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David Muhlbaum: While Social Security won’t ever go broke – and we’ll explain why that is – it faces real funding problems, and the pandemic hasn’t helped things. Catherine Siskos, the editor of Kiplinger’s Retirement Report, joins us to talk about potential fixes and what they mean for your benefits and taxes. We also look into the latest version of buy now, pay later plans, and what to do with an old pair of shoes.
David Muhlbaum: Welcome to Your Money’s Worth. I’m kiplinger.com senior editor David Muhlbaum, joined by senior editor Sandy Block. Sandy, how are you doing?
Sandy Block: Doing great, David.
David Muhlbaum: I know you and my boss, Robert Long, did a show some time ago on credit versus debit cards. Smackdown, you called it. And that was funny in part because Robert’s fixation on debit cards is kind of a yeah, okay, okay, we know, thing among the staff. But anyway, being old and firmly set in my ways, that is, my way is to use a rewards credit card for just about everything and then I pay it off monthly. And as a result, I feel like I didn’t pay enough attention to something that kind of got big during the pandemic when so much shopping shifted online. I’m talking about these buy now, pay later options, Affirm, Klarna, those sorts of things. Have you used any of those, Sandy?
Sandy Block: Well, now, I am really old because I remember when you would put things on layaway at the local department store.
David Muhlbaum: Oh, that’s still around.
Sandy Block: Yeah, that’s still around. And this is sort of the modern version of that. And I’ve been sniffing around over them, thinking about writing about them for the magazine, because I seem to be hearing about them all the time. And our colleague at The Kiplinger Letter, writer Rodrigo Sermeño, did an item on buy now, pay later for a recent Letter. And it mostly it’s about how they work, which I will summarize for you.
Sandy Block: Basically buy now, pay later is exactly that, you buy now and you pay later, which is something people have been doing since before money, but there’s something new or newish going on here. The credit being extended by these third-party payment processors, not this merchant like I remember, the department store and not your credit card. And that’s a big part of the appeal because you can buy stuff both online and in stores without having to put it on a credit card or having to pay cash upfront. It’s a short-term loan, basically, with zero interest and four payments seems to be the magic preferred number of installments. In fact, there’s one called QuadPay, but you can also customize the terms depending on your credit.
David Muhlbaum: Oh, four easy payments. Okay. I get it. I get it. I get instant gratification. That makes sense. But it also sounds potentially risky. Before we dive too deep into the question of how this works for the consumer, how are these companies getting paid if there’s no interest being charged?
Sandy Block: Well, first of all, I want to remind you that not all of the deals are zero interest, which is why you must read the fine print before you get involved. But their main revenue is from charging the merchants a fee and, in large part because the merchant gets paid right away and the payment firm takes on the risk, they’re glad to pay it. Sometimes there’s a user’s fee. If you make late payments, as I said, there might even be interest. Although notably Affirm, which is one of the biggies in this area, they’re affiliated with Walmart, says it does not charge late fees.
David Muhlbaum: Oh. So I go and buy my $400 of whatever and then I pay when I feel like it? Next year? Never?
Sandy Block: Well, you wouldn’t do that because you’re a good person and also you could destroy your credit rating. That’s really not a good idea.
David Muhlbaum: Good person, that was very generous of you, Sandy. I appreciate you coming through with a compliment this week. Okay. But this still seems like a bit of a conundrum. If I have good credit, why would I use these instead of my credit card? And if I have bad credit, are they even going to let me make four easy payments?
Sandy Block: Well, you’re oversimplifying a little bit. If you’re already happily using credit, keeping down your balance or even better not having one at all, buy now, pay later doesn’t really make a lot of sense. For one thing, you’re giving up some of the really nice perks and protections you get with a credit card like rewards or extended warranties. And as for the bad or maybe we should say, less than good credit person, buy now, pay later is an easier and potentially less expensive way to buy things you couldn’t afford to buy for cash. Because the borrowing amounts are lower, you’re more likely to qualify for these than a credit card. And if you behave and pay on time, you’re improving your credit.
David Muhlbaum: Yeah. Okay. But still the risk of getting in over your head remains. I know I sound like a grumpy old moneybags, but what’s wrong with saving up? That’s as core a Kiplinger principle as I can think of.
Sandy Block: And it’s a really good point. I think when I remember back to layaway, it was the idea that you wanted to do this because it might not be available. You put it on layaway so that sweater would still be there. I don’t think that’s really true anymore.
David Muhlbaum: Playstations.
Sandy Block: Yeah, that’s true. But there is a really good argument to be made that instead of making four installment payments, you just save enough money and then pay for the whole thing. But the way you pay is only part of the question – what you’re buying matters too. Is this going to tempt you to pay more because you don’t have to lay out the cash? And are you buying a new pair of shoes? Or a laptop you need for business? Is it necessity or luxury? That all still applies whether you’re paying up front or in installments.
David Muhlbaum: Huh. Shoes. Funny you mentioned that. I’m going to be coming back to shoes. Well, those I won’t need to put on buy now, pay later, but I do need some winter wheels and tires, the car needs new shoes and that’s a four-figure purchase so maybe I will put that on Affirm to test the process.
David Muhlbaum: Coming up next, the cloudy future of Social Security and whether a new administration and Congress will shine any light on it.
David Muhlbaum: Welcome back. We’re talking today with Catherine Siskos, the editor of Kiplinger’s Retirement Report. We are going to cover what’s a pretty eternal topic, the future of Social Security. Now, the attention people pay to Social Security is usually pretty closely related to whether you’re currently collecting it or about to. For younger folks it’s something far away. They might even have written it off. Kind of, yeah, “Okay, Boomer.”
David Muhlbaum: When it’s a significant source of your retirement income, you watch it like a hawk, which is why it’s such a hot topic for seniors. But the thing is, any changes to the system are much more likely to affect the younger people currently paying in than those already getting payments. Catherine, welcome. And as my very first question, can you give us your best elevator-pitch length version of what Social Security is and how it works?
Catherine Siskos: Sure. And thank you for having me here. Social Security is a social insurance program. It essentially operates a bit like a pension or an annuity in that you pay into this program all your life with payroll taxes while you’re working and then in exchange, when you retire, you get an income stream, a steady, reliable, monthly benefit that you can live on for the rest of your life.
Sandy Block: That’s not too terribly far from what Franklin Delano Roosevelt proposed way back in 1935. Though certainly the tax rates involved have changed. And it’s been working more or less, I think; many people rely on it for a very large portion of their retirement income. What’s the problem with Social Security now, Catherine?
Catherine Siskos: Sure. The problem is that life expectancies have gotten a lot longer and we have fewer people paying into the system than are drawing on it. And as a result, Social Security, which had been tapping its interest to help augment the money that they get from payroll taxes to fund the program, is now, starting this year, 2021, beginning to actually tap the principal of their trust fund. And as a result, if they continue to do that, they will deplete that trust fund by 2034. And that’s even been accelerated a little bit because of the pandemic.
David Muhlbaum: You say, deplete, not go broke. Social Security is not going broke. That’s just a shorthand that people toss around, right?
Catherine Siskos: Exactly. It will be a shortfall. Social Security will never actually go broke because remember, we have payroll taxes that fund it, so it’s always actually collecting some kind of money. The problem is that those payroll taxes aren’t sufficient enough to pay all of the benefits that we are currently paying out.
Sandy Block: Catherine, I heard you mention the pandemic. How does COVID-19 play into this problem?
Catherine Siskos: When you have job losses, people working fewer hours, slower wage growth, all of these things reduce the amount of payroll taxes that are being collected that help fund the program. There’s less money going into the system, even how we do stimulus plays a role. When it’s done with direct payments, relief checks, Social Security isn’t going to get its cut.
David Muhlbaum: Okay. The problems are a bit more acute than they’ve been, but the date that Social Security depletes is still over 10 years away. What are the chances of a fix now? Actually let’s back up. How do we fix the problem with Social Security?
Catherine Siskos: Yeah. Fixing Social Security is a math problem. We can fix it in a couple of ways. We can cut benefits, we can add revenue, or we can do some combination of both. We can also look at what’s really likely to happen right now. First of all, any changes in benefits for retirees who are already receiving them or about to start collecting them, that’s not going to change. It’s really future generations that would have to bear the burden perhaps of either reduced benefits or potentially a higher retirement age.
David Muhlbaum: Yeah. Because the first thing you spoke of that’s the quote unquote third rail: cutting benefits.
Catherine Siskos: Absolutely. Absolutely. This is not something that politicians really like to tackle because of course, retirees are active voters. They’re the ones who reliably turn out for elections and politicians do not want to raise their ire, especially because retirees really believe in Social Security, rely on it and want to make sure that it’s there.
David Muhlbaum: Instead, raise the taxes on the people paying it. That’s how it’s been done in the past, right?
Catherine Siskos: Exactly. Historically, one of the ways that they do that is to boost the payroll tax rate, currently employees pay Social Security tax of 6.2% and employers also pay 6.2% on the employee’s salary. It’s a total of 12.4%. self-employed workers, of course pay both the employee and employer share. There’s legislation in Congress that would gradually raise the total tax rate by 0.1 point per year, over 24 years so that employers and employees would eventually each pay 7.4% for a total of 14.8%.
David Muhlbaum: That’s a lot of numbers. Now you said over 24 years. I guess part of the thinking there from Congress is that by the time it matters they’re maybe not even in Congress anymore.
Catherine Siskos: That’s part of it. But of course also it’s a gradual increase. You’re not actually paying that additional 7.4% in a single year. It’s happening, it’s a gradual increase over those 24 years. I guess the hope is maybe you won’t notice it quite as much when it’s spread out over that length of time.
Sandy Block: Catherine, another thing that seems to have a fair amount of support, because maybe it wouldn’t be as noticeable if you’re not wealthy, is the increasing the amount of wages that are subject to payroll taxes. Can you explain how that might work?
Catherine Siskos: Yes. Right now, each year Social Security sets a limit on how much of each workers’ wages are taxed based on average increases in wages. For 2021, that cap is $142,800. And President-elect Joe Biden is talking about raising that cap to $400,000. That would actually bring in more money, but it wouldn’t necessarily fully fund Social Security for the long term. Some estimates are saying that it would only extend Social Security’s life by another five years.
David Muhlbaum: That alone is not enough. What are the other things in play?
Catherine Siskos: The other things in play are, as we mentioned, increasing the amount of the payroll taxes for both the employee and the employer. That was actually a bill that was proposed by Representative Larsen in 2019. He’s a Democrat. And it’s one that does not have bipartisan support, but is what the Democrats are probably looking at. That would actually fund Social Security for 75 years.
Sandy Block: Okay, so Catherine, I guess the other way that they’re looking at, how would they go about raising the full retirement age, if that’s on the table?
Catherine Siskos: That’s probably not on the table, quite frankly. For one thing, it’s a lot more controversial and for another when you raise the full retirement age, at least the way our Social Security system works in this country, you are essentially minimizing, reducing the benefits for that generation whom you’ve raised the age for, regardless of when they claim Social Security. Essentially raising the age is the same thing as reducing benefits.
Sandy Block: Catherine, another thing that’s been knocked around is changing the cost of living adjustments, which have been pretty meager the last few years.
Catherine Siskos: Yes. In fact, in the last decade, we had three years where we had no cost of living adjustment and on average they probably run about one to 2% a year. Of course, in 2021, checks are increasing by 1.3%. Each year Social Security calculates its cost of living adjustment. These are called COLAs for their benefit checks based on the consumer price index for urban wage earners and clerical workers also known as the CPI-W. But some proposals call for linking COLAs to a chained CPI, which accounts for changes in consumer spending patterns as prices increase. If beef prices rise, for example, consumers can always go buy hamburger instead of filet mignon. Generally chained CPI rises less over time than the CPI-W, and Social Security estimates that switching to the chained index would shrink the annual COLA by an average of 0.3 percentage points and reduce the program shortfall by 19% over 75 years.
Catherine Siskos: But there’s also another idea as well. President-elect Biden has also considered giving COLAs a lift by pegging them to a different index. This is the consumer price index for the elderly, the CPI-E and this index emphasizes expenses that seniors tend to have more. It weights those expenses higher. Things like healthcare and housing. Social Security estimates that switching to the CPI-E would increase annual COLAs by an average 0.2 percentage point. But that of course would also cause a 13% increase in Social Security’s shortfall over 75 years.
David Muhlbaum: That’s the opposite direction. That would then make the Social Security problem worse.
Catherine Siskos: Exactly. The thinking is to make that up with higher withholding that we talked about earlier. In short, it’s a more generous Social Security that’s also more funded, but Biden wants to expand Social Security in two ways. He would raise benefits for the people most in need. He’s looking at low wage workers, surviving spouses, dual earner couples, caregivers, government workers and those who have been collecting Social Security the longest. What’s the rationale for that? Well these seniors have higher medical and long term care expenses later in life.
David Muhlbaum: All right. We’re recording the day after Georgia’s Senate runoff elections with the likely outcome of those two Democratic wins. That in turn means Democratic control of the Senate, House and presidency. Catherine, or Sandy, there’s going to be a lot of enthusiasm to do stuff. Will Social Security be part of that?
Catherine Siskos: Certainly there are some small things that they can do. Remember that the Democrats still have a very narrow majority so we may not still be talking very big picture items, but one of the things that they could tackle is reinflating the Social Security benefits for people who were born in 1960 or 1961. Their benefits were cut unintentionally by a formula glitch in the 2020 recession.
Sandy Block: Right. And Catherine and I have both written about this. It affects a fair amount of people and it’s because Social Security benefits are based on your 35 highest years of earnings, which are then indexed to the growth in average wages until the year you turn 60. Which is a problem for people who turned 60 last year, even if their earnings were unaffected by the pandemic, because the economic downturn is expected to sharply reduce average wages, which will drag down the index. And as I said, this could affect about three million people and cost them about $2,500 a year in benefits. That’s no small thing when you think about how much people depend on Social Security and it’s purely a function of the year that you were born, which I think a lot of people would consider very unfair.
Catherine Siskos: Exactly. And I think members of Congress would feel that way too. And as I pointed out before, older voters are more conscientious about voting and politicians hear from them. This is something that politicians are probably not likely to let stand. They will try to do something to fix it.
David Muhlbaum: And that we might describe as low-hanging fruit. What do you think the chances are that in the next couple of years, they’ll go bigger than that? Or address some of the issues we’ve floated today?
Catherine Siskos: A lot really depends on the composition of Congress and who has control and which party and then what kind of advantage they have in terms of numbers, how much control they have basically. That’s really going to determine the solutions that get proposed and the solutions that also get passed.
David Muhlbaum: It could come down to the number of votes on any given proposal then.
Catherine Siskos: Exactly.
David Muhlbaum: Well, thank you very much for being with us today, Catherine. I’ve learned a lot.
Sandy Block: Me too.
David Muhlbaum: Yeah, thank you for joining us.
Catherine Siskos: Thank you.
David Muhlbaum: In the pandemic, the running joke is that no one wears pants anymore because everything’s done from the waist up on Zoom. That’s not actually true of course, since plenty of people have to go out and a lot of the rest of us have family members who would rather have us fully clothed. But seriously, how about shoes? We were doing a little bit of cleanup the other day and I looked at all these dress shoes I own and I thought, wow, long time no see.
Sandy Block: I know. I know my husband got me a pair of nice slippers for Christmas and I have not taken them off except to take the dog out and go running.
David Muhlbaum: Right but you have nice slippers so that counts. Yeah.
Sandy Block: Very nice.
David Muhlbaum: And running shoes. Yeah. Those I’ve actually bought some new ones of because they wear out. But this got me thinking about what the pandemic might’ve done to the handcraft that I’ve always admired: cobbling.
Sandy Block: Oh yeah.
David Muhlbaum: Yeah. Fixing shoes. Cobbling was already in sort of a weird state of affairs. It was seen as a dying art with no new people coming into the business.
Sandy Block: Right. Because shoes are cheap. A lot of people would just throw out their shoes and get new shoes.
David Muhlbaum: Right. And there was this sort of holdout group, which I’m essentially part of, who would fix some or get some of their shoes fixed. But so there was already this tension and the field was already in flux. But man, I did a little looking around both for what happened to my old cobbler downtown and what happened to the industry in general and it’s not pretty.
Sandy Block: Oh, I bet. I bet. That’s a shame.
David Muhlbaum: Yeah. Because A, it’s a small retail business. B, to the extent that they were getting business, it was largely from people in urban areas wearing higher end shoes to the office and work boots. But both are not getting the…
Sandy Block: The mileage.
David Muhlbaum: Not getting the mileage that they did and therefore not getting the demand and a variety of problems. I went looking online for what the heck I could do, because that seemed like the very modern solution to this problem. And it turns out there’s a rather robust industry for fixing shoes online. For essentially getting your shoes cobbled online. And in this day and age they’re taking full advantage of the internet for uploading pictures, but also they’ll do a Zoom with you. You can show them the shoe and talk about what you want done. In my case for these desert boots that I’m thinking about – if I’m going to invest the money, I want it to be good. And so turns out, you can pick the color of the sole.
Sandy Block: Wow.
David Muhlbaum: And that sort of thing and you can really, you can get into it. The consequence of that is, it ain’t cheap!
Sandy Block: Well that was going to be my question. How much does this cost? Because obviously there’s going to be some shipping perhaps also, I don’t know. Is it worth it?
David Muhlbaum: Well, that’s just the question. Is it worth it? For these desert boots, which are at least 25 years old and a little bit dry, but well, they’re desert boots. But anyway, so the quote I got from this outfit was whose name I can’t remember off the top of my head, but maybe I’ll put it in the link, was $119.
Sandy Block: Oh my goodness.
David Muhlbaum: Which was more than the shoes cost, but that was 25 years ago so that led me to do a little bit more sort of informal market research, if you will. And a new pair of these that looks similar and also have colorful soles is $137. But then you bring in all these other questions, when you start thinking about it. My younger daughter, to her credit, has been writing about the question of fast fashion for her school papers.
Sandy Block: Which I’m very interested in, yes.
David Muhlbaum: Yeah, stuff made cheap, turned around fast and you wear it and you chuck it and goodbye.
Sandy Block: And it’s in a landfill, yeah.
David Muhlbaum: With all the environmental and other consequences that come with that. She’s very gung-ho on the idea of me resoling them, but when it costs the same as a new pair….
Sandy Block: Yeah. Yeah. And I think that’s why a lot of these businesses, some of these, although it sounds like the one you went to was doing pretty well, but a lot of these businesses were struggling even before the pandemic, because oftentimes it’s why there’s no TV repairman. You just chuck your TV and get a new one when the TV goes on the fritz. And I think the appeal maybe is something that’s so high end and maybe that’s where cobblers still make their money is it is worth getting it done. But I think in a lot of cases, the math just doesn’t work.
David Muhlbaum: No, I think, maybe it’s going to be a question of in part, the snob appeal of someone who’s a shoe hound looking at my shoes and going, “Oh yes, yes, yes. He knows. He understands.”
Sandy Block: Vintage.
David Muhlbaum: Yeah, vintage. Vintage, exactly. Well, if I get really ambitious, maybe I will put both the old shoes, what they would look like, who would fix them and the new comparison up on some kind of vote platform. Can do a SurveyMonkey and I’ll post it in the show links.
Sandy Block: That’s a good idea. Because, I’ll just say this last thought is, I am totally in your daughter’s camp and I’ve bought a lot of clothes from places like Threadup and the RealReal, which are consignment used clothes. And I’m real happy doing that, but I would not do that with shoes. I just would not be comfortable buying somebody else’s shoes. You don’t really have the solution for your boots of buying used shoes, which make you feel better about the waste.
David Muhlbaum: Yeah, no, that’s a good point. Especially with, we’re getting into the details of shoe structure now, but with a leather shoe that essentially takes a set to your foot, there’s a functional thing. It’s not just “Eww, someone else’s shoe,” there’s the functional thing of: Will it fit? But I will tell you where that does not apply, is Crocs.
Sandy Block: They fit everybody? Or are you saying you buy used Crocs?
David Muhlbaum: I have bought used Crocs.
Sandy Block: Oh my gosh.
David Muhlbaum: I have bought a smashing pair of yellow used Crocs at a Goodwill. I was with my daughter. A smashing pair of yellow used Crocs, which are really the peak dad shoe, but in the process, and I have not pulled the trigger yet, but in the process, I have become a little bit of an aficionado of vintage Crocs.
Sandy Block: Oh my gosh. Had no idea there was such a thing.
David Muhlbaum: You can spend three figures on this stuff. Really the point is how ugly they are. It’s kind of like the whole ugly sneaker thing, the worse, the uglier and the rarer they are, the more you can pay. I might dabble in this just to horrify the family.
Sandy Block: We are going to have to see some pictures if you dare.
David Muhlbaum: Yes, I will.
David Muhlbaum: And that will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and a review. If you’re already subscribed, thanks. I hope you’ve added a rating or review as well. To see the links we’ve mentioned on our show, along with more great Kiplinger content on the topics we’ve discussed, there’s a kiplinger.com/podcast. The episodes, transcripts and links are all in there by date. And if you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram or by emailing us directly at [email protected]. Thanks for listening.
Links and resources mentioned in this episode:
How to get rid of medical debt without damaging your credit
No doubt about it, Americans are drowning in medical debt.
One recent study indicated that 137 million Americans were battling onerous medical debt – and that was just before the coronavirus pandemic rolled into the U.S. Another more recent study from Freedom Debt Relief noted the problem is only growing more severe, as 75% of these individuals say they have accumulated more medical debt since March 2020.
If you have medical debt and want to make sure it’s not hurting your credit, Credible can help. To ensure you’re staying up-to-date with your credit status, enroll in a credit monitoring service. Credible can help you get started.
How to best pay off medical debt
Tackling high medical debt isn’t easy, but it is doable. Financial experts advise that an eye for detail and a disciplined research campaign yields the best result. These strategies may work best.
1. Review EOBs
Some experts estimate that 80% of medical bills contain errors or inflated charges said Sean Fox, president of Freedom Debt Relief in San Mateo, Cal. If you want to deal with medical bills, make sure you’re staying on top of what’s actually in them. “Go back and review the bill in question from your health care insurer, known as an explanation of benefits (EOB),” Fox said. “If you see an issue or have a question, call the provider’s (or insurance company’s) billing department who can solve the problem.”
2. Contact providers
Be upfront about your situation. “If you’re unable to work and make money to pay your bills (because of your medical state), contact providers’ billing offices and explain,” Fox added. “Ask about any options they can offer to you.”
3. Negotiate payments
Call your providers’ billing offices and ask about payment deferral or other plans. “They may be especially open to working with patients now, during the pandemic,” Fox said. “If you had to visit an out-of-network provider, or if you do not have medical insurance, ask for a cash-payer price. In certain situations, some providers may also charge the discounted Medicare or Medicaid fee.”
4. Get a personal loan
Consider a consolidation loan that covers all your current debt. “The biggest positive impact here is that you end up with just one monthly payment rather than several,” said Matthew Alden, Debt Relief and Bankruptcy Attorney in Cleveland, Oh.
Explore your personal loan options by visiting Credible to compare rates with multiple lenders – all within minutes.
Improve your credit health
Once you’re on the path to paying off your medical debt, focus on repairing any damage to your credit health.
“One of the best ways to improve your credit score is to simply be consistent over time,” said Daniel Joseph, founder of CoupleWealth.com, a digital platform that helps couples achieve financial stability. “Consistently pay off your balance, avoid making late payments, and ask for credit line increases periodically. Credit scores are heavily influenced by time, so the longer you can consistently have good habits, the better your score will be.”
Multiple factors affect your credit scores, however, and paying your bills and credit accounts on time is typically the most significant factor. An unpaid medical bill can cause serious issues.
Not sure where you fit on the credit score spectrum? Then you should start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.
“Also, maintain a low credit utilization ratio, which is the amount of debt you have on revolving credit accounts (such as credit cards and lines of credit) compared to your credit limits,” said Laura Adams, the host of the Money Girl podcast. “In general, a utilization ratio of 20 percent or less is best to maintain good credit or improve your scores.
You can also visit Credible.com and use its personal loan calculator to find the best personal loan rates to help pay down medical debt.
Problems tied to medical debt
1. Severe money troubles
According to Michael Broughton, co-founder of Get Perch, a credit building mobile app platform, often people have to go to great financial lengths to dig out of medical debt. “Often this financial hardship has led people to have to tap into their 401(k) accounts, personal savings, or even file for bankruptcy,” Broughton said.
2. Declining credit score issues
If medical debt is not taken care of in a timely fashion, the medical provider or hospital can turn it over to a collection agency who can then report it to the bureaus. “If this happens, the medical debt can negatively impact your credit score,” Broughton added. “However, hospitals or medical providers rarely ever report the debt directly to credit bureaus.”
In the event a medical debt does go to a collection agency, there is some relatively good news
“On the bright side, if it is taken to the collection agency, the three bureaus treat medical debt delinquencies less critically than other debts in that they offer some relief to medical debt holders,” Broughton said. Here’s what they offer:
- 180-day grace period before showing the debt on your credit report.
- Removal of the debt from your credit report once it is paid or resolved
Whether you currently have outstanding medical debt or just want to stay on top of your credit, Credible can help. From bad credit to fair credit to excellent credit, to improve your score you first need to know what it is. To see where you fit in, turn to a credit monitoring service. Credible’s partners can help you find your credit score, history, alert you to potential fraud, and more.
Best Cash-Out Refinance Lenders In 2021
Tapping into your home’s equity can be a smart move, whether it’s to lower high-interest debt, fund a home renovation, pay for college tuition or make progress toward another financial goal. One way you can accomplish this is through a cash-out refinance, in which you refinance your mortgage for more than what you owe and take the difference out in cash.
Many mortgage lenders offer cash-out refinancing, and Bankrate evaluated several to determine the best ones to consider. Here is our guide to the best cash-out refinance lenders in 2021.
Best cash-out refinance lenders
LoanDepot has refinanced $179 billion in mortgages since its founding in 2010, with more than 200 branch locations across the U.S. serving borrowers in-person, online and by phone. For borrowers interested in accessing their home’s equity in cash, the lender’s cash-out refinance options include:
- Conventional and jumbo cash-out refi
- FHA cash-out refi
- VA cash-out refi
When working with LoanDepot on a cash-out refinance, you can count on the lender’s “no steering” policy to get the best refinancing option for your needs. In addition, if you come back for a second refinance, you won’t have to pay any lender fees, and the lender will reimburse the appraisal fee as part of its “Lifetime Guarantee.”
Refinancing through LoanDepot can take 45 to 60 days, according to the lender’s website, and in a cash-out refinance, you’ll receive the funds one to three days after closing.
On the downside, LoanDepot doesn’t readily provide cash-out refinance rates through its website, so you’ll need to contact the lender to compare your options. The lender doesn’t offer home equity lines of credit (HELOCs) or home equity loans, either, which could be alternatives to a cash-out refi.
Founded in 2008, PennyMac has a range of loan options for borrowers, including cash-out refinancing for those interested in leveraging their home’s equity. The lender’s cash-out refi products include:
- Conventional cash-out refi
- FHA cash-out refi
- VA cash-out refi
Both the FHA and VA cash-out refinancing options also apply to a non-FHA or non-VA loan if you’re interested in refinancing into an FHA or VA loan, according to the lender’s website.
Among its upsides, PennyMac advertises low cash-out refinance rates, which can make it easy for you to do side-by-side comparisons with other lenders. You can also take advantage of the lender’s refinance calculators and a home value estimator to get a better idea of how much equity you have.
While PennyMac already boasts competitive cash-out refinance rates, its “better rate promise” rewards you with a $250 gift card if you find a better offer from another lender. You’ll also benefit from the lender’s closing guarantee, which rewards you a $500 gift card if the lender causes the closing to be delayed.
PennyMac has no brick-and-mortar locations, however, which can be a disadvantage if you’re looking for an in-person experience.
Better.com is touted for its 100-percent online process and speedy service. It has somewhat limited loan options compared to other lenders — no VA or USDA loans, for example — but its cash-out refinancing options include:
- Conventional cash-out refi
- FHA cash-out refi
What helps set Better.com apart is the ability to review current cash-out refinance rates on the lender’s website by simply inputting information about your home and your desired cash out. The lender also doesn’t charge lender fees, which can further save you money when you refinance.
Better.com was also named one of Bankrate’s best mortgage lenders overall and best online mortgage lenders in 2021, with fast preapprovals (in as little as three minutes), rate locks (in as little as 30 minutes) and closings sooner than the industry average, according to the lender.
Some drawbacks, however: Better.com isn’t available in every state, so refinancing through this lender might not be an option for some. There are also no branch locations.
Bank of America
If you’re looking for a more traditional lender for your cash-out refinance, consider Bank of America, the second-largest bank in the U.S. with thousands of branches throughout the country. In addition to other types of home loans and refinancing, Bank of America offers borrowers:
- Conventional cash-out refi
- FHA cash-out refi
- VA cash-out refi
The bank was also named one of Bankrate’s best mortgage refinance lenders overall in 2021.
Current Bank of America customers enjoy some perks that others might not have access to. FHA and VA refinancing options are only available to current mortgage customers, for example, and customers enrolled in the bank’s Preferred Rewards could be eligible for an origination fee discount up to $600.
Bank of America’s interest rates are posted on its website for quick comparisons, but the bank doesn’t list lender fees online. Like other lenders, it also has a home value estimator so you can get a sense of what your home might be worth and what your cash-out options are.
New American Funding
New American Funding has proven to be a trusted mortgage lender, with an A+ Better Business Bureau rating and five out of five stars among Bankrate users. The lender’s cash-out refinancing options include:
- Conventional and jumbo cash-out refi
- FHA cash-out refi
- VA cash-out refi
With a cash-out refinance through New American Funding, you can expect to receive your funds within three days of closing. Notably, the lender has flexibilities that some others don’t, making it an attractive option for bad credit borrowers. The lender was also named one of Bankrate’s best mortgage lenders for low credit borrowers in 2021.
New American Funding is available in all states with the exception of Hawaii, and brick-and-mortar branches can be found in many of them.
Fee information isn’t available on the lender’s website, but there are some rate offers advertised to the public. To initiate the cash-out refi process, you can call, request a quote online or apply in person.
Cash-out refinance requirements
To be eligible for a cash-out refi, you typically need to:
- Have a minimum credit score of 620
- Have a debt-to-income (DTI) ratio below 50 percent
- Maintain a minimum 20 percent equity in your home following the cash-out (depending on loan type)
Who is cash-out refinancing for?
A cash-out refinance is best when interest rates are low, and for borrowers who meet the previously mentioned requirements and have specific goals for the funds they’re withdrawing. This includes those seeking to consolidate high-interest debt, complete home renovations or fund a college education.
Cash-out refinance vs. rate-and-term refinance
A cash-out refinance is different from a rate-and-term refinance, in which you lower the rate on your mortgage, change the length of the loan term, or both. A cash-out refi can also lower your rate, but it primarily involves withdrawing a portion of your home’s equity in a lump sum, which adds to the amount of your loan and increases the interest you’ll pay. Those funds can be used for a variety of purposes, such as a major home renovation.
Cash-out refinance vs. HELOC
A cash-out refinance isn’t the only way to tap your home’s equity. You can also pursue a home equity line of credit (HELOC).
With a HELOC, your first mortgage remains intact, but you’ll have access to a revolving source of funds throughout the HELOC draw period, which can be up to 10 years. You are only obligated to pay interest on the funds you withdraw during this period. Once the draw period ends, any balance must be repaid, usually over 15 or 20 years.
The advantages of a HELOC are that you’re only responsible for paying what you use, you can access the funds at any time and you won’t incur interest on untapped funds. However, HELOCs come with variable interest rates, which mean they change, and they could be higher than what you’d get with a cash-out refi.
Pima Supes address eviction protections
TUCSON, Ariz. (KGUN) — Economic fallout from COVID has cranked up concerns about evictions as tenants have trouble paying. There are Federal protections to reduce evictions in the pandemic but Pima County Supervisors are concerned about evictions that could bypass those safeguards.
Federal restrictions from the Centers for Disease Control restrict evictions if they could increase health risks in general— or the risk of spreading COVID because someone is put out of a home. Those protections are based on whether someone has trouble paying the rent.
Landlords and their lawyers spoke at this week’s Supervisors meeting. They say compared to keeping a tenant, an eviction is a loss for everyone. They want county rental assistance programs to move much faster to channel Federal grants to help tenants pay rent and help landlords cover their expenses.
Steve Huffman of the Tucson Association of Realtors reminded Supervisors tenants will still have to pay back rent and if they can’t it could hurt them long term.
“Many of them have huge judgments that will be issued against them eventually they will owe back rent for the time that they have not been paying rent, those judgments will create bad credit, and will interfere with future housing opportunities, and also future job opportunities.”
Tenants who create other problems beside non-payment or rent can still be taken to court and evicted.
But Pima Supervisors are concerned about reports of people evicted over questionable claims like a car parked in the wrong space or a toilet clogged too many times.
Chairperson Sharon Bronson says these eviction issues are focused by COVID but call for a broader look at how people become homeless.
“We are addressing basically the pandemic issues right now, but this may be, you know, an opportunity to just began the discussion about the larger discussion about homelessness and addiction down the road.”
Supervisors agreed to ask an existing task force on evictions during COVID to take a fresh look at eviction issues, especially in light of possible policy changes under the Biden Administration.
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