Debt

When Should You Use Your Credit Card?

January 9, 2020 By Trey LaRocca 1 Comment

One of the most controversial topics in personal finance is that magic piece of plastic in your wallet. Everyone you ask will have a different opinion, with many just saying to avoid them altogether. While I wouldn’t call someone a fool for holding that opinion, I do honestly think credit cards have a place in your life.

The major hurdle here is assessing exactly how large that place is, and your ability to stay disciplined. Studies have shown that sliding a piece of plastic that isn’t linked to your cash makes it easier to spend money. As a result, going overboard is extremely common. So, for those who aren’t sure how to maximize the benefits of credit while mitigating the risk, here is the answer to the golden question: When should you use your credit card?

When?

An obvious first step is to address the main question. There are a few use cases that I find the most low-risk as far as habit-forming goes. The first is bill payment. Selecting one low-cost bill to put on your credit card each month will make sure that you have utilization to build credit, but don’t run the risk of overspending.

Bills tend to stay relatively similar every month, so “going crazy” when using a credit card to cover a bill isn’t all that tempting. If you are too young to have bills quite yet, consider using your card to cover something else that you usually already cover with cash. The important part here is to make sure you are using it once or twice a month. Keeping the use infrequent keeps you from getting used to leaning on the card.

How much?

This one is a little less subjective. As far as responsible wealth management goes, a credit card is too high-interest to be heavily utilized. I don’t care what “rewards” you get. If you were the one benefiting the most from those reward programs, they wouldn’t exist. Credit bureaus do want to see some usage every month, though, and the highest scored utilization level is typically 1-9% each month.

If you keep your bill or routine credit spending in this range, your FICO score will increase rather quickly. A more obvious underlying rule here is to never spend more than you can pay off at the end of the month. Our directive is to never get interest charged on our credit card spending– that’s money in the toilet. Pay your card off every single month in its entirety. Then watch as your credit limit and FICO score skyrocket.

Know Yourself

To close this one out, here is a vital piece of the puzzle. You need to evaluate whether you should even have a credit card. If you have filed bankruptcy in the past, or came close due to impulsive spending, having a credit card in your pocket is a bad move. If you haven’t had enough time to get into a situation that dire, but know you have spending issues, don’t try it out.

Credit cards can help you in many ways, but none are as severe as the ways they can hurt you if misused. So, take a look inward before considering any of these rules, and make sure you have the discipline to stay focused on your goals. Just like any other addiction, impulsive spending is a temptation that never really goes away. Be responsible and don’t test waters in which you have already drowned.

Saving Money: How A Secured Loan Could Help

December 17, 2019 By Susan Paige Leave a Comment

Saving money and taking out loans does seem like contradictory actions, but it is possible to achieve both at the same time. Loans and credit are often associated with financial hardship and a time when money might not be readily available. This is not strictly true, there are times when taking out a loan or putting a payment on a credit card could be tactical and actually help you save money in the long run.

We are looking at when a secured loan could save you money and how best to use them to exploit the biggest benefits and the biggest savings!

What Is A Secure Loan?

A secured loan is a source of credit that is secured by an asset. This means that any money that is borrowed, is done so against an asset which is most likely a property. This means that it is less risky to lenders and they are more likely to offer lower loan rates, ultimately saving you money on the cost of a loan. A secured loan does usually have a minimum threshold though, some lenders start at $15,000 minimum but it’s more likely to be about $25,000. Caps on the amount that can be borrowed are really quite high but will be subject to the value of the asset you are willing to make available. This could be anywhere up to $100,000.

Many might get a secured loan thinking it is safer than other financial products. This is actually a little mis-led because, as with all financial commitments you may make, there is risk involved. Voluntarily putting the equity in your house up to secure a loan means that if you miss payments and default on the loan, the creditor will make a claim on your house. The penalties for missing or late payments, and the threshold for when a creditor has the right to claim your asset, will differ from lender to lender. Some creditors may be more strict than others and it may be worth comparing the best secured loans companies to ensure you feel confident with your agreement.

Don’t fret too much if you know you are not going to be able to make your repayment dates, as long as you contact the lender as soon as you are aware of this. FCA regulated lenders (which all the best secured loan lenders will be) are required to follow protocol and may be able to provide advice to help you get a grip on your finances. Moreover, when you are dealing with the financier directly, they could work to arrange alternative repayment dates that suits your financial situation a little better. This might be just after payday, for example, rather than half way through the month.

What Can Secure Loans Be Used For?

Secured loans are flexible financial products that can be used for almost everything a personal loan can be used for, but with the added benefit of having higher borrowing limits and providing borrowers with access to even more cash when they need it.

Transferring Unsecured Debts

Just like an unsecured personal loan, a secured loan can be used for debt consolidation. This means that you can transfer multiple debts into one place, making them easier and tidier to manage. There are so many benefits to using a secured loan in this way:

Transferring your debts into one place helps you save money as you are less likely to incur multiple late fees and other costs as multiple debts are hard to keep on top of.
Secured loans are typically available for lower rates and are cost-effective for debt consolidation because they could work out so much cheaper throughout the duration of the loan, when compared to the cost of multiple other loans.
The high borrowing limit means you are likely to be able to transfer all outstanding debts and just owe the one creditor, rather than several. Standard unsecure loans might not be enough to cover outstanding debts.

The risks should not be totally disregarded but shopping around for the best secured loan rates and being confident that you can meet the repayment schedule as agreed will not put any of your assets at threat.

Home Owner Loans & Home Improvements

Secured loans are sometimes referred to as a homeowner loan. This is because the most common asset that is put up is the equity that you own within your property. Moreover, one of the most common reasons people take out a secured loan is so that they can spend the money on home improvements, home repairs and emergencies or other property-based expenditures.

This may seem a little frivolous, especially if you are trying to save money, but there are several instances in which a secured loan for changes to your property could save you money:

Upgrading For Efficiency – Whether you are still using outdated appliances or have single glazed windows and doors, taking out a secured loan with a good rate could help you to save money on your bills. Making changes to your home could save you around $1000 per year on energy costs.
Moving Home Is Expensive! – Reports differ, but moving home is an extremely expensive affair. Taking out a secured loan and making changes to your home could mean you don’t have to move at all. With higher borrowing limits at a low rate, you could build a brand new bedroom, convert your attic or build an outbuilding – whatever you feel is necessary. What’s more, this kind of spending is an investment, you will get a return when you do eventually feel it is necessary to move, whereas when you move home, the money is just spent and lost.
Bulk Buying Saves Money – Taking out a loan to completely renovate an area of your home or property could be much more efficient than saving up and paying for the works little by little. You will also get a much quicker benefit of your new, upgraded home.

Secured Car Financing

Although this is not the kind of financing that puts money directly into your account, car financing is often a type of secured loan. This works because a creditor will pay a business for your vehicle and you make repayments to them. When the repayment terms are met and all the money is paid off, you will own your car. Until that point, it technically belongs to the creditor. These may be independent or a branch of the trader where the car was purchased.

Firstly, it is vital to shop around for the best deals for car financing, but in many cases, this is the cheapest option for those who cannot foot the full cost of a new car. You could save money because the interest and APRs are low on secured loans, but you also have the flexibility of a lower deposit. This means you don’t have to stretch your finances too thin when you do not have the capacity or back-up cash to cope with a big deposit.

Compare Secured Loans For The Best Rates

Consumers, homeowners and savers looking for loans should always compare their financial products before they commit to them. You can either use price comparison websites, or better yet, for even quicker access to the funds you may need urgently, apply directly with a lender that is also able to act as a broker and connect you with other lenders or present alternatives that may be the most cost effective for your situation.

Comparing loans online is simple with tools such as moneysupermarket.co.uk. Savings experts recommend that consumers use two comparison tools to ensure they are not weighted or biased, for example, using a dedicated comparison tool and an independent lender that will also show you the loans available from competitors. Moreover, it is also recommended that for safe-borrowing, you should do a little investigation into a company before entering a loan agreement with them. You may be made aware of consumer complaints or could find companies that are recommended or the ones that are better left untouched because they bolt on extra fees and hidden costs!

Other Benefits Of Using A Secured Loan

Other than the potential savings on the total cost of a loan, there are other benefits for those who are considering a secured loan, or at least comparing their options.

Firstly, you are more likely to be approved for a secured loan, in comparison to an unsecured loan, especially if you have a bad credit score or it’s anything less than perfect. It’s easy to slip with your repayments on loans or forget the payment date and get a negative mark on your credit score. The consequences when you take out a secured loan can be a little more severe, but they won’t be anything too major if the payment is made quickly and the mistake was genuine. A secured loan is backed by the value of different assets, whatever that might be, which means those with bad credit can offset their risk to borrowers by offering an asset as a back up.

A secured loan is also a good option for those with a bad (or unestablished) credit score or low credit rating because they could rebuild their score. As we have already established, a secured loan is easier to obtain than an unsecured loan if your history is less than perfect. This means that if you are looking to rebuild after injunctions or harmful marks on your profile, such as a CCJ for example, a secured loan is one of the safest and low-cost ways for you to do this. In the long term, making the effort to rebuild how credits consider you as an applicant could also save you money, as you may present as less of a risk and have access to lower APRs, more advantageous interest rates, longer or extended incentives such as interest free months and other rewards or benefits that a creditor might offer to an attractive borrower.

Another advantage of using a secured loan is that it means those people with bad credit, or those who are looking to borrow larger amounts¸ do not have to find a guarantor, who otherwise might have locked in a loan at a decent rate. This allows those who do not have a suitable person to use as a guarantor to still have access to the money they need to complete their home improvement project or manage all their debts in one place, at a cheaper rate.

Although it might not be saving money, one of the most common reasons you might apply for a secured loan is because of the higher or lifted lending limits. As a secured loan is borrowed against something, a pension for example, lenders are happier to lift their limits and will often have a set minimum and maximum. This means homeowners and all other borrowers could get their jobs done in one fell swoop, rather than in installments. Ultimately, this could reduce the number of loans used and save money in the long run, but individuals would have to compare rates and also consider that

How Fast Can You Increase Your Credit Score With Self Lender

November 8, 2019 By Tamila McDonald Leave a Comment

Living with a bad credit score or minimal (if any) credit history can be difficult. Usually, you won’t qualify for favorable terms on credit products like credit cards and loans. You may get stuck with higher interest rates, large fees, or other financial penalties do to your less than ideal credit. As a result, many aspiring borrowers take active steps to improve their credit score before taking certain actions, like trying to get a mortgage or car loan. Self Lender is a company that says they can assist with building your credit, all while helping you save, too.

How Self Lender Works

With the Self Lender Credit Builder Account, you can build a better credit history. The company doesn’t conduct a hard pull on your credit report, so your score isn’t harmed by opening the account. By making your monthly payments on time, your credit score typically rises. Self Lender reports to all three major credit bureaus, so your on-time payments will show up on your Experian, TransUnion, and Equifax reports.

While that may not sound any different than other loans, Self Lender does something that’s a bit outside of the box. Instead of giving you the money from your loan, that cash is held as a Certificate of Deposit (CD), a type of savings vehicle. The bank holds onto the loaned money as a CD while you make payments. Once you finish paying off your Self Lender installment loan, that CD matures and unlocks, allowing you to receive the money.

At the end of the repayment, you receive the principal amount you borrowed (minus any interest paid). As a result, you are able to build your credit history while building a savings habit. However, in exchange for the ability to increase your credit score (and unlike many other savings options), you do have to pay fees and interest along the way.

Self Credit Builder Account Fees and Interest

Since the Self Credit Build Account is technically a lending product, you will encounter some fees and interest. First, there’s a $9 administrative fee for opening the account. Second, there is an annual percentage rate (APR) of just under 16 percent.

In comparison to many credit-building credit cards and personal loans, the Self Lender fees and interest rates are actually very low. This may make it a more affordable way to rebuild or create your credit profile.

How Fast Your Credit Score Will Increase

How quickly a Self Lender account can improve your credit score will vary. Your unique situation, prior credit history, and activity on other credit accounts all play a role. For example, if you miss a payment on a loan or credit card with another lender or issuer, that may offset any benefit from making on-time payments with Self Lender.

Similarly, how diligent you are about your Self Lender payments is a factor. Missing a payment or being late can harm your score.

It’s also important to note that a borrower’s credit score might initially drop when they open a Self Lender account. The new account reduces the average age of your accounts. However, this impact tends to be small and short.

Make On-Time Payments with Self Lender

By making on-time payments with Self Lender, you may see credit score improvements within one to six months after making your first payment. However, your results will vary.

How much your credit score improves isn’t guaranteed. Self Lender states that, on average, an account holder with an account in good standing usually sees a 45 point increase during the first six months. However, your previous credit score and history, as well as actions on other open accounts, could cause your results to be different.

For those establishing a credit score, expect it to take a minimum of six months of on-time payments to see a result. While some may see progress sooner than that, others will have to wait a bit longer than six months to make progress.

Do you have any tips that can help someone increase their credit score quickly? Do you believe that slow and steady is the only way to improve your credit score? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

How To Conquer Debt Paralysis

October 16, 2019 By Flanice Lewis 1 Comment

When you’re on your journey to debt-free, you might experience a moment that feels like you’ve hit a brick wall, and progress has stalled. Perhaps you can’t bring yourself to even glance at your statements to check your balance – this is debt paralysis. Unfortunately, ignoring your debt won’t make it go away. Here are five ways to get back in the game and overcome debt paralysis.

First, you have to forgive yourself for your past choices and mistakes. Getting an education is not a mistake, but maybe you could have supplemented paying for tuition with scholarships instead of student loans. Buying a car to get to work every day is not a mistake. Taking out a high-interest auto loan may not have been the best choice. Now you know, and you will do better in the future.

Next, you start doing better by removing the options for new debt. If your credit cards are paid off, you can cancel them or freeze your account. If you’re carrying credit card balances, make sure you stop using them. Save as much as you can in an emergency fund. Once you have at least $500, you can focus on your debt payments. Your emergency fund should give you some breathing room in case a situation occurs where you would want to use your credit card. If you are unable to save money, you need to review your budget for expenses to eliminate and increase your income. Once you have control over your income and budget, you will be equipped to tackle your debt.

When you have been paying off debt for a long time, but your progress has fallen by the wayside, consider reversing your process. If you were using the snowball method, switch to the avalanche method or vice versa. The snowball method is advantageous for small balances because you see results quickly. The avalanche method is better if you have a considerable balance or high-interest rates, such as the annual percentage rate (APR) on a credit card.

Making the minimum payments only get you so far. It might be time to overpay each month or make multiple payments a month. For example, it is taking graduates 21 years to repay their loans. The longer it takes, the more interest you will pay. Look at your amortization schedule, and you’ll see your payments barely put a dent in the principal. Making additional payments can reduce your interest and principal. Additionally, some companies will allow you to make your extra payments directly to your principal.

Finally, don’t forget to reward yourself. For every debt you pay off, find a way to celebrate. A YouTuber named Stacey Flowers has wine chilling in her refrigerator that she opens when she reaches certain milestones. Maybe you enjoy your favorite meal or dessert after you make your final payment. Families love to post photos on Instagram and tag Dave Ramsey when they have paid off their debts. He shares them on his page, so they get virtual back-pats from strangers all over the world.

Don’t let debt paralyze you. You will pay it back, one payment at a time.

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5 Financial Tips to Guide You From College to The Real World

September 30, 2019 By Tamila McDonald Leave a Comment

Nearly 4 million students are expected to earn a college degree during the 2019-2020 academic year. On average, those college graduates will likely earn just over $50,000 annually after they graduate, and that’s usually substantially more than they bring in as income while still a student. As a result, shifting from college to the real world can be a bit of a shock and surprisingly tricky. If you want to make sure you handle the adjustment properly, here are five financial tips that can help you now.

1. Figure Out a Budget (and Live Below Your Means)

Whenever your income or expenses change dramatically, it’s wise to update your budget. Or, if you were a student without a formal budget, now is the perfect time to create your first one.

For many students, their first real-world salary feels larger than it is. Plus, there is a tendency to splurge or live far beyond one means, both of which can lead to financial hardship down the line.

If you want to make sure that lifestyle inflation doesn’t harm your finances, budgeting is a must. Review all of your expenses (including student loan payments that might be on the horizon) and account for them. Additionally, dedicate some money toward an emergency fund, saving for any upcoming large purchases, and retirement. Consider living as frugally as possible and sending more money than the minimum payment toward your student loans, allowing you to rid yourself of the debt faster.

By making smart choices today, you can make sure that you are saving for the future. Plus, by living within your means, you can avoid other forms of debt.

The easiest way to budget is with automated apps that tell you in real-time how you’re tracking. Empower is a favorite because all you need to do is sign up for Empower and take a couple of minutes to customize your budget categories and set weekly or monthly spend limits, then let Empower do the hard work of monitoring and tracking your expenses. Empower classifies every expense for you and shares a monthly report for real insight into where all your money is going. Empower will also proactively alert you when it’s time to rein in your spending so you’ll never go over.

2. Get Control of Your Credit

The average graduate with a Bachelor’s degree has $29,200 in student loan debt. Plus, 36 percent of college student have at least $1,000 in credit card debt, too.

If you leave college and start living outside of your means, it’s easy for debt to get out of control. When this happens, your credit score can fall, making it hard to obtain credit in the future, leaving you with higher interest rates, and more.

Monitoring and improving your credit score now is a smart choice. That way, if you absolutely need to finance something (like a home), your score is in good shape.

Make sure you review each of your credit reports every year. At AnnualCreditReport.com, a government-supported site, you can do so for free, allowing you to spot errors or issues.

Always make your debt payments on time, as this can help your score. Additionally, avoid using credit for unnecessary expenses, opening new cards you don’t need, or maxing your cards, as those all have the potential to lead to trouble or lower scores.

3. Build an Emergency Fund

At some point, everyone faces a financial emergency. Whether it’s an unexpected car repair, medical bill, or other expense, having cash set aside gives you a safety net. Plus, if you can get three to six months of expenses stashed away, you can protect yourself against sudden job loss as well.

Start by getting at least $1,000 in an emergency fund. That way, you have a basic cushion against financial surprises. Once in place, only tap that account if you are genuinely experiencing a hardship, and replenish it as quickly as possible. Then, just keep stashing money away, allowing you to build it up over time.

4. Save for Retirement Now

As a recent college graduate, compound interest is your best friend. Since you have a substantial amount of time before you reach retirement age, even smaller contributions today can lead to big gains, all thanks to the build-up of interest or earnings over the years.

Whether you use a plan through an employer or open your own IRA, start saving for retirement now. Even if your initial contributions are small, they’ll add up and grow, making it easier to stash enough away to retire comfortably when the day arrives.

5. Leave (a Little) Room in Your Budget for Fun

If all of your money goes toward not-so-fun things, it’s easy to burn out. By dedicating some of your income towards entertainment or exciting purchases (like new furniture or a vacation), you have things to look forward to that you’ll enjoy.

While you don’t want fun to be a huge part of your budget, it should be in there. After you handle your expenses and savings goals, see how much is left and set aside a part of it for your enjoyment. That way, you can get the occasional reward for your hard work, and that will help keep you motivated.

Following these 5 financial tips can ensure a smooth transition from college to reality.

Do you have any financial tips that can help students transition from college to the real world? Share your thoughts in the comments below.

If you enjoy reading our blog posts and would like to try your hand at blogging, we have good news for you; you can do exactly that on Saving Advice. Just click here to get started.

Financial Advice I’d Give My Younger Self

September 12, 2019 By Flanice Lewis 1 Comment

If I can go back in time, I would do so many things differently with my money. I’ve learned so much through experience and research. Below, I detail the financial advice I’d give my younger self.

Invest Early

Start investing as soon as possible in various approaches. Deposit the maximum amount in an individual retirement account (IRA) and a 401k annually. If the employer offers to match your contributions, then take advantage. Open a brokerage account and invest in exchange-traded funds, or ETFs, and mutual funds. These funds make it easy to invest in multiple stocks without fees for each. They often provide dividends which can be an additional income stream. The earlier you start, the longer your investments have to grow and compound.

Avoid Debt

Debt seems like an inevitable part of life, but it is unnecessary and completely avoidable. Instead of taking out student loans, apply for more scholarships and grants. Apply before and during the school year for all available funding. Before making any purchases, plan and save up for as long as needed to avoid charging the purchase. This discipline applies to a house, a car, electronics, or any other wanted item. There is no need to take out a loan or use a credit card for anything you want. It will take time and patience but will keep you debt-free.

Stick to Your Financial Goals

Set financial goals and priorities, then determine which expenditures are hindering your success. Don’t let your costs increase as your salary increases. Keeping your costs low will provide additional funding for savings and investments. Keep track of income and expenses over time. Find ways to decrease the charges when they start to creep up. Shop around for insurance, services, and groceries. If you want to travel more, then spend less elsewhere.

Allow yourself to enjoy life while being mindful of spending and splurging. It is okay to spend money because that’s why it exists. However, ensure you have added to priorities first. Saving and investments should come before eating out, shopping, and expensive travel. Find deals for dining such as restaurant week. Use bargain sites for experiences and excursions. Maximize the use of coupons, rewards, and sales to reduce spending.

Shop Smart

Try to avoid expensive purchases while in desperation. For example, don’t wait to buy a car until you need one right that second. You will be more prone to make a bad deal or pay more than you want. Everything is negotiable or found elsewhere. Don’t take an uncomfortable offer for a house, appliance, cellular phone, television, or other major purchase. Salespeople can be aggressive, but the ball is in your court. Research what you want and what you’re willing to spend. Once you have set your budget, stick to it. Don’t be afraid to walk away.

Establish Good Habits Early

Finally, more money won’t make you better at managing it. Learn to budget and save at all income levels. Building good habits earlier will save thousands of dollars later. Once you find a system that works for you, stick with it, and update as necessary.

My recommendation

A great way to crush your financial goals is by using an app that manages your finances for you. Empower is an award-winning mobile app that is perfect for people who want a complete personal finance solution all in one place. Empower combines automated saving with customizable budgeting and spend tracking, and even personalized financial coaching. I wish I had this app when I was younger as this would have greatly helped my overall financial health.

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