’s essential you understand the features, pros, and cons of each IDR type.

1. Income-Based Repayment Plan

Income-based repayment plans (IBRs) are likely the most well-known of all the IDR plans, but they’re also the most complicated. Depending on when you took out your loans, your monthly payment could be a more substantial chunk of your discretionary income than for newer borrowers, and you could have a longer repayment term. On the other hand, unlike some other IDR plans, this one has a favorable payment cap.

  • Monthly Payment Amount: You must pay 15% of your discretionary income if you were a new borrower before July 1, 2014, and 10% if you borrowed after that date. If the amount you’re required to pay is $5 or less, your payment is $0. If the repayment amount is more than $5 but less than $10, your payment is $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: For IBR, discretionary income is the difference between your AGI and 150% of the poverty level for your family’s size and state of residence. Your loan servicer includes spousal income in this calculation if you’re married filing jointly. They don’t include it if you’re married filing separately.
  • Payment Cap: As long as you remain enrolled in IBR, your payment will never be more than you’d be required to pay on the 10-year standard repayment plan, regardless of how large your income grows.
  • Federal Loan Interest Subsidy: If your monthly payments are less than the interest that accrues on your loans, the government pays all the interest on your subsidized loans — including the subsidized portion of a direct consolidation loan — for up to three years. It doesn’t cover any interest on unsubsidized loans.
  • Interest Capitalization: If your monthly payments are no longer tied to your income — meaning your income has grown so large you’ve hit the payment cap — your servicer capitalizes your interest.
  • Repayment Term: If you borrowed any student loans before July 1, 2014, you must make 300 payments over 25 years. If you were a new borrower after July 1, 2014, you must make 240 payments over 20 years.
  • Eligibility: To qualify, you must meet IBR’s criteria for partial economic hardship: The annual amount you must repay on a 10-year repayment schedule must exceed 15% of your discretionary income. If you’re married and filing jointly and your spouse owes any student loan debt, your loan servicer includes this debt in the calculation. IBR excludes only the parent PLUS loans from eligibility.
  • Forgiveness: Your remaining loan balance is eligible for forgiveness after you make 20 or 25 years of payments, depending on whether you borrowed before or after July 1, 2014.

2. Pay-as-You-Earn Repayment Plan

The pay-as-you-earn (PAYE) plan is possibly the best choice for repaying your student loans — if you qualify for it. It comes with some benefits over IBR, including a potentially smaller monthly payment and repayment term, depending on when you took out your loans. It also has a unique interest benefit that limits any capitalized interest to no more than 10% of your original loan balance when you entered the program.

  • Monthly Payment Amount: You must pay 10% of your discretionary income but never more than you would be required to repay on the standard 10-year repayment schedule. If the amount is $5 or less, your payment is $0. If the amount is more than $5 but less than $10, you pay $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: For PAYE, your servicer calculates discretionary income as the difference between your AGI and 150% of the poverty line for your state of residence. If you’re married and file jointly, they include your spouse’s income in the calculation. They don’t include it if you file separately.
  • Payment Cap: As with IBR, as long as you remain enrolled, payments can never exceed what you’d be required to repay on a standard 10-year repayment schedule, regardless of how large your income grows.
  • Federal Loan Interest Subsidy: If your monthly payments are less than the interest that accrues on your loans, the government pays all the interest on your subsidized loans for up to three years. It doesn’t cover any interest on unsubsidized loans.
  • Interest Capitalization: If your income has grown so large you’ve hit the payment cap, your servicer capitalizes your interest. But no capitalized interest can exceed 10% of your original loan balance.
  • Repayment Term: You must make 240 payments over 20 years.
  • Eligibility: To qualify, you must meet the plan’s criteria for partial financial hardship: the annual amount due is greater than 10% of your discretionary income. If you’re married and filing jointly and your spouse owes any student loan debt, this debt is included in the calculation. Additionally, you can’t have any outstanding balance remaining on a direct loan or FFEL taken out before Sept. 30, 2007. You must also have taken out at least one loan after Sept. 30, 2011. All federal direct loans are eligible for PAYE except for parent PLUS loans.
  • Forgiveness: As long as you stay enrolled, you remain eligible for forgiveness of your loan balance after 20 years of payments if any balance remains.

3. Revised Pay-as-You-Earn Repayment Plan

If you don’t meet the qualifications of partial financial hardship under PAYE or IBR, you can still qualify for an IDR plan. The revised pay-as-you-earn (REPAYE) plan is open to any direct federal loan borrower, regardless of income. Further, your payment amount and repayment terms aren’t contingent on when you borrowed. The most significant benefits of REPAYE are the federal loan interest subsidy and lack of any interest capitalization.

However, there are some definite drawbacks to REPAYE. First, there are no caps on payments. How much you must pay each month is tied to your income, even if that means you have to make payments higher than you would have on a standard 10-year repayment schedule.

Second, those who borrowed for graduate school must repay over a longer term before becoming eligible for forgiveness. That’s a huge drawback considering those who need the most help tend to be graduate borrowers. According to the Pew Research Center, the vast majority of those with six-figure student loan debt borrowed it for graduate school.

  • Monthly Payment Amount: You must pay 10% of your discretionary income. If the amount you must pay is $5 or less, your payment is $0. And if the repayment amount is more than $5 but less than $10, your payment is $10. If you’re married and your spouse owes any student loan debt, your payment amount is adjusted proportionally.
  • Discretionary Income Calculations: Your discretionary income is the difference between your AGI and 150% of the poverty line for your state of residence. If you’re married, they include both your and your spouse’s income in the calculation, regardless of whether you file jointly or separately. However, if you’re separated or otherwise unable to rely on your spouse’s income, your servicer doesn’t consider it.
  • Payment Cap: There is no cap on payments. The loan service always calculates your monthly payment as 10% of your discretionary income.
  • Federal Loan Interest Subsidy: If your monthly payment is so low it doesn’t cover the accruing interest, the federal government pays any excess interest on subsidized federal loans for up to three years. After that, they cover 50% of the interest. They also cover 50% of the interest on unsubsidized loans for the entire term.
  • Interest Capitalization: As long as you remain enrolled in REPAYE, your loan servicer never capitalizes any accrued interest.
  • Repayment Term: You must make 240 payments over 20 years if you borrowed loans for undergraduate studies. If you’re repaying graduate school debt or a consolidation loan that includes any direct loans that paid for graduate school or any grad PLUS loans, you must make 300 payments over 25 years.
  • Eligibility: Any borrower with direct loans, including grad PLUS loans, can make payments under this plan, regardless of income. If you have older loans from the discontinued FFEL program, they are only eligible if consolidated into a new direct consolidation loan. Parent PLUS loans are ineligible for REPAYE.
  • Forgiveness: As long as you remain enrolled, your loans are eligible for forgiveness after 20 years of payments for undergraduate loans or 25 years for graduate loans.

4. Income-Contingent Repayment Plan

The income-contingent repayment plan (ICR) is the oldest of the income-driven plans and the least beneficial. Your monthly payments are higher under ICR than any other plan, and you must make those payments over a longer term. Additionally, although they limit the amount of capitalized interest, it’s automatically capitalized annually whether you remain in the program or not.

There is one major plus: Parent PLUS loans are eligible. But you must still consolidate them into a federal direct consolidation loan to qualify.

  • Monthly Payment Amount: You must pay the lesser of 20% of your discretionary income or what you would pay over 12 years on a fixed-payment repayment plan. If you’re married and your spouse also has eligible loans, you can repay your loans jointly under the ICR plan. If you go this route, your servicer calculates a separate payment for each of you that’s proportionate to the amount you each owe.
  • Discretionary Income Calculations: For ICR, your servicer calculates discretionary income as the difference between your AGI and 100% of the federal poverty line for your family size in your state of residence. If you’re married filing jointly, your servicer uses both your and your spouse’s income to calculate the payment size. If you’re married filing separately, they only use your income.
  • Payment Cap: There is no cap on payment size.
  • Federal Loan Interest Subsidy: The government doesn’t subsidize any interest.
  • Interest Capitalization: Your servicer capitalizes interest annually. However, it can’t be more than 10% of the original debt balance when you started repayment.
  • Repayment Term: You must make 300 payments over 25 years.
  • Eligibility: Any borrower with federal student loans, including direct loans and FFEL loans, is eligible for ICR. For parent PLUS loans to qualify, you must consolidate them into a federal direct consolidation loan.
  • Forgiveness: As long as you remain enrolled, your loans are eligible for forgiveness after 25 years of payments.

How to Apply for Income-Driven Repayment Plans

To enroll in an IDR plan, contact your student loan servicer. Your servicer is the financial company that manages your student loans and sends your monthly bill. They can walk you through applying for IDR and recommend the most beneficial plan for your unique situation. You must complete an income-driven payment plan request, which you can fill out online at Federal Student Aid or use a paper form your servicer can send you.

Because your servicer ties payments on any IDR plan to your income, they require income information. You must submit proof of income after you complete your application. Proof of income is usually in the form of your most recent federal income tax return. Have this handy when applying over the phone. They also need your AGI, which you can find on your tax return. You must also mail or fax a copy of your return before your application is complete.

It generally takes about a month to process an IDR application. If you need them to, your loan servicer can place your loans into forbearance while they process your application. You aren’t required to make a payment while your loans are in forbearance. But interest continues to accrue, which results in a larger balance.

You can change your student loan repayment plan or have your monthly payments recalculated at any time. If an IDR plan is no longer advantageous to you, you lose your job, you switch jobs, or there’s a change in your family size, contact your student loan servicer to either switch your repayment plan or have your monthly payments recalculated.

You aren’t obligated to do so if the change would result in higher monthly payments. However, you must recertify each year.

Recertification

You must recertify your income and family size annually by providing your student loan servicer with a copy of your annual tax return. You must recertify even if there are no changes in your family size or income.

Loan servicers send reminder notices when it’s time to recertify. If you don’t submit your annual recertification by the deadline, your loan servicer disenrolls you, and your monthly payment reverts to what it would be on the standard 10-year repayment schedule.

You can always reenroll if you miss your recertification deadline. But there are a couple of reasons not to be lax about recertification.

First, if your income increases to the point at which your monthly payment would be higher than it would be on the standard 10-year repayment schedule, you can’t requalify for either the PAYE or IBR plans. But if you stay in the program, your payments are capped no matter how much your income increases.

Second, if you’re automatically disenrolled from your IDR plan because of a failure to recertify, any interest that accrues during the time it takes to get reenrolled is capitalized. That means your servicer adds interest to the balance owed. Even after you reenroll in your IDR plan, you begin earning interest on the new capitalized balance, thereby increasing the amount owed. And that’s true even if you place your loans into a temporary deferment or forbearance.


How to Choose an IDR Plan

The easiest way to choose the best IDR plan is to discuss it with your loan servicer. They can run your numbers, tell you which plans you qualify for, and quote you monthly payments under each plan.

Don’t just choose the plan with the lowest monthly bill unless you can’t afford a higher payment. Instead, balance your current needs with the long-term costs of any plan. For example, one plan might offer a lower monthly payment but a longer repayment term. Further, although your interest rate remains fixed on all the IDR plans, some offer benefits like interest subsidies that can reduce the overall amount you must repay.

Even if you think you’ll qualify for PSLF, which could get you total loan forgiveness in as little as 10 years, it’s still worth it to weigh your options. Currently, too few borrowers qualify for PSLF, so it might not work out to pin your hopes on it until the program becomes more streamlined.

Note that IDR plans aren’t suitable for everyone. Before enrolling in any IDR plan, plug your income, family size, and loan information into the federal government’s loan simulator. The tool gives you a picture of your potential monthly payments, overall amount to repay, and any balance eligible for forgiveness.


Final Word

If you’re struggling to repay your student loans or facing the possibility of default, an IDR plan probably makes sense for you. But they aren’t without their drawbacks. It pays to research all your options, including the possibility of picking up a side gig to get those student loans paid off faster.

Student loan debt can be a tremendous burden, preventing borrowers from doing everything from saving for a home to saving for retirement. The faster you can get rid of the debt, the better.

Source: moneycrashers.com

Benefits Of A Good Credit Score | More Than Just Getting A Loan

Everyone knows that it’s almost impossible to get a bank loan without good credit, but there are more benefits of a good credit score than just convincing the bank.

Loans for a home or automobile are almost impossible to get with a low credit score.  A score below 600 tells the bank that that particular consumer somewhat of a risk, and a score below 500 equates to an almost certain risk.  Usually, a bank will look for at least a 500 credit score to lend, and that number can increase as the amount of the loan goes up.

Worse still is having a credit score of 0, or no credit.  Without credit history, banks and lenders usually require a co-signer (someone with good credit history) to take on the burden of the loan if the client fails to pay or collateral, such as a car to be repossessed to cover the amount of the loan if it goes unpaid.

Obviously, the main benefit of a good credit score is the ability to get bank and lender loans easily.  But, there are several more benefits of a good credit score you may not have thought of.

Five More Benefits Of A Good Credit Score

•    Credit Card Offers & Approval – A good credit score can not only entice credit card lenders to offer you their coveted Platinum Plans, but help to guarantee your approval.

•    Higher Loans & Spending Limits – While of credit score of 600 may get you a few thousand dollars in loan amounts and credit card limits, a score of 800 will likely raise that ceiling into the tens-of-thousands.

•    Lower Interest & Financing Rates – Interest and financing rates can put you in debt, quite literally, for decades.  A higher credit score will help to lower these rates so you can pay off the principle quicker and get out of debt.

•    Renegotiating Power For Current Interest & Financing – Your interest and financing rates on existing loans might not be set in stone.  A higher credit score may help you to significantly lower the rates on existing loans.

•    Avoiding Security Deposits – Security deposits are often required for utility bills, cell phone contracts, rental agreements, and the like.  A good credit score might allow you to decrease, and possibly even completely eliminate, these deposits.

These are only a few of the benefits of a high credit score.  The fact is, modern America, even the modern world, runs almost entirely on credit.  The better your credit, the better the lifestyle you can lead.

Repairing A Bad Credit Score

Once you’re on the road to a bad credit score, it can be difficult to get back on the right track.  In fact, it is fairly common for the credit bureaus to receive the wrong information, or to continue impact your credit long after you have paid off old debts.

Questionable, misleading, and unverifiable reports on your credit history can also be unjustly devastating to your credit score.  This is why it is so important for people to keep a tight leash on their credit history.

If your credit score is suffering you might benefit from hiring a credit restoration service to research your credit history and put a stop to incorrect information.  Credit Absolute is the nation’s most trusted credit repair company, and doesn’t charge a dime until they start deleting bad data from your credit report to drive your credit score up.

Contact Credit Absolute today, and start looking forward to a brighter future.

Source: creditabsolute.com

60/40 Stock & Bond Portfolio – Guide to Asset Allocations, Pros & Cons

The stock market is a system that tends to follow tradition. Traditionally, investors have been expected to start young, build a buy-and-hold portfolio, and be careful with asset allocation in order to avoid high levels of risk.

Much has changed in investing over the past couple of decades with robo-advisors making moves for many investors, access to the market widely available through discount brokers, and a rise in short-term trading.

Still, many people feel more comfortable investing in the traditional ways, which is what makes the highly traditional 60/40 portfolio so popular.

Read on to learn about the 60/40 portfolio model, how to build one for yourself, and its pros and cons.

What Is the 60/40 Portfolio?

The 60/40 portfolio has been around for decades and is more of an investment strategy than a defined portfolio because there are no assets set in stone that build up the portfolio.

The strategy is based on a safe asset allocation strategy that has been used in retirement accounts for so long that it’s hard to pin down where it started or who first developed it.

The 60/40 portfolio strategy suggests 60% of your investment assets should be invested in equities like stocks, exchange-traded funds (ETFs), and mutual funds.

The other 40% of the portfolio’s assets should be invested in fixed-income securities like U.S. Treasury bonds, corporate bonds, and other debt securities that produce income through interest rates or a discount on the price of the security.

The idea is that by diversifying your portfolio across asset classes that experience different levels of volatility and risk, you’ll be able to access the gains the stock market provides during bull markets while minimizing losses during downturns or all-out bear markets.

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The Investment Thesis Behind the 60/40 Portfolio

The 60/40 portfolio is based on a strategy of diversification that many believe provides the perfect balance between risk and reward. The thesis is simple.

Most experts agree that it’s nearly impossible to time movements in the stock market, but they also agree that by avoiding stocks altogether, you’re robbing yourself of the opportunity to produce significant returns. Despite their inherent volatility, it’s important to maintain exposure to the stock market while working to balance the risk of those equities falling on hard times.

That’s where fixed-income securities come into play. These investments come with significantly lower risk. Once these securities mature, investors are paid back their entire initial investment amount.

The interest payments received throughout the life of the investment (or the difference between the price of buying the security and the price paid at maturity) acts as the return.


Who Should Take Advantage of the 60/40 Portfolio?

Because the 60/40 portfolio is highly customizable, it’s a great fit for just about any investor. As you’ll learn, the portfolio can be adjusted for different risk levels and investment strategies.

However, there is one concern with the portfolio. The strategy is based on a strict asset allocation of 60% equities and 40% fixed-income investments. However, many experts disagree on what an optimal asset allocation looks like.

Because your goals and appetite for risk are likely to change over time, many suggest using your age to determine the split between equities and fixed-income investments.

For example, instead of allocating 40% of your assets to bonds and other debt securities and 60% to equities in all cases, this variation on the strategy suggests if you’re 21 years old, you should allocate 21% to fixed-income securities and 79% to equities.

This variation involves adjusting your holdings as you age to include more fixed-income assets and fewer equities, becoming more conservative as you near retirement.

Ultimately, a 60/40 portfolio is a traditional, moderate-risk portfolio that could result in slower growth than other options. By following the 60/40 portfolio to the letter, your risk may be too heavily moderated or too aggressively accepted, depending on your age and investment goals.


Pros and Cons of the 60/40 Portfolio

As with any other portfolio strategy, there are pros and cons that should be considered before diving into the 60/40 portfolio.

60/40 Portfolio Pros

There are several reasons to consider following the 60/40 strategy in your own portfolio. Some of the most exciting aspects of the portfolio include:

  1. Diversified to the Max. The portfolio, although made up of only a few assets at most, is designed to be highly diversified, offering complete exposure to whichever sector of the market you prefer. The mix of underlying assets in each fund acts as an insurance policy against volatility.
  2. Fully Customizable. The portfolio doesn’t outline the exact funds you should invest in, just that 60% of your investments should be in equities and 40% should be in fixed-income assets. This leaves you the option to choose the investment strategy, level of risk, and asset exposure of the funds you buy within the predefined allocation. Few portfolios offer this level of customization.
  3. Evenly Balanced Risk. Through the strict asset allocation rule, risk is evenly balanced. While there are opponents to the idea of fixed allocation, this is a tried-and-true strategy that’s been used for decades.
  4. Easy Management. Finally, there are very few assets to keep track of here. This makes maintaining balance and managing your portfolio an extremely simple process.

60/40 Portfolio Cons

While there are plenty of reasons to be excited about deploying this portfolio strategy, there are also a few drawbacks that should be considered before diving in. They include:

  1. Fixed Allocation. Asset allocation is fixed at 60% stocks and 40% bonds, which is rather modest for younger investors and a bit risky for those nearing retirement. Most financial advisors suggest following a fluid allocation strategy that changes as your risk tolerance and goals change.
  2. Low Bond Yields. In recent years, the market has been experiencing historically low bond yields as a result of a low-interest-rate environment. By allocating such a large percentage of your portfolio to fixed-income investments, you could be missing out on much of the gains the bull market has to offer.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Stock Rover can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.


How to Duplicate the 60/40 Portfolio

As mentioned above, the contents of a 60/40 portfolio aren’t set in stone. It’s more of a guide explaining how you may want to go about asset allocation that can be applied to several different investment strategies.

As a result, there are several ways to go about building the portfolio — a task made easier by the abundance of low-cost ETFs on the market today.

Here are six popular ways to build a 60/40 portfolio for yourself based on your investing strategy and risk tolerance. The funds mentioned here are low-cost Vanguard index funds, but you can choose any fund you like that gives you exposure to the same types of assets.

The Low-Risk 60/40 Portfolio

For investors with a low risk tolerance who want access to the market as a whole, the build of the portfolio is best as follows:

  • 60% in Vanguard Total Stock Market Index Fund ETF (VTI). One of the most diversified ETFs on the market today, the VTI is designed to give investors exposure to the total United States stock market. The past performance of the fund has been stellar, beating others in its category relatively regularly over the past 10 years.
  • 40% in Vanguard Intermediate Term Treasury ETF (VGIT). The VGIT is focused solely on intermediate-term, high-quality U.S. Treasury securities. While these government bonds come with relatively low yields compared to longer-term options, their yields are stronger than short-term bonds and liquidity is reasonable.

The Moderate-Risk 60/40 Portfolio

While the low-risk 60/40 portfolio is a great option for many, investors know that the lower the risk associated with the investment, the lower the potential for gains.

One great way to slightly increase the risk while greatly expanding your earnings potential when using this portfolio strategy is to include international stocks in your equity holdings and swap out Treasury bonds for corporate bonds in the bond portion of the portfolio.

Here’s how that looks:

  • 60% in Vanguard Total World Stock ETF (VT). The VT ETF fund was designed to provide exposure to a highly diversified list of stocks, both in the U.S. and around the world. While the international side of the portfolio increases the risk, it also increases potential profitability, as emerging market growth tends to outpace growth in established markets like the United States.
  • 40% Vanguard Total Corporate Bond ETF (VTC). On the bond market, corporate bonds are known for paying higher yields than Treasury bonds but do come with increased risk. By investing in the VTC fund rather than VGIT, it’s possible to increase the earnings on the fixed-income side of your portfolio.

The High-Risk 60/40 Portfolio

Finally, if you’re willing to accept higher levels of risk, the potential returns of the 60/40 portfolio can be increased by including some different asset classes into both the equity and fixed-income sides of the equation.

Among your equities, consider mixing in some small-cap holdings. Small-cap stocks are known for high levels of volatility and risk, but they’re also known for the potential to outpace the returns of their large-cap counterparts.

On the fixed-income side, look into real estate investment trusts (REITs). These real estate investments are riskier than bonds but have much greater potential to increase your profitability while providing a source of predictable returns in the form of exceptional dividends.

Adjusting the portfolio for a high-risk investor is as simple as investing in the following funds:

  • 30% in Vanguard Total World Stock ETF (VT). The VT fund remains an anchor in this investing strategy, providing access to a diversified group of U.S. and international holdings. This fund should represent about 30% of your holdings in the high-risk rendition of the 60/40 portfolio, or half of your equity allocation.
  • 30% in Vanguard Small-Cap ETF (VB). The VB fund is made up of a diversified group of small-cap stocks, providing exposure to high-growth opportunities in smaller companies. This fund takes the other 30% allocation on the stocks side of the portfolio in this model.
  • 20% in Vanguard Total Corporate Bond ETF (VTC). About half of your fixed-income allocation, or 20% of the total portfolio, should be invested in the VTC fund to gain exposure to corporate bonds.
  • 20% in Vanguard Real Estate ETF (VNQ). Finally, the VNQ fund is an index made up of investable REITs, which gives you broad access to real estate investments while maintaining diversification within the asset class. This fund takes up the other half of your fixed income allocation, representing 20% of the portfolio.

The Growth 60/40 Portfolio

If you’d rather focus on a growth strategy than simply making bucket investments in diversified groups of equities, the growth 60/40 portfolio is the way to go. Here’s what it looks like:

  • 60% in Vanguard Growth Index Fund ETF (VUG). The VUG fund was designed to provide diversified exposure to U.S. large-cap growth stocks. These are companies that have a proven history of generating significant growth, but provide a level of safety in that they are all large-cap, established companies. In the growth rendition of the portfolio, this fund represents 60% of your investment allocation.
  • 40 % Vanguard Intermediate-Term Treasury ETF (VGIT). The other 40% of the portfolio would be invested in the VGIT, offering stability through intermediate-term Treasury securities.

The Value 60/40 Portfolio

If you’re following a value investing strategy, the best way to take advantage of this portfolio is to invest the stock portion of your assets into a value-centric fund like the Vanguard Value Index Fund ETF (VTV).

This fund provides diversified exposure to large-cap value stocks, meaning these are large-cap companies with valuation metrics that suggest they’re trading at a discount.

You can then invest the remaining 40% of your assets using the VGIT for your bond holdings.

The Income 60/40 Portfolio

Finally, those focused on income investing can also take advantage of this portfolio with one small tweak. As with the traditional 60/40 portfolio, 40% of your assets should be allocated to the VGIT, providing safety through investments in intermediate-term Treasury securities.

The other 60% of the portfolio should be invested in the Vanguard High Dividend Yield ETF (VYM). The VYM is made up of a wide range of stocks known for paying high dividend yields.

By investing in the fund, you’ll gain diversified exposure to stocks of all sizes in various sectors that all have one thing in common — they all have a history of offering investors a high dividend yield. That’s music to an income investor’s ears.

Pro Tip. M1 Finance offers expert pies designed around several portfolio strategies, including the 60/40 portfolio. If you’re not interested in building your own, use a prebuilt expert pie on M1 Finance to add the portfolio to your holdings.


Keep Your Portfolio Balanced

Regardless of which rendition of the 60/40 portfolio you choose to go with, it’s important to make sure to maintain balance. The entire thesis behind the portfolio is to provide meaningful returns while creating a safety net by balancing higher-risk equities with lower-risk fixed-income investments.

As time passes, some investments will rise in value and others may fall. As a result, your investment portfolio will fall out of balance. If the balance becomes too skewed, the portfolio may fail to meet your investment objectives.

The good news is that the 60/40 portfolio strategy is a buy-and-hold strategy, meaning you won’t be required to rebalance your portfolio monthly. However, it is best to take a look at your portfolio on at least a quarterly basis.

Moreover, with so few assets, maintaining balance is a relatively simple process. When one asset grows to take up more than its allotted percentage, simply sell a little of it and buy more of its counterpart to bring the portfolio back to the 60/40 balance.


Final Word

There’s a reason the 60/40 portfolio is one of the most talked-about strategies on Wall Street. For decades, investors have been deploying this strategy, which has worked to build wealth over time.

However, as times change, the traditional investing models are being replaced with newer, more fluid options. While the traditional 60/40 concept has been a go-to for some time, it’s not the best fit for all investors, nor is it optimized for investing during a bull market where bond yields are chronically low and stocks are on the rise.

Nonetheless, when markets are flat or falling bearish, and you feel a safer approach is best, the portfolio is a great fit. Moreover, if you’re willing to take the time to customize and are interested in REITs rather than heavy bond allocation, the portfolio can be adjusted to fit your needs.

Source: moneycrashers.com

How a Bad Credit Score Can Hurt You

While a credit score may seem like an arbitrary number, calculated by an invisible credit agency with no real bearing on your life. However, bad credit can cost you real money. To get an idea of just how much money you can lose due to bad credit, take a look at the following examples.

Credit Cards

If you have a low credit score, you will not be eligible for prime credit cards. These cards have the best interest rates, payment terms and credit limits, making it easier for you to maintain good payment history, thus further establishing good credit. Consumers with less than stellar credit “qualify” for less attractive credit cards or “sub-prime” cards. These cards often require exorbitant fees, monthly fees, low credit lines, or cash deposits. In most cases, these cards are difficult to maintain a positive payment record with and often fail to report your positive credit activity to the credit bureaus. A sub-prime credit card cannot only cost you money but can also make it very difficult for you to improve your credit score.

Car Buying

When trying to buy a car with bad credit, you will not qualify for the lowest interest rates available. This often translates to $3000 to $6000 more in interest payments. This additional interest will take the form of slightly higher monthly payments. While it may not seem like a lot on a month by month basis, when calculated over the life of the loan, it will be a sizable amount.

For example: A loan for $25000 to be repaid over 5 years:

Credit Status Interest Rate Monthly Payment Extra Interest Paid
Excellent 8% $507 $0
Poor 12% $556 $2,952
Bad 16% $608 6,062

Home Buying

As you might imagine, the effects of bad credit are most evident the larger the purchase, such as when you are trying to purchase a home. For most people, a home is the largest purchase they will ever make. If you have a poor or bad credit score, you may end up paying between $2000 and $3000 of interest a year over the course of the loan, which can amount to $60000 and $100000 more in interest than if you had an excellent score.

For example: A $200,000 mortgage to be repaid over 30 years:

Credit Status Interest Rate Monthly Payment Extra Interest Paid
Excellent 7% $1,331 $0
Poor 9% $1,609 $66,140
Bad 12% $2,057 $99,019

Learn how to improve your credit

Source: creditabsolute.com

5 Credit Card Facts From The Arizona Credit Repair Experts

The fact is it takes lengthy research and education to truly understand the credit system in its entirety, and many devote themselves entirely to making it their career.  Credit lenders, banks, credit card companies, and almost any kind of big business has people on staff who’s entire job it is to fully understand the system.

But while it might require a college degree to get a job in the field of credit, you don’t need one to get incite on how the credit card system works.  With a little research, you can quickly gain knowledge in credit that you can use to your advantage.

5 Quick Facts About Credit Cards

A rudimentary understanding of the credit card system can be gained with the just the following 5 facts:

•    Many people believe that if they close a 10-year-old credit card they will lose all of the positive history associated with it.  That isn’t true.  The age and history of the card will remain on your credit report as long as the bureaus themselves don’t remove it from your report.  That history will continue to be considered even if the credit card is closed for the next 10 years.

•    Another commonly believed myth is that a credit card will stop aging after it is closed.  But if you close a credit card today that has a 10-year history behind it, at the end of the year it will have 11 years of history.  So it will go until ten years after you have closed the card when it is finally deleted from your credit report with a 20-year history.

•    Credit cards do not have to have a negative balance in order to build credit, as is commonly believed.  As long as the credit card is open, acquiring charges, and being paid on, it is reporting to the credit bureaus.  In fact, it is usually a better idea to keep the balance at zero, charging and paying in the same billing month to keep positive reports flowing.

•    New store credit cards aren’t necessarily a bad idea, as many people think.  In fact, store-specific credit cards usually have lower criteria for approval, making them much easier to qualify for.  With a single store credit card, you can boost your credit score, raise your limit ceiling, and improve your overall standing.  However, the temptation to over-use your store credit can quickly sneak up on you and build debt that could be bad for your credit report.

•    Many people also believe that a good credit card history will automatically override other sources of credit.  While a credit card is a good way to build and maintain credit, it is only a stone in the river combined with other lines of credit such as furniture payments, loans, or delinquent medical bills.  A credit card alone won’t fix your credit, you must keep all of your lines of credit in check.

Congratulations!  You now know more about credit cards and how they really affect your credit score than the majority of credit card-carrying Americans.

Get More From The Best Arizona Credit Repair Experts

For more information on how to build, repair, and maintain a healthy credit score with your credit cards and other lines of credit, contact Credit Absolute – the most trusted name in Arizona Credit Repair.

Source: creditabsolute.com

8 Ways to Raise Your Credit Score

1. Get Rid of Your Collection Accounts

Did you know that paying a collection account can actually reduce your score? Here’s why: credit scoring software reviews credit reports for each account’s date of last activity to determine the impact it will have on the overall credit score. When payment is made on a collection account, collection agencies update credit bureaus to reflect the account status as “Paid Collection”. When this happens, the date of last activity becomes more recent. Since the guideline for credit scoring software is the date of last activity, recent payment on a collection account damages the credit score more severely. This method of credit scoring may seem unfair, but it is something that must be worked around when trying to maximize your score. How is it possible to pay a collection and maximize your score? The best way to handle this credit scoring dilemma is to contact the collection agency and explain that you are willing to pay off the collection account under the condition that the all reporting is withdrawn from credit bureaus. Request a letter from the collector that explicitly states their agreement to delete the account upon receipt/clearance of your payment. Although not all collection agencies will delete reporting, removing all references to a collection account completely will increase your credit score and is certainly worth the involved effort.

2. Get Rid of Your Past Due Accounts

Within the delinquent accounts on your credit report, there is a column called “Past Due”. Credit score software penalizes you for keeping accounts past due, so Past Dues destroy a credit score. If you see an amount in this column, pay the creditor the past due amount reported.

3. Get Rid of Your Charge – Offs and Liens

Charge­offs and liens barely affect your credit score when older than 24 months. Therefore, paying an older charge­off or a lien will neither help nor damage your credit score. Charge­offs and liens within the past 24 months severely damage your credit score. Paying the past due balance, in this case, is very important. In fact, if you have both charged­off accounts and collection accounts, but limited funds available, pay the past due balances first, then pay collection agencies that agree to remove all references to credit bureaus second.

4. Get Rid of Your Late Payments

Contact all creditors that report late payments on your credit and request a good faith adjustment that removes the late payments reported on your account. Be persistent if they ref use to remove the late payments at first, and remind them that you have been a good customer that would deeply appreciate their help. Since most creditors receive calls within a call center, if therepresentative refuses to make a courtesy adjustment on your account, call back and try again with someone else. Persistence and politeness pays off in this scenario. If you are frustrated, rude, and unclear with your request, you are making it very difficult for them to help you.

5. Check Your Credit Limit and Evenly Distrubute The Balances You are Carrying

Make sure creditors report your credit limits to bureaus. When no limit is reported, credit scoring software scores the account as though your current balance is “maxedout”. For example, if you know that you have a $10,000 limit on your credit card, make sure that the limit appears on the credit report. Otherwise, your score will be damaged as severely as if you were carrying a balance of the entire available credit. Credit scoring software likes to see you carry credit card balances as close to zero as possible. If it is difficult for you to pay down your balances, read the following guidelines to maximize your score as much as possible under the circumstances:

There are different degrees that scoring software can impact your score when carrying credit card balances.
Balances over 70% of your total credit limit on any card damages your score the most. The next level is 50% of your balance, then 30% of your balance.
In order to maximize your score without having to pay down your balances, evenly distribute your credit card balances among all of your credit cards, rather than carry a large balance on one credit card. For example, if you are carrying a $9000 balance on a credit card with a $10000 limit, and you have two other credit cards with a $3000 and $5000 limit, transfer your balances so that you have a $1500 balance on the $3000 limit card, a $2500 balance on the $5000 limit card and a $5000 balance on the $10000 limit card. Evenly distributing your balances will maximize your score.

6. Do Not Close Your Credit Cards Ever

Closing a credit card can hurt your credit score, since doing so effects your debt to available credit ratio. For example, if you owe a total credit card debt of $10,000 and your total credit available is $20,000, you are using 50% of your total credit. If you close a credit card with a $5,000 credit limit, you will reduce your credit available to $15,000 and change your ratio to using 66% of your credit. There are caveats to this rule: if the account was opened within the past two years or if you have over six credit cards. The magic number of credit card accounts to have in order to maximize your score is between 3 and 5 (although having more will not significantly damage your score). For example, if a card was opened within the past two years and you have over six credit cards, you may close that account. If you have more than six department store cards, close the newest accounts. Otherwise, do not close any at all.

7. Open Business Credit Cards

Most business credit cards do not report to the personal credit report unless the person pays the card late. Given that fact, any debt carried on these cards does not hurt the credit score if it is not reported. You can carry credit card debt on these cards without hurting your credit score. Just apply for business credit cards now to start building this segment of your credit.

8. Keep Your Old Credit Cards Active

15% of your credit score is determined by the age of the credit file. Fair Isaac’s credit scoring software assumes people who have had credit for a longer time are at less risk of defaulting on payments. Therefore, even if your old credit cards have horrible interest rates, closing those cards will decrease the average length of time you’ve had credit. Use the old card at least once every six months to avoid the account rating to change to “Inactive”. Keeping the card active is as simple as pumping gas or purchasing groceries every few months, then paying the balance down. An inactive account is ignored by Fair Isaac’s credit scoring software, so you won’t get the benefit of the positive payment history and low balance that card may have. The one thing all credit reports with scores over 800 have in common is a credit card that is twenty years old or older. Hold onto those old cards, trust me! Preparing credit is a slow and time consuming process. Full knowledge of your credit profile and how it represents you to creditors and credit bureaus is pivotal to full credit restoration success. Credit bureaus always advise individuals that they have a right to dispute their own credit files, but when the rights of the Credit Bureaus slow you down, you know where to ask for help.

Source: creditabsolute.com

Top Ways to Manage Your Debt Ratio

Debt ratio is the difference between the amount of debt you have charged versus the amount of money the credit card has authorized for you to use, or your credit limit. The difference is your debt ratio. This can also be referred to as revolving (credit card) credit you have available. If your credit limit is 5,000 dollars and you have charged 2,500 on the card, your debt ratio is 50%

Debt ratio accounts for 30% of your FICO score, which makes it the second highest factor the credit agencies take into account when looking at your credit.

Maintaining your debt ratio can make an impact on your credit score, but unlike payment history, not everyone knows how to ensure their debt ratio is a positive force on your credit score. Here are a few tips for you to make sure your debt ratio is not a drain on your credit score:

Maintain Your Total Revolving Credit

  • Don’t ever close credit cards if you can avoid it. The more cards you have open, the higher your total of available credit. Credit calculating software takes your TOTAL available credit versus TOTAL debt into account. Closing a credit card will decrease your overall available credit without decreasing your debt.
  • Keep your debt even across your credit cards. It is better to have 4 credit cards with 20% debt ratio, then 1 card with 80% ratio and 3 cards with no debt.

Know Your Limits

  • Keep the balances on your credit cards as low as possible. Aim to keep all of your balances below 50% of the credit limit on that card.
  • The FICO software ranks your credit debt based on levels. If your credit card debt is more than 75% of your credit limit, it will cause serious damage to your credit score. The next limit begins at 50%, then 25%.
  • If your debt is high and approaching that 75% mark, call your credit card company and request an increase of your credit limit

Check Your Credit Report Regularly

  • Look at your credit report to ensure the credit card companies have accurately reported your credit limit. If they haven’t reported your limits, the FICO software will read all of your cards as maxed out.
  • Report any errors on your credit report immediately. The sooner errors are remedied, the better.
  • Maintain communication with your credit card company. Call them if there are suspicious charges on your account or if you need to make adjustments to your payment schedule.

By maintaining your debt ratio, you can ensure your credit score is as high as possible. While a solid debt ratio alone is not the only element involved in the calculation of your FICO score, it is a significant portion.

Have questions about your credit score or need help repairing your credit? Contact Credit Absolute today!

Source: creditabsolute.com

How Phoenix Credit Repair Loans Work | Debt Consolidation Loans

Basically, a debt consolidation loan works to repair your credit by giving you the money you need to pay off your individual creditors such as:

•    Credit Card Companies
•    Vehicle Loans
•    Mortgages
•    Bank Loans

Paying these outstanding debts will, in and of itself, help to repair your credit.  You then have a single loan payment every month to the debt consolidation company that offered you the loan instead of multiple payments to your creditors.  They are specifically designed for people with bad or less-than-perfect credit to help them get their credit back on track.

Most debt consolidation loans can also help to save you money by offering lower interest rates than your outstand credit accounts are probably charging.  These interest rates may still be higher than some traditional loans simply because of the credit history it is designed to repair.

But, if you’re paying 9% interest on a debt consolidation loan, as opposed to multiple credit card interests at 20% each, you stand to save a lot of money.

Do-It-Yourself Debt Consolidation

With a little bit of leg-work, you may be able to escape the service fees of debt consolidation companies and do it on your own.  There are programs available through many banks and lenders in the Phoenix area for people who are honestly looking to repair their credit and become financially sound again.

Look for a loan with an attractive interest rate – as low as you can possibly get.  That might mean that you have to get quotes from several lenders, but if you happen to find one with 10% less interest than everyone else it was well worth the search.  This research could save you thousands if you’re patient and look at all available options.

After you find a favorable loan, it is absolutely essential that make sure you can make your monthly payments on time.  Your ultimate goal is to repair your credit, and late or missed payments can ruin all of your work very quickly.  Don’t consider a debt consolidation loan without knowing you can make the payments on time, or you could end up with even worse credit.

Professional Phoenix Credit Repair Help

Credit Absolute is the highest ranking credit repair company in Arizona, and can help you to identify problematic issues with your credit report to take under consideration with your debt consolidation objectives.  Contact us today for a free certified consultation.

Source: creditabsolute.com

The Blue Business Plus Credit Card from American Express Review

Advertiser Disclosure: This post includes references to offers from our partners. We receive compensation when you click on links to those products. However, the opinions expressed here are ours alone and at no time has the editorial content been provided, reviewed, or approved by any issuer.

The Blue Business® Plus Credit Card from American Express is a popular small business credit card with a fairly standard rewards program and no annual fee. Like many other Amex business credit cards, the rewards program is based on Membership Rewards, a proprietary portal that allows you to redeem for a wide range of merchandise and cash equivalents.

Blue Business Plus is meant for business owners with good to excellent credit. It competes with a number of other popular small business credit cards, including  Capital One Spark Miles for Business. Blue Business Plus also competes with American Express’s color-coded business card family, which includes the Plum Card, Business Green Rewards, Business Gold Rewards, and the Business Platinum Card.

Key Features

These are the most important features of the Blue Business Plus Credit Card from American Express.

Welcome Offer

Earn 15,000 Membership Rewards® points after you spend $3,000 in eligible purchases on the Card within your first 3 months of card membership.

Membership Rewards and Redemption

Get rewarded for business as usual. Earn 2X Membership Rewards® points on everyday business purchases such as office supplies or client dinners. The 2X rate applies to the first $50,000 in purchases per year, and 1 point per dollar thereafter.

You can redeem accumulated Membership Rewards points for general merchandise, travel, transportation (including Uber rides), gift cards, statement credits, and other items at Amex’s Membership Rewards portal. Point values vary by redemption method, with merchandise generally worth $0.01 per point and statement credits worth $0.006 per point.

Introductory APR

There is a 0% introductory APR for 12 months from account opening date on purchases. For rates and fees of the Blue Business® Plus Credit Card from American Express, please visit this rates and fees page.

Regular APR

Following the end of the introductory period, variable regular APR applies. It’s currently 13.24% to 19.24% variable, based on your creditworthiness and other factors.

Important Fees

Blue Business Plus has no annual fee or fees for additional employee cards. Foreign transactions cost 2.7%. Late and returned payments cost up to $39 each. See rates and fees.

Spend Above Your Credit Limit

Blue Business Plus comes with a spending limit. However, cardholders can spend above their credit limits without first applying for a higher limit, provided they pay off the amount spent above the limit in full by their statement due date. Above-limit spending is not unlimited – according to American Express, it “adjusts with your use of the Card, your payment history, credit record, financial resources known to American Express, and other factors.”

Additional Business Benefits

Blue Business Plus comes with a nice lineup of business-friendly benefits, including digital receipt storage, expense tagging and tracking, and the ability to designate an employee as your account manager and dispute resolution point person.

Credit Required

This card requires good to excellent credit.

Advantages

  1. No Annual Fee. Blue Business Plus doesn’t have an annual fee. That’s a nice contrast to other popular small business cards.
  2. Long Introductory APR Period. Blue Business Plus’s 0% APR introductory period lasts for 12 months from account opening. That’s much more generous than many fellow competing business cards, and in line with top low APR consumer credit cards. Once the introductory APR period ends, variable regular APR applies.
  3. Good for Business Owners Without Stellar Credit. Although Blue Business Plus requires good to excellent credit, it’s not the most exclusive card out there. If you don’t have major blemishes on your credit record, there’s a good chance you’re going to be approved for this card. That’s certainly not the case for more exclusive American Express business products, such as Business Gold Rewards and Business Platinum.

Disadvantages

  1. Has a Foreign Transaction Fee. Blue Business Plus comes with a 2.7% foreign transaction fee, so it’s not ideal for business owners who frequently travel abroad. If you’re looking for a piece of plastic that doesn’t penalize you for setting foot in other countries, try one of the Capital One Spark cards.
  2. Points Accumulate Slowly. Blue Business Plus earns just 1 Membership Rewards point per $1 spent after the first $50,000 in purchases each year. That’s a slower rate of accumulation than some direct competitors, including Chase Ink Business Cash Credit Card.
  3. Point Values Can Be Low. Come redemption time, Membership Rewards points’ values vary based on what they’re being redeemed for. Merchandise redemptions are usually worth $0.01 per point, but cash equivalents can be worth much less – $0.005 or $0.006, in some cases. By contrast, the Capital One Spark family’s miles or cash back points are always worth $0.01 apiece, while Chase Ink Business Preferred‘s points can be worth as much as $0.0125 at redemption or even more when points are transferred to travel partners. If you’re looking for a generous business loyalty program, look to that card.

Final Word

American Express has a somewhat deserved reputation as an issuer of gold-plated and platinum-plated cards with luxurious fringe benefits, impeccable service, and generous loyalty features. Many of the company’s high-end cards live up to this image – but not all of them.

The Blue Business® Plus Credit Card from American Express is a middle-of-the-road rewards card that doesn’t require massive revenues or an off-the-charts credit score – a true business credit card for the rest of us. Blue Business Plus’ broad appeal does come with some drawbacks, including a so-so rewards system, but there are worse cards out there. If you don’t qualify for a more generous American Express card at the moment, it’s not a bad place to start.

For rates and fees of the Blue Business® Plus Credit Card from American Express, please visit this rates and fees page.

Source: moneycrashers.com