Debt – Credit Banana

October 1, 2017January 30, 2024

The Best Time to Make a Credit Card Payment

When do you pay off your credit card bill? Some people pay their full balances every month by the due date listed on their credit card statements. Others carry a balance from month to month but make the minimum required payment at some point before the deadline. So when’s the best time to make a credit card payment? Before we discuss that, let’s review why you should at least pay your bill by the deadline.

Why It’s Important to Pay Bills On Time

Most lenders use the FICO scoring model to assess credit scores. Under that scoring model, 35% of your credit score depends on your payment history. So if you have a record of making late credit card payments, that can ding your score.

There’s another reason why you should make paying off your credit cards a priority. A credit card is a type of revolving credit account. Unlike installment credit accounts – like mortgages and student loans – revolving credit accounts allow you to borrow money whenever you need it up to a certain threshold (your credit line). There’s no fixed monthly payment and you can carry a balance from month to month by not paying your bill in full.

When it comes to your FICO credit score, revolving debt typically carries more weight than installment debt. So while making any kind of loan payment after its due date can hurt your credit score, late credit card payments can do more damage to your credit.

The amount of debt you owe accounts for 30% of your FICO credit score. An important part of that variable is the credit utilization ratio (the amount of credit you’ve used compared to your credit line) associated with your revolving credit accounts. That means your credit score could take a serious dive if you miss your credit card payment deadlines and you’ve used a significant portion of your available credit line.

The Case for Making Early Credit Card Payments

While it’s a good idea to pay your credit card bill when it’s due, making an early credit card payment can work in your favor. To understand why, you’ll need to know how your billing cycle works.

Credit card billing cycles often last for 29 to 31 days. The last day of your billing cycle is called your statement closing date. Whatever credit card balance you have on this day is usually the balance that your credit card issuer reports to the credit bureaus. Your closing date isn’t the same as your payment due date. After all, your credit card payment technically isn’t due until the end of a 21- to 25-day period known as the grace period.

By making a credit card payment before the closing date, you can make it seem as though you’ve racked up less credit card debt. For instance, let’s say you have a credit card with a $3,000 credit limit. If you spend $2,500 but pay off $1,700 before the closing date, the credit reporting bureaus will think you’ve only spent $800.

Why is that a good thing? Based on our example, the credit reporting bureaus would think that your credit utilization ratio is 26.7%. Lowering your credit utilization ratio can improve your credit score. If you want a better FICO score, it’s best to keep this percentage below 30%.

When You Shold Make a Credit Card Payment

You’ll be in good shape if you can pay off your credit card by the due date, especially if you pay your entire balance. Paying at least part of your bill before the closing date could be even better if you want a good credit score.

But the best time to make a credit card payment may be whenever your credit utilization ratio exceeds 30%. By tracking your credit utilization ratio and keeping it as low as possible, you can protect your credit score. And you won’t have to worry about remembering the date when your credit information will be reported.

To calculate the credit utilization ratio for an individual credit card, you can take your credit card balance and divide that number by your credit line. Then multiply that number by 100.

Credit reporting bureaus also consider your overall credit utilization ratio. If you have multiple credit accounts, that’s equal to the sum of all of your credit card balances divided by your total credit limit.

Bottom Line

Trying to figure out the best time to pay off your credit card? To avoid paying interest and late fees, you’ll need to pay your bill by the due date. But if you want to improve your credit score, the best time to make a payment is probably before your statement closing date, whenever your debt-to-credit ratio begins to climb too high.

September 10, 2017January 30, 2024

Brighten Your Grandchildren’s Financial Future

Mother’s Day and Father’s Day may get more attention, but National Grandparents Day observed on Sept. 10, has gained in popularity. If you’re a grandparent, you might expect to receive some nice cards, but if you want to make the day especially meaningful, you may want to consider giving some long-lasting financial gifts to your grandchildren.

What might come to mind first, of course, is helping your grandchildren pay for college. You can choose from several college savings vehicles, but you may be especially interested in a 529 savings plan. With a 529 plan, your earnings accumulate tax-free, provided they are used for qualified higher education expenses, such as tuition, books, and room and board. (Keep in mind that 529 plan distributions not used for qualified expenses may be subject to federal and state income taxes and a 10% IRS penalty on the earnings.) You may be eligible for a state income tax incentive for contributing to a 529 plan. Check with your tax advisor regarding these incentives, as well as all tax-related issues pertaining to 529 plans.

One benefit of using a 529 plan is contribution limits are quite generous. Plus, a 529 plan is flexible: If your grandchild decides against college, you can transfer the plan to another beneficiary.

Generally, a 529 plan owned by a grandparent won’t be reported as an asset on the Free Application For Federal Student Aid (FAFSA), but withdrawals from the plan are treated as untaxed income to the beneficiary (i.e., your grandchild) — and that has a big impact on financial aid, a much bigger impact than if the plan was listed as a parental asset. Beginning with the 2017-2018 academic year, however, FAFSA now requires families to report income from two years before the school year starts, rather than income from the prior calendar year. Consequently, it might be beneficial, from a financial aid standpoint, for you, as a grandparent, to start paying for college expenses from a 529 plan in the year in which your grandchild becomes a junior. Contact a financial aid professional about the potential financial aid impact of any gifts you’re considering.

A 529 plan isn’t the only financial gift you could give to your grandchildren. You might also consider giving them shares of stock, possibly held in a custodial account, usually known as an UTMA or UGMA account. One possible drawback: You only control a custodial account until your grandchildren reach the age of majority, at which time they can use the money for whatever they want, whereas distributions from a 529 savings plan must be used for qualified higher education expenses.

Still, your grandchildren might be particularly interested in owning the stocks contained in the custodial account – most young people enjoy owning shares of companies that make familiar products. And to further interest your grandchildren in a lifetime of investing, you may want to show them how a particular stock you’ve owned for decades has grown over time. Naturally, you’ll also want to let them know that stocks can move up and down in the short term, and there are no guarantees of profits – but the long-term growth potential of stocks is still a compelling story.

You’d probably do whatever you could for your grandchildren – and with a smart financial gift, you can make a big difference in their lives.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor. Edward Jones, its financial advisors, and employees cannot provide tax or legal advice.

September 5, 2017April 26, 2020

Cut Your Budget Even When You Think You Can’t!

What can you do to cut your budget? This is one of the common questions I hear from readers. You’ve already done everything you can, but it still does not work.

I remember when my husband and I were struggling after I quit my job to stay home with our first born. It was tough and we all know you can’t get blood from a turnip!

Before you look at what you can do to save on your budget, you need to make sure you have one. Your budget needs to be in writing. It needs to be a roadmap showing you where you will spend your money.

Here are some different things we tried, which you can use too when you need to cut your budget:

1. Find ways to bring in more money each month.

Of course, you can’t give yourself a raise at your job, but there are other things you can do to bring in more money. We ended up selling items, I found a part-time, work from home job with my prior employer and eventually, started this site. You sometimes need to look inside and where your passion lies and you might find the perfect way to increase your income. Just a bit more money can really help your budget every month.

2. Don’t be so hard on yourself.

Sit back for a minute and look at where you were before you knew about budgeting and stretching your dollar vs. where you are now. Be proud of what you’ve done and the changes you’ve made. Sometimes, just knowing that you’ve made positive financial changes is enough to be proud about. Just celebrate the small victories.

3. Don’t compare yourself to others.

This is a tough one. You may see others who claim that they found a way to shave their budget by hundreds of dollars every month. While we would all love to be able to do that, it may not be realistic for you. You may have additional expenses others do not have. Your income is different than them. You have your own financial goals. When you stop comparing yourself to others, the need to keep up and compete will stop and you can feel better about your own budget.

4. Look at your needs vs. wants.

This is a tough one. There are probably things you have in your life which are wants rather than needs (and vice versa). Do you have both a land line and cell phone? If so, do you need both or do you want both? Why not drop the land line?

Take a look at your entertainment. Do you need cable? Why not try to use another way to knock down your cable bill (or eliminate it completely). Do you need to eat dinner out once a week – or do you want to dine out?

When we were getting out of debt, we did not eat in a restaurant for more than a year. I kid you not. It was tough, but we survived. The reason was that we determined that it was a want to dine out and not a need. Instead, we took the money we would have spent having a dinner out and used it towards our debt instead.

Write Online And Get Paid! Infographic

5. Seek assistance.

This may be the time when you need to reach out to get help. There are times when you just can’t make it on your own and there are programs and services which are here to help. You can check with your local government to find ways to get help with utility bills, apply for food stamps, locate a food pantry and even get assistance for child care.

Just because you ask for help does not mean you are not financially responsible. We all have times when we need a hand and these organizations are here to help. Once you get back on your feet, then that will be your chance to pay it forward to help someone else.

6. Cut your spending.

This may seem simple, but you can do simple things to reduce your spending at the store. You can switch from name brands to store brands.

Start to use coupons! While you may not find them for the fruits, vegetables and meats you need, you can find them for the household products you use and many other products around your house. Combine these with sales to ensure you pay the lowest price possible.

You might also consider changing where you shop. One idea is to shop at Aldi. If you live near one of these locations, you can easily cut your spending by nearly 50% just by shopping here!
7. Use Cash.

I know it sounds crazy, but it works. When you use cash for your discretionary spending you can never overspend. So, if you need to lower your grocery spending, the simple way to ensure you do not overspend is to get cash.

Cash is defined and when it is gone, it’s gone. It is a simple tool that you can use to ensure that you always stay on budget and help keep your spending in check.

If your budget is not working, then it is time to make some big moves. It will not be fun. It will not be easy. But it is something you just have to do.

July 28, 2017April 26, 2020

Five lessons I’ve learned from having my credit card hacked

One morning when I was in a hurry to get to work, everything went wrong in an instant: an SMS message alerted me to an $80 charge to my credit card for a purchase that I never made.

What did I do next? I blocked my card, filed a claim at the bank, and got a new card issued. I must say that in the end, all the troubles were resolved and I got my money returned to me. Mostly, thanks to my prompt reaction. However, how it all ended is not the purpose of the story — it is about the lessons that I’ve learned.

Lesson #1. Promptness is what matters

It applies to any bank in the world: the faster you react and prove that there was a hack, the better the chance that you will have to get your money back. In order to succeed, you need to be notified of unsolicited transactions ASAP, ideally via SMS notifications.

Daily e-mails on an account status are also OK. Scrupulous tracking of monthly bank reports is a last-resort measure if you’ve got no better options. I had SMS notifications enabled, so it took me just 5 minutes to block the card and claim the unsolicited transaction in question that same day.

Lesson #2. All types of insurance will do

Each extra level of protection makes it harder for scammers to reach their goal, and ultimately minimizes your losses. For this reason, you should enable 3D-Secure (MasterCard SecureCode, Verified by Visa) for all online payments and two-step authentication in your online banking tool, choose terminals with chip and PIN support and say no to those requiring only a swipe and signature.

Do online payments only on secure Wi-Fi networks and install a robust antivirus solution on your PC. Additionally, insurance would also help: such products can be activated together with any banking card.

I approached all of these measures together. So maybe there had been attempts by scammers to steal money from my card before, but I never noticed because these attempts had been fruitless.

Lesson #3. Precaution is not a cure-all

Unfortunately, scammers’ wellbeing directly correlates to their ability to bypass all security measures that may be in place. That’s why all of the measures I described above cannot fully protect you. The most effective way to say goodbye to your hard-earned money is by withdrawing cash in ATMs with scamming software installed by culprits, or by executing online payments on a compromised machine. In the first case, the criminals would duplicate your card credentials to withdraw cash. In the second case they will spend your funds online.

I have been very cautious with my cards, so I likely fell victim to a more sophisticated approach. As we have learned this year, paying with your credit card at large retailers can be potentially dangerous, if a special Trojan has infected their systems. This specifically applies to American retailers because often they use outdated POS terminals. My card used to be frequently used in the US and there it is likely to have fallen victim to such a scam.

There is one more option that cannot be ignored — a leak of payment data from one of the online merchants. I have 3D-Secure enabled on my card, but a criminal could have somehow managed to track down the shop, which used an outdated processing system with no support of 3D-Secure, and therefore charged my card.

Lesson #4. Using credit card scams is an organized crime precedent

I came across the answer in a curious way. After having successfully blocked my credit card, I had no reason to worry for about a week. But then I received a text message alerting me to a new attempt to charge my card in some other American online marketplace, and another some days after that. In a week’s time there was another, notifying me of an attempt to execute an offline payment at a store in Mexico.

All attempts were, ultimately, unsuccessful due to the fact that the card was blocked. That meant that someone who stole my card credentials resold it to various people (presumably in the form of a database with thousands of other card credentials), and each of them tried to use it again and again.

Lesson #5. Always have a plan B

And plans C, D and E also would be useful. In my case, the hypothetical loss was not that significant, and no serious harm would have been inflicted even if I were unable to regain my money.

July 24, 2017April 26, 2020

Top 10 Financial Freedom Self-Help Books

There are numerous informative and well-written books that can help you with financial management. Here is a look at the ten top finance books you should have on your shelf.

1. The Millionaire Next Door by Stanley and Danko

Based on an extensive research on the spending habits of millionaires, this book tells you how to earn and save money. The book discusses ‘next door’ millionaires, who have worked their way to riches in less than glamorous businesses such as pest-control services, rice-farming, contracting and planning weddings etc.

What separates them from today’s millionaires is their lifestyle and spending habits. These businessmen value their money, invest a minimum of 20% from their incomes and don’t spend extravagantly on clothes or accessories. This book also teaches you how to plan a budget and stick to it.

2. The Automatic Millionaire by David Bach

This book tells you how to plan your finances using simple common sense. You can learn to make a better use of available financial tools to earn more money. The idea given by the author is about automating your finances by changing your spending habits and making wise investments. The “Latte Factor” that he discusses in the book tells you how you can save money for a financially secure life post retirement by making a commitment to reduce debts and cutting down unnecessary expenditure on cigarettes and lattes.

3. The 4-Hour Workweek by Timothy Ferriss

The 4-Hour Workweek is about the “New Rich”, who speed up their retirement plans to start living their dreams now, when they are younger. It is an easy-to-read book offering practical tips on how to work for just 4 hours a week and use the remaining time to do all that you want to.

If you are an employee, you can use the ideas in the book to negotiate a work-from-home arrangement with your employer, or plan a ‘mini’ retirement every year. The book provides a lot of ways on how you can outsource your business to enjoy the mobility and freedom to work from anywhere you want. The main point the author drives home is about spending less time to earn money and more time on pursuing your dreams.

4. Your Money or Your Life by Joe Dominguez and Vicki Robin

Your Money or Your Life offers a different approach to money management. Like The 4-Hour Workweek, this book also talks about the importance of pursuing your dreams. It discusses how to manage your money and time to spend more time on doing what you like to do and less on what you don’t. It gives you specific tips on monitoring your spending habits, identifying exactly what you want to do and contributing money towards achieving your goals.

5. Yes, You Can… Achieve Financial Independence by James E. Stowers

Written by the founder of Twentieth Century Mutual Funds, this book offers you basic finance lessons and teaches you the concept of investment using illustrative cartoons and images. To understand what kind of mutual funds can get you better returns and to make the most of your mutual funds investments, read this entertaining, informative book.

6. Secrets of the Millionaire Mind by T. Harv Eker

In ‘Secrets of The Millionaire Mind’, the author focuses on your subconscious thoughts and believes that you cultivate your monetary habits right from the day you are born. He writes, in a humorous way, that you are rich or poor based on how you imagine yourself to be.

According to him, thoughts that make you feel you are not good enough to have money or that you will remain poor because of your ancestry are small thoughts that the poor have whereas the rich are committed to creating wealth and optimistic about their finances. The point that the author, Harv Eker, wants to stress on is that your mind should be ‘set’ on success if you want to achieve anything in life.

7. You Call the Shots by Cameron Johnson

‘You Call the Shots’ is a book for young entrepreneurs who want to learn all about personal finance and entrepreneurship. This book is for anyone who has a passion for life and is committed to pursuing their dreams. A successful young entrepreneur himself, the author’s story tells you that the best way to achieve what you want in life and enjoy incredible success is by being an entrepreneur, who calls all the shots.

Cameron believes that with the internet making it easy to start and develop a business, you don’t have to work for an employer. He also gives you a thorough sketch of the strategies necessary to remove obstacles in your path and taste entrepreneurial success.

8. The Total Money Makeover by Dave Ramsey

The author of this book, Dave Ramsey, compels you to look at rather extreme measures to remove all your debts. He tries to break the myths created by the credit industry and provides something known as ‘the debt snowball’ to solve your debt problems. If you are motivated to live a debt-free life, it may be wise to listen to what the author, who has a personal finance empire, has to say. The author tells you exactly what to do when you are free from debt and when is the right time to invest money. Though the book may be all about managing your debts, it is also a great motivator, encouraging you to stay debt-free.

9. Rich Dad, Poor Dad by Robert T. Kiyosaki

The book tells you how you can achieve financial independence and make money through investments, real estate and other earning strategies. The ‘rich dad’ and ‘poor dad’ discussed in this book have different approaches to wealth creation and spending. The book simplifies the complex world of finance by illustratively explaining the flow of money from your source of income towards your expenditure. It advocates that whether you become rich or poor depends on the way you spend your money.

10. What Color is Your Piggy Bank? by Adelia Cellini Linecker

A small and easy to understand financial guide for kids who want to learn all about money and financing, this book is filled with fundamental lessons for kids aged between 10 and 14. It gives wonderful ideas to kids about identifying a passion or interest, like party planning or after-school arts and crafts lessons, which they can take up to earn some cash. The author has kept the chapters short and the content straight-forward catering well to her young readers.

These top 10 finance books not only offer a great reading experience, but also provide valuable financial advice. See if you can find these books at your local library or buy one that seems interesting from the above list from a bookstore.

July 22, 2017April 26, 2020

7 Easy Ways To Improve Your Credit Score

If you need to boost your credit score, it won’t happen overnight.

A credit score isn’t like a race car, where you can rev the engine and almost instantly feel the result.

Credit scores are more like your driving record: They take into account years of past behavior you can find on your credit report, not just your present actions.

1. Watch those credit card balances

One major factor in your credit score is how much revolving credit you have versus how much you’re actually using. The smaller that percentage is, the better it is for your credit rating.

The optimum: 30 percent or lower.

To boost your score, “pay down your balances, and keep those balances low,” says Pamela Banks, senior policy counsel for Consumers Union.

If you have multiple credit card balances, consolidating them with a personal loan could help your score.

What you might not know: Even if you pay balances in full every month, you still could have a higher utilization ratio than you’d expect. That’s because some issuers use the balance on your statement as the one reported to the bureau. Even if you’re paying balances in full every month, your credit score will still weigh your monthly balances.

One strategy: See if the credit card issuer will accept multiple payments throughout the month.

2. Eliminate credit card balances

“A good way to improve your credit score is to eliminate nuisance balances,” says John Ulzheimer, a nationally recognized credit expert formerly of FICO and Equifax. Those are the small balances you have on a number of credit cards.

The reason this strategy can boost your score: One of the items your score considers is just how many of your cards have balances, says Ulzheimer. He says that’s why charging $50 on one card and $30 on another instead of using the same card (preferably one with a good interest rate), can hurt your credit score.

The solution to improve your credit score is to gather up all those credit cards on which you have small balances and pay them off, Ulzheimer says. Then select one or two go-to cards that you can use for everything.

“That way, you’re not polluting your credit report with a lot of balances,” he says.

If you can’t afford to pay these small balances off at once, moving them to a balance transfer credit card might help.

3. Leave old debt on your report

Some people erroneously believe that old debt on their credit report is bad, says Ulzheimer.

The minute they get their home or car paid off, they’re on the phone trying to get it removed from their credit report, he says.

Negative items are bad for your credit score, and most of them will disappear from your report after seven years. However, “arguing to get old accounts off your credit report just because they’re paid is a bad idea,” he says.

Good debt — debt that you’ve handled well and paid as agreed — is good for your credit. The longer your history of good debt is, the better it is for your score.

One of the ways to improve your credit score: Leave old debt and good accounts on as long as possible, says Ulzheimer. This is also a good reason not to close old accounts where you’ve had a solid repayment record.

Trying to get rid of old good debt “is like making straight A’s in high school and trying to expunge the record 20 years later,” Ulzheimer says. “You never want that stuff to come off your history.”

4. Use your calendar

If you’re shopping for a home, car or student loan, it pays to do your rate shopping within a short time period.

Every time you apply for credit, it can cause a small dip in your credit score that lasts a year. That’s because if someone is making multiple applications for credit, it usually means he or she wants to use more credit.

However, with three kinds of loans — mortgage, auto and more recently, student loans — scoring formulas allow for the fact that you’ll make multiple applications but take out only one loan.

The FICO score, a credit score commonly used by lenders, ignores any such inquiries made in the 30 days prior to scoring. If it finds some that are older than 30 days, it will count those made within a typical shopping period as just one inquiry.

The length of that shopping period depends on the credit score used.

If lenders are using the newest forms of scoring software, then you have 45 days, says Ulzheimer. With older forms, you need to keep it to 14 days.

Older forms of the software won’t count multiple student loan inquiries as one, no matter how close together you make applications, he says.

“The takeaway is, don’t dillydally,” Ulzheimer says.

5. Pay bills on time

If you’re planning a major purchase (like a home or a car), you might be scrambling to assemble one big chunk of cash.

While you’re juggling bills, you don’t want to start paying bills late. Even if you’re sitting on a pile of savings, a drop in your score could scuttle that dream deal.

One of the biggest ingredients in a good credit score is simply month after month of plain-vanilla, on-time payments.

“Credit scores are determined by what’s in your credit report,” says Linda Sherry, director of national priorities for Consumer Action. If you’re bad about paying your bills — or paying them on time — it damages your credit and hurts your credit score, she says.

That can even extend to items that aren’t normally associated with credit reporting, such as library books, she says. That’s because even if the original “creditor,” such as the library, doesn’t report to the bureaus, they may eventually call in a collections agency for an unpaid bill. That agency could very well list the item on your credit report.

Putting cash into a savings account for a major purchase is smart. Just don’t slight the regular bills to do it.

6. Don’t hint at risk

Sometimes, one of the best ways to improve your credit score is to not do something that could sink it.

Two of the biggies are missing payments and suddenly paying less (or charging more) than you normally do, says Dave Jones, retired president of the Association of Independent Consumer Credit Counseling Agencies.

Other changes that could scare your card issuer (but not necessarily hurt your credit score): taking cash advances or even using your cards at businesses that could indicate current or future money stress, such as a pawnshop or a divorce attorney, he says.

“You just don’t want to do anything that would indicate risk,” says Jones.

7. Don’t obsess

You should be laser-focused on your credit score when you know you’ll soon need credit. In the interim, pay your bills and use credit responsibly. Your score will reflect these smart spending behaviors.

Are you getting ready to make a big purchase, such as a home or car? At least a few months in advance, have a look at your credit score, Consumer Action’s Sherry says.

While the score that you get through your bank or a service may not be the exact same one your lender uses, it will grade you on many of the same criteria and give you a good indication of how well you’re managing your credit, she says. It will provide you with specific ways to improve your credit score — in the form of several codes or factors that kept your score from being higher.

If you are denied credit (or don’t qualify for the lender’s best rate), the lender has to show you the credit score it used, thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Another smart move is to regularly check your credit reports, says Sherry.

You’re entitled to one of each of your three credit bureau reports (Equifax, Experian and TransUnion) for free every 12 months through AnnualCreditReport.com.

It’s smart to stagger them, Sherry says. Send for one every four months, and you can monitor your credit for free.

June 18, 2017April 26, 2020

The Complete Guide To Paying Off Credit Card Debt With A Balance Transfer

Fighting fire with fire.

More than once, I’ve heard that phrase used to describe completing a balance transfer for the purpose of paying off credit card debt, and the people that said it were right.

Credit cards are a dangerous thing when used incorrectly. For most people, credit cards are easy to get, easy to use, and tough to pay off. The high interest rates (usually 15% – 23%) leaves you drowning in interest, barely touching the principal, paying thousands of dollars in interest each year.

But, if you’ve gotten yourself into some credit card debt, and are committed to paying it off, you have options. After all, paying off a credit card while still paying exorbitant interest rates is like trying to swim upstream, against the current. You can make progress, but it’s unbelievably hard.

Here are the most common ways to refinance credit card debt:

A personal loan
With home equity
A Balance Transfer

Today, we’re going to fight fire with fire and talk about balance transfers: who they’re right for, what you need to do it successfully, and what to watch out for. Done correctly, regardless of you feelings about credit cards, you can save yourself a lot of time and frustrating by paying off debt after a balance transfer, rather than going the more traditional routes of a home equity loan or a personal loan.

How Much Is Your Credit Card Debt Costing You?

Credit card debt carries some of the highest interest rates of any type of debt, and is the undisputed “worst” type of debt to have. The average American family has more than $15,000 in credit card debt, and at a low estimated interest rate of 15%, a minimum payment of $400 and paying $400 extra each month towards the debt, that family would pay $5,367 in interest over the 51 months it would take to pay it off!

In order to understand just how advantageous a balance transfer can be for you, you need to first understand just how much that debt will cost you in interest, and how long it will take to pay it off.

You might be surprised at just how much interest you’ll be paying on your credit cards alone + how long it will take you to get out from underneath that credit card debt!

What Is A Balance Transfer?

A balance transfer is when you take the balance from one credit card (usually bearing a high interest rate) and transfer it to a newly opened credit card in exchange for a 0% interest rate for 12-15 months. This cuts down on the interest payments by hundreds or even thousands of dollars, and give yourself a set time frame to pay off the debt within.

Why Is A Balance Transfer a Good Option?

Utilizing a balance transfer over a route with a traditional bank is advantageous for several reasons:

You don’t have to fill out tons of paperwork
Very little income information required
Instant, or very quick decision
Huge interest rate deduction

As long as you have good or excellent credit, you can apply for and be approved for a new credit card within a few minutes, all online, without ever having to set foot in a bank. Credit card companies are required to be VERY transparent about the terms of the credit card, not only the interest rate, but any an all fees, the balance transfer terms, as well as any associated fees.

You can also get an interest rate advantage by completing a balance transfer, with most balance transfer interest rates hovering around 3%. Some may be larger, and you can even find some that are 0%, but 3% is pretty common. Let’s use $15,000 of credit card debt as the example and assume that you’ll be approved for the balance transfer credit card with a credit limit large enough to accommodate the $15,000 of debt.

In this case, you would pay a $450 fee for transferring your balance, well below the $5,367 in interest you were looking at.

If you choose the correct card, you can pay as little as 0% interest for 15 month, putting your payment right at $1,030 a month.

This is larger than the $400 minimum payment + $400 extra you were paying each month, but chances are you can find an extra $230 each month to put towards the payment! If you can’t, you should seriously look for ways to cut your budget for a few months, or put a few hours each week into making extra money. The other alternative is to transfer your $15,000 balance, continue to p pay $800 a month towards it, and then transfer the remaining $3,450 to another balance transfer credit card for a few months to continue paying off the debt without racking up interest!

The ease of application, ease of use, and lower interest make transferring a balance to pay off a credit card faster a really good option if you have systems in place to keep from falling into credit card debt again (I’ll get into those in a minute).

The Best Balance Transfer Credit Cards

There are some truly great offers out there right now to help you pay off credit card debt – even though that’s not what they’re designed for. These 0% for 15 month offers are supposed to entice you to open up a card and rack up large amount of debt on it so that the credit card company can make a killing charging you hundreds in interest each month.

But you can outsmart the system using these great balance transfer credit cards:

Barclaycard Arrival World MasterCard: 0% APR for 12 months on each balance transfer made within 45 days of account opening

Chase Slate: 0% APR for 15 months on balance transfers made within 60 days of account opening. $0 annual fee.

Citi Simplicity: 0% APR for 21 months on balance transfers made within 60 days of account opening. $0 annual fee, but a 3% balance transfer fee applies

Discover It Card: 0% APR on balance transfers for 18 months, $0 annual fee, and 3% balance transfer fee.

June 18, 2017April 26, 2020

THE MIND TRICK I USED TO CURE MY CREDIT CARD DEBT

I used to think I’d be in credit card debt my entire life. I started young in my debt journey. I was 18 years old when my bank sent a pre-approved credit card in the post. The limit was $2500 – a heck of a lot more than I had ever had in my life. To a spendaholic 18-year-old with a new-found love for bars and nightclubs, it could only end badly. If you’ve ever been in credit card debt you know that it’s not really about the money. Credit cards allow you to inflate your lifestyle to a level you can’t sustain. I took full advantage of my card and purchased lots of vodka & diet cokes and taxis home. As you can imagine I quickly maxed it out.

My parents offered to bail me out, by allowing me early access to the funds they had saved for me since I was born. I paid that card off and tried to be better. But I’d learned nothing. I’d spent money I couldn’t see, and then eliminated my debt with money I didn’t have to work for. Not to mention being so wasteful with the money my parents had eked together while I grew up.

As my earnings increased and I moved to a new country, my bad habits crept back. It got to the stage where I had maxed out credit cards to the value of about $10,000 and no idea how I spent the money. Each weekend I’d go shopping and come home with a new handbag or a new pair of shoes. It never occurred to me to pay with my own cash. I always got out the plastic, swiped and was on my merry way with my new purchase.

After a few years of running up balances on multiple credit cards and transferring between cards in order to access more cash I finally came to my senses when I had to fill in a loan application to purchase an investment property. It had never really occurred to me that banks wouldn’t look favorably upon credit card debt. I figured since I could manage the monthly payment I was doing OK. The truth is my credit card debt was stopping me from making important moves towards my financial future – my credit cards were managing me.

I knew it was going to take something drastic to change my credit card habit.

I realise that for me (and a lot of people) using credit cards doesn’t feel like you are using real money. There’s only one thing that feels like real money: cash. The feel of notes and coins in your hand really brings to life the amount you’re spending. There’s a very good reason many personal finance gurus advocate using cash. So I had to find a way to translate in my mind that the cute little piece of plastic which let me buy cool things I couldn’t afford was actually a bunch of cash that I was literally burning each weekend.

The idea came to me when I was late in making my minimum monthly payment by internet banking and had to pay in cash at the branch. First I had to leave my office at lunchtime and head to the ATM of my bank to withdraw enough cash to make the payment. I then crossed the road to the bank that issued my credit card, took my place in the line and waited. I stood in line, clutching my minimum payment in notes, waiting for the bank teller to call. As I handed her the card and my cash I had a strong realisation that I was giving this woman (technically, the bank she worked for) money. For nothing. The penny dropped.

After that time I vowed to always make my credit card payment in cash. Every week on payday I would deposit whatever I could afford. Sometimes it was $20, $30, $150. It depended on my earnings. The amount wasn’t important. It was the repetitive act of paying my debt in cash. That constant reiteration finally started to make an impact, and within a few months I’d cut up my credit card. I still had a balance to pay so I’d bring the paper statement with me each week to make my payment. It took me a year, but I finally paid that card off and then applied the same principles to a personal loan I had. Within 4 years I was completely free of all consumer debt and cured of my addiction to spending on the plastic.

If you’re struggling with credit card debt, I urge you to hold that cash in your hand. Really feel it and think how lovely it is to physically hold the money you’ve earned. Then hand it over.

It stings, but you’ll feel it. Which is the main thing!

Note: It took a few years but I now use credit cards as a life tool. I appreciate some people need to cut up the plastic permanently to get their life back on track, but I couldn’t forgo all the rewards that credit card users benefit from. I needed to train myself to be a smart user of cards and I’ve finally got there. I’m constantly aware of my history, so I track each purchase then I’m not in for a shock when the statement arrives each month.

June 18, 2017April 26, 2020

Here’s What I Recommend for a First Credit Card

There are hundreds of credit card options out there, so how does someone pick their first credit card?

“What should I get for my first credit card?” is a question I’ve heard from many people. What I’ve learned over the past few years is that most people are not looking for a bunch of options. They just want to know which card I recommend – and why.

Most people realize that even if they don’t like their first credit card they can always sign up for another one. But they obviously prefer to sign up for a solid first credit card that they will continue to use for years to come.

I’ve actually been meaning to write this blog post for over a year now because my answer has remained consistent for a long time now.

The Best First Credit Card

The card I recommend for a first credit card is the Discover it® Card.

Coincidentally (or perhaps not), Discover was my first credit card. I opened my Discover card about a decade ago and have been using it ever since.

Here’s some reasons I think the Discover It credit card is the ideal first credit card:

1) No Annual Fee

When it comes to a first credit card, having no annual fee is the most important feature I look for. If a card has an annual fee, it’s not a good first credit card.

Your credit score is, in part, based on your credit history. If you open a card with no annual fee you can keep it open forever even if you decide to stop using it. If you open a card with an annual fee you will likely end up closing it, perhaps even within a year of opening it.

The Discover it® Card does not have an annual fee and this is by far the most important feature of the card.

2) Solid Rewards

While it’s true that there is no huge sign-up bonus for the Discover it card that will allow you to travel hack your way to Europe, it does have some solid rewards that I think you should take full advantage of.

These include:

1% Cash Back The Discover it® Card has always offered 1% cash back, regardless of where the purchase was made, what was purchased, etc. No matter what you will always get 1% cash back.

Dollar for Dollar Cash Back Rewards the First Year While the Discover it® Card does not offer the lucrative sign-up promos that some of the top travel rewards credit cards offer, they do offer a special incentive to those signing up for the first time.The incentive is this: for each dollar in cash back rewards you get throughout your first year, they will give you an additional dollar. So if you racked up $150 in cash back rewards, you’d get an additional $150. Essentially you get 2% cash back your first year.

5% Revolving Cash Back Each quarter of the year Discover offers new 5% cash back offerings. For example, you can earn 5% cash back bonus on up to $1,500 in purchases made at Home Improvement Stores & at Amazon.com July through September 2016. Last quarter it was a 5% cash back bonus on up to $1,500 in purchases at restaurants and movies.If you take advantage of these revolving 5% offerings you can rack up cash back bonuses quick.
Partner Gift Cards One of my favorite benefits of the Discover it® Card is the partner gift card program. My wife and I have used this for years and it’s always nice to get a “free” gift card.It’s a really simple program. If you use your cash back rewards to redeem a gift card, you will get the gift card at a discounted rate. For example my two personal favorite gift cards to get are $50 Starbucks and Chipotle gift cards. You can get either of these for just $45 of cash back rewards, another free $5 on top of the $45 you already accumulated through cash back rewards.There are currently 140 participating stores/brands and some have even better deals than what I described for Chipotle and Starbucks. For example, a $50 Gap gift card can be had for just $40 in cash back rewards. A $60 1-800 Flowers gift card can be had for just $40 in cash back rewards, and so on.

3) Good Dashboard & Customer Support

The design of the online dashboard and customer support are definitely less important features than having no annual fee and having a good rewards program, but I still think it’s worth noting.

The online dashboard that Discover has is my favorite of any credit card I’ve used – and I’ve signed up for a lot of credit cards the past few years. It’s clean, easy to navigate, and I’ve never had problems with it. Other dashboards can be clunky or overly simplistic to the point where it’s difficult to navigate.

I thankfully haven’t had to interact with customer support that often with Discover, but I did talk to them prior to going on a cruise so that they were aware of the countries I’d be visiting and potentially using my Discover card at. They were kind, courteous, and overall I just got the feeling that if anything went wrong with my Discover card they would quickly resolve the issue (with a smile on their face!).

Tips for People Getting their First Credit Card

While I could easily write a whole post (or series of posts) on tips for people getting their first credit card, I figured it would be worthwhile to briefly touch on the topic in this post.

Here’s 3 tips for people getting their first credit card:

Treat your credit card like cash The fact that you are getting your first credit card means that you haven’t gotten into credit card debt. You have an opportunity to never get into credit card debt, but it requires you to immediately get in the mindset of treating your card like cash.If you don’t have the money, don’t charge it, and make sure you pay off your credit card in full each month.

Only use 1/3 of your available credit at any one time Using only 1/3 of your available credit may not seem like common sense, but your credit score is impacted by how much credit you utilize. So if you were approved for $1,000 in credit you should keep the balance on your card below $333 at any one time.There is no penalty for making multiple payments towards your credit card throughout the month, so consider taking that approach if you are worried you will go above the 1/3 “utilization” threshold.

Request a credit increase after 6-12 months Along the same lines of only using 1/3 of your available credit, you will also want to consider requesting a credit increase after 6-12 months. If you have been consistently paying off your card you are likely in a good position to have your request approved.How do you request a credit increase? With Discover it’s an option within the online dashboard. If you aren’t approved, don’t sweat it. You can wait another six months and submit the request again.

To summarize, I recommend the Discover it® Card as a first credit card. It has no annual fee, solid rewards, and a good online dashboard and customer support.

June 18, 2017April 26, 2020

How to Close Credit Cards Without Damaging Your Credit Score

Paying on your credit card accounts and maintaining good credit often results in a credit limit increase and additional credit card offers. There is nothing wrong with having credit card accounts, as long as you use these accounts responsibly. What’s more, bad credit cards have helped many people re-establish their credit and build strong scores – but what if you’re ready to decrease your number of credit cards?

Closing credit card accounts that you no longer use may seem wise, especially if you’re looking to simplify your finances. However, there is a wrong and a right way to close down your accounts. Credit scores are based on numerous factors, including the length of your credit history. The longer you’ve had a credit card (or any type of credit) in your name, the higher your personal FICO credit score. {Also read Why Cancelling a Credit Card Hurts Your Personal Credit Rating}

Whether you have unsecured credit cards or bad credit cards, closing your accounts can possibly reduce your credit score. This is because canceling the account can reduce your overall credit history. The actual damage varies, but your score can drop 15 or 20 points after closing an older account. This single move can damage your prime rating and result in a higher interest rates on loans.

Cancel the Youngest Card to Reduce Credit Damage

Closing or canceling an older card will cause some credit damage, however, you can minimize the damage by keeping your oldest account open and closing your newer accounts. Closing the oldest account can greatly reduce your credit history, but if you were to keep this account open and cancel another account, the length of your credit history remains the same. Thus, helping keep your credit score intact. Read your statements or call your credit card company for information regarding the date that you opened your account.

Lowest Credit Limit

It also helps to close the account with the lowest credit limit. The wider the gap between your balance and your credit limit, the better. Accounts with low limits ($300 to $500) increase the risks of having a high utilization ratio, which can damage your credit score. However, if you have a credit card with a higher $1,000 credit limit and you maintain a balance of $200, your utilization ratio is less than 30 percent, which helps improve your score.

Close Accounts Slowly

Don’t close multiple accounts within the same day, week, or even month. Take your time. Close one account, wait six months, and then close another account. Canceling several accounts within a short period can cause a huge decrease in your credit score.