Tag: credit

5 Steps to Take When Applying for a Business Loan

by Advantage One, posted in Budgeting, Career, Checking, Credit, Loans, Tips & Best Practices, Uncategorized

If your business can use a shot of cash to help it grow, fund a move or to get through its slowest season, a business loan can be the right answer. 

Here’s what you need to know about applying for a business loan.

  1. Check your credit

Before you apply, check your personal and business credit health. 

Personal credit scores range from 300-850. A score in a range of 580-669 is fair, 670-739 is good, 740-799 is very good and 800-850 is exceptional. In general, the higher your score, the easier it will be for you to qualify for a loan and the lower the interest rate you’ll have on your loan when approved.

Business credit scores are measured differently. Experian uses Intelliscore Plus as its credit scoring model, with scores ranging from 1 to 100. Equifax assigns each business a payment index score, which ranges from 0 to 100; a credit risk score ranging from 100 to 992 and a business failure score ranging from 1,000 to 1,880. The D&B score, assigned by the Dun & Bradstreet Corporation, ranges from 0 to 100. Finally, the FICO Small Business Scoring Service score ranges from 0 to 300. 

If your personal and/or business credit scores are low, work on improving your credit before applying for a loan. Be timely or early with your bill payments, work on getting rid of debt and check your monthly credit statements for any erroneous charges.

  1. Update your business plan

Most lenders will ask to see a current business plan before approving a loan. It’s a good idea to review and update yours so it’s ready to show a potential lender. The plan should include information about the loan, such as how the company plans to use the funds. 

Be sure to have a comprehensive business plan to show a prospective lender. The plan should include details about how the company intends to use the funds, the anticipated increase in revenue and plans for repaying the loan. 

3. Organize your personal and business documents

You’ll need the following documents and identifying paperwork when applying for a business loan:

  • Photo ID
  • Accurate monthly financial statements from the past two years
  • Business license
  • Any commercial leases
  • Business insurance plans
  • Payroll records
  • Incorporation documents
  • Current financial obligations
  • 3 months of bank statements
  • Personal and business tax returns
  • Collateral

4. Research potential lenders

A business loan is a big deal, and it’s best not to jump into the decision too quickly. Take the time to research potential lenders carefully, being sure to check each lender’s eligibility criteria, the average size of the loans they offer, their current interest rate average and more. 

Consider applying for a business loan through a credit union. A credit union will offer you personalized service, looser qualifying criteria and a competitive interest rate. [Call, click, or stop by Advantage One Credit Union today to discuss your options.] 

5. Submit your application

You’re ready to apply for a loan! With luck, you’ll soon have the funds you need to take your business to the next level. 

Your Turn: What are your best tips for taking out a business loan? Tell us about it in the comments. 

Should I Use a Credit Card at the Pump?

by Advantage One, posted in Announcements, Budgeting, Checking, Convenience, Credit, Lifestyle, Saving, security, Tips & Best Practices, Uncategorized

Q: Is it a good idea to pay for gas with a credit card? 

A: On average, Americans pump close to 392 million gallons of gasoline a day. That’s more than a gallon for every American! Each day! With fuel prices spiking, you want to make sure you’re paying for that gas in the best manner possible. Many people reach for a debit card or cash when filling up on fuel, but there are several key advantages to using a credit card to pay for gas. Here are four reasons you may want to use your credit card at the pump. 

  1. Paying with plastic makes it easy to track your spending

Cash leaves no paper trail. Once you’ve spent it, you have no way of knowing where that money went unless you actively record the expenditure at the time of the purchase. When you pay with plastic, though, there’s always a record of the transaction. You can review your spending habits, or calculate how much you are spending in one budget category (transportation) to help you stay on top of your finances as best as possible. Just check out the credit card statement at the end of the month or billing period to see how much you’ve spent on fuel costs. 

  1. Earn rewards for every gallon

If you own a credit card that offers rewards or miles for every purchase you make, you can earn a lot of rewards by using your credit card to purchase the gas you’d buy anyways. In just one year, you may have enough rewards or miles to fund a full vacation! Just make sure to choose the card that offers the most bang for your buck.

  1. Fraud and theft protection

When it comes to protecting your funds from fraud, credit cards are the number-one choice of payment methods. Unlike payments made in cash or with a debit card, a credit card purchase can always be disputed if found to be faulty. Many cards offer a zero-liability plan in cases of fraud as long as the credit card company is notified within a predetermined amount of time. Finally, paying with cash always carries the risk of theft, but a stolen or hacked credit card account can easily be closed. 

  1. Free up your money

When you choose to pay with a debit card at the pump, you’re choosing to put your money on hold. Gas stations present a unique risk to their owners, as the consumer can fill up and drive away without paying. To avoid this form of theft, gas stations will immediately authorize cards by placing a hold on the debit card account as soon as the consumer initiates the transaction, which is before they’ve even begun to pump fuel into their car. The hold is generally between $50 and $150. After the consumer has finished pumping gas, the card will be charged for the appropriate amount. However, the hold on the card may not clear for several days. If you need every dollar in your account immediately after paying for gas, you may want to use a credit card rather than a debit card at the pump. 

Many drivers choose to pay for gas with cash to save on surcharges that some stations issue for payments made via credit card. However, if you use a rewards card and get cash back on every credit card purchase, the small surcharge can be more than offset by the rewards. In addition, some stations will waive the surcharge upon request. 

It’s important to note that, as always, credit cards should only be used responsibly, even when paying at the pump. Only use a credit card if you know you will be able to pay the bill in full before it’s due. Otherwise, the interest charges you’ll accumulate mean you’ll be paying for far more than the actual price of gas.

Using a credit card to pay for fuel can have unique advantages over other payment methods. The next time you’re at the pump, consider pulling out your credit card instead of paying with a debit card or cash. 

Your Turn: Do you use a credit card at the pump? Why or why not? Tell us about it in the comments. 

All You Need to Know About Taking Out a Home Loan in 2022

by Advantage One, posted in Budgeting, Checking, Credit, Home Buying, Lifestyle, Saving, Tips & Best Practices, Uncategorized

The real estate market has shifted tremendously since the start of the coronavirus pandemic. Now, as we approach the two-year mark since COVID-19 reached the U.S., the market continues to adjust to the changing economic environment, rising inflation and fluctuating demand. If you’re looking to take out a home loan in the near future, it’s important to learn about the current market trends and what you can expect in the coming months. Here’s what you need to know about taking out a home loan in 2022.

Market trends

Experts are predicting a somewhat cooler real estate market in 2022. Here’s what to expect among some of the different factors in the market. 

  • Supply and demand. 2021 was the year of frenzied bidding wars, as the supply of homes on the market fell well below the heightened demand. Despite these conditions, home sales were up by 44% in 2021 compared to 2020, according to Realtor.com. Looking forward, experts expect the demand to remain high in 2022, but they also anticipate the supply of available homes to inch closer to the demand as more new-construction homes hit the market. In addition, the trickle-down effect of the end of the government’s moratorium on foreclosures will likely increase the supply of available homes on the market. 
  • Home prices. In 2021, the average price of homes rose to an estimated 14.75%. According to the National Association of Realtors, home prices will continue to increase in 2022, but at a far more modest rate of just 2.8%. Fannie Mae projects a 7.4% increase, while mortgage bankers expect home prices to rise 5.1%. 
  • Mortgage rates. Mortgage rates remained at historic lows in 2021, with the average 30-year fixed-rate hovering around 3% at the end of the year. Economists expect mortgage rates to increase in 2022, but to continue to remain relatively low. The National Association of Realtors claims that mortgage rates will increase to 3.7% in the first quarter of 2022, while Fannie Mae anticipates the 30-year fixed mortgage to average 3.3% throughout the year.

Tips for buying a house in 2022

If you plan on buying a house in 2022, here’s how to make the most out of your search:

  • Get pre-approved. It’s always a good idea to get preapproved for a mortgage before you start your search. It’s even more important in a sizzling real estate market like the one buyers are facing today. A preapproval gives you a leg up on bidding wars, shows potential sellers that you’re serious about buying and helps you keep your search within parameters you can afford. 
  • Shop around for a mortgage. While mortgage rates are still relatively low, each lender sets their own rates and closing costs. Shopping around before choosing a mortgage lender can save you money in the short term and long term. 
  • Use a local real estate agent. In a tight housing market, it’s important to use an agent who knows the area well and can give you a realistic picture of what you can expect to pay for the home you want. 
  • Prioritize carefully. Every homebuyer has a wish list of features they’d love to have in their new home and neighborhood. But, when supply is limited, absolute must-haves need to be chosen carefully. Narrow your list as much as possible before beginning your search, as it will help you to avoid disappointment later on. 

Keep these tips and considerations in mind as you begin your quest for the perfect new home. A little “pre-home” work can help make a big difference in the enjoyment of your home and your overall financial health for years to come!  [If you’re entering the market for a new home, we can help! Advantage One Credit Union offers home loans for qualifying members that feature competitive interest rates, an efficient and smooth application process, and the personalized service you’ve come to expect. Call, click or stop by today to get started.] 

Your Turn: Have you recently taken out a home loan? Tell us about it in the comments.

The Beginner’s Guide to Credit Cards

by Advantage One, posted in Budgeting, Convenience, Credit, Loans, Tips & Best Practices

Credit cards! Can’t live with them, can’t live without them. According to the latest report by the Federal Reserve, there’s a whopping $790 billion in credit card debt in the U.S. On the flip side, though, opening credit cards and managing them responsibly is crucial to establishing your credit history, which impacts your eligibility and rates for large, low-interest loans.

Here’s all you need to know about credit cards.

How credit cards work

When you use a credit card to pay for a purchase, you’re borrowing money from the financial institution that issues the credit card. You’ll repay the loan, in part or in full, at the end of the month when the bill is due. The credit card company charges interest, or a percentage of your balance, which you’ll pay if you don’t pay off your bill by its due date. This number is determined by your annual percentage rate (APR), which refers to the annual cost of borrowing money with your credit card. The longer you carry a balance, the more the amount interest will accrue. 

Now, let’s take a deeper look at each step in responsible credit card management. 

Applying for a credit card

First, you’ll need to apply for a credit card. If this is your first card, you’re probably best off applying for a secured credit card. These starter cards require you to make a deposit before you can open the line of credit that establishes the loan that’s attached to the card. The deposit will serve as a form of collateral in case of a missed payment or default. Usually, secured credit cards will only offer a modest line of credit. If you make your payments on time, you’ll get the deposit back after a predetermined amount of time, usually eight to 12 months, at which point you can close the account and open an unsecured credit card (which does not require the deposit to serve as collateral). 

As you consider your credit card options, look no further than your local credit union. As member-owned cooperatives, credit unions consistently offer credit cards with lower interest rates than credit cards issued by big banks, with the most recent data showing the average credit union credit card offering interest rates at 11.22%APR compared to the average bank’s credit card offering interest rates at 12.41%APR. You can also expect more personalized member service when working with a credit union.

It’s important to note that many credit unions include clauses in their credit card terms allowing them to withdraw funds from the cardholder’s checking or savings account if the cardholder defaults on the credit card payments. When applying for a credit card through a credit union, look for this disclosure in the terms so you are aware of this arrangement if it’s in place. 

Using your card

You can use your card to pay for a purchase at any vendor that accepts your card brand (such as MasterCard or Visa). You can charge up to the available credit line that’s associated with your card. However, to keep your credit score high, it’s best to keep your credit utilization below 30% of the available credit. So, for example, if you have a $1,000 limit, you would want to keep your balance at or below $300. 

Statements

You’ll receive a credit card statement from your credit card issuer each month. The statement will include the following information:

  • Summary of all transactions made on the card since the last billing cycle. This includes all purchases, payments, balance transfers, cash advances, fees, interest payments and more.
  • The balance from the previous billing cycle.
  • The minimum payment due.
  • The payment due date.
  • The number of days in your billing period.
  • Your credit limit and available credit. 
  • Any available or redeemed awards.

It’s important to review your statement for accuracy and to take note of the bill’s due date so you don’t miss a payment. 

Payments

Once you’ve received your statement, you can choose how much to pay. If you pay your entire bill in full by its due date, you’ll avoid paying interest on the charges you made this past month and only pay the cost of the actual purchases. On the other hand, if you only make the minimum payment, interest will continue to accrue on the balance you still carry on the card. If you can’t pay the full balance, you can also choose to pay an amount that falls between the minimum payment and the outstanding balance.

[You might also want to consider automatic payment with us if your card is issued by Advantage One Credit Union to ensure you are never late on your payments.]

Building and maintaining a high credit score

Follow these tips to build your credit score and keep it high:

  • Pay your bills on time.
  • Pay more than just the minimum payment due. 
  • Keep your credit utilization low; ideally, at less than 30% of your available credit. 
  • Ask for a credit limit increase after nine months of responsible credit card use.
  • Keep your cards active.

Responsible credit card usage is an important part of financial health. Follow the tips outlined above to keep your score high and enjoy the benefits for years to come. 

Your Turn: Have you recently opened your first credit card? Tell us about it in the comments.

5 Steps to Take After a Data Breach

by Advantage One, posted in Announcements, Credit, Lifestyle, online security, security, Tips & Best Practices, Uncategorized

Data breaches show up in the news almost as often as celebrity couple breakups. According to Risk Based Security’s Mid-Year Data BreachReport, there were 1,767 publicly reported breaches in the first half of 2021, exposing 18.8 billion records. One of the most far-reaching of these breaches was the T-Mobile data breach in August, which has impacted more than 50 million people. 

A data breach exposes confidential information of its victims, which can include Social Security numbers, account information, credit card numbers, passwords and more. If your personal information has been compromised by the T-Mobile data breach or another exposure, take these five steps to mitigate the damage. 

Step 1: Read all alerts and notifications from the compromised company

The business whose data has been compromised in the breach will generally reach out to all potential victims to notify them about the exposure. They may instruct all recipients of this missive to check for signs that their information has been exposed and/or direct them toward their next step. If you believe your information may have been compromised in a breach, it’s important to read every message you receive from the exposed company. 

Step 2: Alert your financial institution 

Next, let Advantage One Credit Union know your account may have been compromised. This way, we’ll know to keep an eye out for signs of fraud and place an alert on your account. We’ll be watchful of requests to approve any large transaction or withdrawal, and we’ll contact you if we notice any suspicious activity. 

Step 3: Change any exposed passwords

A data breach generally means passwords of all kinds have been compromised. It’s best to change as many as possible after a breach to keep information and money safe. The quickest way to do this is by using a password manager, which allows you to store unique, complex passwords for each account. Although it’s important to have a different password for each account, it’s best to start by changing passwords you know were a part of the data breach.

Step 4: Consider a credit freeze

A credit freeze alerts lenders and credit companies to the fact that you may have been a victim of fraud. This added layer of protection will make it difficult, or impossible, for hackers to open a new credit line or loan in your name.

You can freeze your credit at no cost with all three of the major credit bureaus, Equifax, Transunion and Experian. You’ll need to provide some basic information and you’ll receive a PIN for the freeze. Use this number to lift the freeze when you believe it is safe to do so. 

Step 5: File an identity theft report

If your accounts have been compromised and you believe your identity has been stolen, file an identity theft report with the Federal Trade Commission (FTC) immediately. This will assist the feds in tracking down the scammers responsible for the data breach. It will also help you return your finances to their usual state as quickly as possible.

Take these precautionary measures to protect your information from future data breaches of any kind:

  • Monitor your credit. It’s a good idea to check your credit accounts for suspicious activity on a regular basis. You may also want to sign up for credit monitoring, a service that will cost you $10-40 a month for the promise of notifying you immediately about any suspicious activity on your accounts.
  • Use strong, unique passwords. Use a different password for each account, and choose codes that are at least eight characters long. Use a variety of numbers, letters and symbols–and vary your capitalization use as well. Choose two-factor authentication when possible, and non-password authentication, such as face recognition or fingerprint sign-in, for stronger protection.
  • Browse safely. Never share sensitive information online and always keep your security and spam settings at their strongest levels.

Your Turn: Has your personal information ever been exposed in a data breach? Tell us about it in the comments. 

6 Ways to Boost Your Credit Score

by Advantage One, posted in Credit, Lifestyle, Saving, Tips & Best Practices, Uncategorized

An excellent credit score is the ultimate goal of the financially responsible consumer. Those three magic digits tell a story of accountability, good financial sense, and the ability to spend mindfully. A great credit score also unlocks doors for large, affordable loans; employment opportunities, and more.

Its significance notwithstanding, achieving and maintaining an excellent credit score is easier said than done. There is no quick and easy way to dramatically boost your score over a short amount of time, but you can take steps to increase your credit score gradually. Below, we’ve listed six ways you can start amping up your credit score today.

1. Pay your bills on time

Your payment history is the single most important factor in determining your score. A missed credit card payment can significantly impact your score and it can take months to recover the loss. Set a reminder a few days before your bill is due to ensure you never miss a payment.

2. Reduce your credit utilization ratio

Another crucial factor in your score, your credit utilization ratio refers to the amount of available credit you use. It’s best to keep your utilization under 30%, or even 10% if you can swing it. This means, if you have $50,000 of available credit, try to keep your usage below $15,000 at most and, ideally, below $5,000.

It can also be a good idea to accept offers of increased credit or to request an increase on your own, which can instantly bring down your credit utilization ratio. However, only go this route if you know you are not at risk of overspending as soon as you have more credit at your disposal.

3. Use your cards

Taking a pair of scissors to credit cards can seem like the perfect way to increase your credit score, but you need to use your cards to keep your score high. A great way to make sure you use your cards on occasion but don’t overspend is to charge fixed expenses, like monthly subscriptions, to your card. Just be sure to pay the balance in full before the credit card bill is due.

4. Work to pay down outstanding debt

If any of your cards are carrying a balance from month to month, showing that you are working to get rid of this debt can do wonders for your credit score. Maximize your monthly payment by trimming an expense category in your budget and channeling that extra money toward your credit card bill. Don’t be afraid to reach out to your credit card company to ask for a lower interest rate as you work to pay off debt. Finally, consider consolidating credit card debt with a personal loan from Advantage One Credit Union, which will help you get rid of your credit card debts and leave you with one low-interest payment to make each month.

5. Look for errors on your bill and credit history

A fraudulent charge on your credit card can bring down your score without your knowledge. That’s why it’s important to check your statements each month and to look for charges you don’t remember making. If you see anything suspicious, contact the credit card issuer immediately to dispute the charge. It’s also a good idea to get your free credit report once a year from annualcreditreport.com for a more comprehensive look at your credit usage and signs of possible fraud. 

6. Become an authorized user on another cardholder’s account

If you’re new to the world of credit, and you’re looking to thicken your credit file to build your score, becoming an authorized user on another cardholder’s account can be a great way to get results quickly. Team up with someone who has excellent credit and never misses a payment. Your partner’s responsibility will reflect well on you and help build your credit history and boost your score. 

Credit scores are a crucial component of financial wellness, but achieving and maintaining a high score can be challenging. Use the tips outlined above to start boosting your score today. 

Your Turn: Have you taken steps to boost your credit score? Tell us about it in the comments. 

Navigating the Current Auto Loan Market

by Advantage One, posted in Budgeting, Convenience, Credit, Lifestyle, Loans, Uncategorized

If you’re in the market for a new set of wheels, get ready to experience sticker shock. Prices on new and used cars have soared since the beginning of 2020, and experts aren’t expecting them to fall anytime soon. Here’s what you need to know about the current auto loan market and how to navigate it successfully.

Why are auto prices so high? 

The coronavirus pandemic has touched every sector of the economy, and the auto industry is no exception. According to the U.S. Consumer Price Index, the price of used cars and trucks has jumped a full 9.4% in the last 12 months, while the price of new cars and trucks increased by 1.5%. The drive behind the increase is multifaceted and linked to several interconnected events.

When the pandemic hit American shores, demand for new and used cars increased significantly. This was largely due to the many people who were avoiding public transportation for safety reasons. The mass exodus from big cities and their high rates of infection also boosted the demand for new cars.

At the same time, supply of new and used cars dried up, thanks to these factors:

  • The pandemic put a freeze on the production of new vehicles for nearly a full business quarter. The factory shutdowns reduced output by 3.3 million vehicles and sales dried up, along with subsequent trade-ins.
  • The production freeze prompted chipmakers to focus on the electronics industry instead of creating chips for automakers. Now, the industry is still scrambling to keep up with the automakers’ demand.
  • Business and leisure travel was halted for months. This led to a steep decline in travelers renting cars, which in turn led to rental agencies holding onto more of the cars in their lots instead of selling them to used car dealerships.

The rise in demand and shortage of supply naturally triggered a steep increase in the prices of both new and used vehicles.

Rethink your auto purchase

If you’re in the market for a new car and the price tags are scaring you, you may want to rethink your decision. If your car is in decent condition, consider holding onto it a little longer until the market stabilizes. To go this route, consider the following tips to help make your car last longer:

  • Use a trickle charger to keep the battery in excellent condition.
  • Change your filters regularly.
  • Follow the service schedule. Most cars need to be serviced every 10,000 miles.
  • Keep all fluid levels high. This includes coolant, oil, antifreeze and windshield washer fluid.
  • Drive carefully to avoid sudden braking and prolong the life of your brakes.
  • Replace spark plugs when they begin showing signs of wear or melting. Depending on the vehicle, spark plugs need to be replaced every 30,000-90,000 miles.
  • Check your tires regularly and rotate and inflate them as needed.
  • Pay attention to all warning lights that are illuminated on the dashboard.
  • Have your car rust-proofed to keep the exterior looking new.

Tips for buying a car in today’s market

If you’ve decided to go ahead with buying a car, it’s best to adjust your expectations before hitting the dealership.

First, a seller’s market means many dealerships will not be as eager to close a deal as they tend to be. They have more customers than they can service now, and that can translate into a willingness to move only slightly on a sticker price of a car, or a refusal to negotiate a price at all. Processing a car loan may now take longer, too.

Second, expect to pay a lot more than usual for your new set of wheels. If you’re looking to purchase a new car, prepare to pay approximately $40,000. Also, as mentioned, supply of new cars is down while demand is up, so you likely won’t have as many choices as you may have had in the past.

The used-car market has been hit even harder by the pandemic since prohibitive prices and a short supply has pushed more consumers to shop for used cars instead of new vehicles.  This increase in demand, coupled with the dwindling supply, has driven the prices of used cars up to an average of $23,000, according to Edmunds.com. If you’re thinking of buying a used car, prepare to encounter a highly competitive market where bidding wars are the norm and cars are super-expensive.

If you’re looking to take out an auto loan, consider one with your credit union. The most recent data shows that auto loans at credit unions are a full two points lower, on average, than auto loans taken out through banks. Car prices may be soaring, but credit unions continue to deliver lower rates and customer service you can really bank on.

The auto loan market has been hit hard by the coronavirus pandemic. Follow the tips outlined here to navigate today’s car market successfully.

Your Turn: Have you recently bought a new set of wheels? Share your best tips on navigating today’s auto market in the comments.

Learn More:
chicagotribune.com
marketwatch.com
barrons.com
cnbc.com
yourautoadvocate.com

What is Credit Card Interest and How Does it Affect Me?

by Advantage One, posted in Budgeting, Credit, Reviews, Saving, Tips & Best Practices, Uncategorized

Getting your first credit card is super-exciting. That small piece of plastic is a gateway to adulthood, and when used responsibly, it can be your first concrete step toward establishing sound financial habits to last a lifetime. Unfortunately, though, many teenagers and young adults don’t know enough about credit card interest when they open their first credit line (such as with a credit card) and end up deeply in debt — and quickly.

Don’t let this be you! Be sure to learn all you need to know about credit card interest and how it works before you apply for your first credit card.

What is credit card interest?

Interest on a line of credit is money the credit card issuer charges to the cardholder for borrowing money every time they use their credit card. The interest is generally set at an annual rate known as the annual percentage rate, or the APR. Credit card companies use the APR to calculate the amount of daily interest the cardholder is charged for purchases as well as the unpaid balance on the line of credit associated with the card.

Important credit card terms to know

Before learning how credit card interest is charged, you’ll need to know some basic credit card billing terms:

  • A credit card billing cycle is the period of time between credit card billings. Billing cycles can range from 20 to 45 days, depending on the credit card issuer. During that time frame, any purchases, credits and interest charges will be added to or subtracted from the balance.
  • When the billing cycle ends, you’ll receive your credit card statement, which will reflect  all unpaid charges and fees for this period of time.
  • The statement will also highlight the payment due date, which tends to be approximately 20 days after the end of the billing cycle.
  • The time frame between the end of the billing cycle and the payment due date is known as the grace period. If you neglect to pay your bill in full before the grace period ends, the outstanding balance will be subject to interest charges.

Calculating interest charges

To calculate your interest charge for a billing cycle, follow this formula:

Step 1:  Divide your APR by the number of days in a year to get your daily periodic rate, or the amount of interest your credit card issuer charges cardholders during each day of the billing cycle.

For example, if your APR is 18.5%, you’ll divide that by 365 to get your daily periodic rate of .0005%. (0.185 / 365 = .0005)

Step 2: Multiply the daily periodic rate by your average daily balance, or the balance you carry during each day of your credit card’s billing cycle, to get your daily interest charge. To find your average daily balance, look on your credit card bill. You can also determine your average daily balance by taking the sum of the balances at the end of each day in the billing cycle, and dividing that number by the total number of days in your billing cycle.

Using the numbers in the above example, if your average daily balance is $1,200, you’d multiply this number by your daily periodic rate (.0005%) to get a daily interest charge of $0.60. (0.0005 * 1,200 = 0.60)

Step 3: Multiply your daily interest charge by the number of days in your billing cycle.

Staying with the above example, if your billing cycle is 30 days, you’d multiply $0.60 by 30 to get an interest charge of $18 for this billing cycle. (0.60 * 30 = 18)

Avoid paying interest

Credit card issuers will only charge interest if you carry a balance from one month to the next. If you pay your balance in full before the grace period ends, there will be no interest charged. It’s a good idea to familiarize yourself with the payment due date on your credit card billing cycle and to set a reminder to pay your bill before it’s due whenever possible.

If you have a large outstanding balance and paying it in full at the end of the billing cycle is not possible, at the very least try to pay more than just the minimum payment each month. It’s also a good idea to avoid charging more purchases to your card if there is already an unpaid balance. Remember: A credit card purchase that is not paid off before the payment due date can mean paying for that purchase for months, or even years, to come.

Credit cards are a necessary part of life. Building a strong credit history can open the door to long-term loans and other financial opportunities, but neglecting to learn how credit card interest works can lead to a spiral of debt. Before opening your first credit card, brush up on your knowledge of how credit card interest works and how it affects you as a cardholder.

Your Turn: Have you recently opened your first credit card? Share your beginner tips for responsible credit card use in the comments.

Learn More:
magnifymoney.com
investopedia.com
finder.com
credit.org

5 Reasons We Overspend (and How to Overcome Them)

by Advantage One, posted in Budgeting, Credit, Lifestyle, Saving, Tips & Best Practices

We’ve all been there. Maybe it’s that I-gotta-have-it urge that overtakes us when we see a pair of designer jeans. Maybe it’s that shrug as we reach for the $6 cup of overrated coffee that says “I deserve this.” Or maybe it’s that helpless feeling as the end of the month draws near and we realize we’ve outspent our budget — again.

What makes us overspend? Let’s take a look at five common reasons and how we can overcome them.

1. To keep up with the Jones’s

Humans are naturally social creatures who want to blend in with their surroundings. When people who seem to be in the same financial bracket as we are can seemingly afford another pair of designer shoes for each outfit, we should be able to afford them, too, right?

The obvious flaw in this line of thinking is that nobody knows what’s really going on at the Jones’s’ house. Maybe Mrs. Jones’ expensive taste in shoes has landed the family deeply in debt and they are in danger of losing their home. Maybe her Great Aunt Bertha passed and left her a six-digit inheritance. Maybe all of her Louboutin’s are cheap knockoffs she bought online for $23 each.

Break the cycle: Learn to keep your eyes on your own wallet and to ignore how your friends or peers choose to spend their money. Develop a self-image that is independent of material possessions. Adapt this meme as your tagline when you feel that urge to overspend as a means to fit in: Let the Jones’s keep up with me!

2. We don’t have a budget

A recent survey shows that 65% of Americans don’t know how they spent their money last month.

When all of our spending is just a guessing game, it can be challenging not to overspend. We can easily assure ourselves that we can afford another dinner out, a new top and a new pair of boots — until the truth hits and we realize we’ve overspent again.

Break the cycle: Create a monthly budget covering all your needs and some of your wants. If you’d rather not track every dollar, you can give yourself a general budget for all non-fixed expenses and then spend it as you please.

3. To get a high

Retail therapy is a real thing. Research shows that shopping and spending money releases feel-good dopamine in the brain, just like recreational drugs. David Sulzer, professor of neuro-biology at Columbia, explains that the neurotransmitter surges when people anticipate a reward — like a shopper anticipating a new purchase. And when we encounter an unforeseen benefit, like a discount, the dopamine really spikes!

“This chemical response is commonly called ‘shopper’s high,’” Sulzer says, likening it to the rush that can come with drinking or gambling.

This explains the addictive quality of shopping that can be hard to fight. When life gets stressful, or we just want to feel good, we hit the shops or start adding items to our virtual carts.

Break the cycle: There’s nothing wrong with spending money to feel good, so long as you don’t go overboard. It’s best to put some “just for fun” money into your budget so you can make that feel-good purchase when you need to without letting it put you into debt.

4. Misuse of credit

Credit cards offer incredible convenience and an easy way to track spending. But they also offer a gateway into deep debt. Research shows that consumers spend up to 18% more when they pay with plastic over cash.

Break the cycle: When shopping in places where you tend to overspend, use cash and you’ll be forced to stick to your budget. You can also use a debit card with a careful budget so you know how much you want to spend.

5. Lack of self-discipline

Sometimes, there’s no deep reason or poor money management behind our spending. Sometimes, we just can’t tell ourselves — or our children — “no.”

Scott Butler, a retirement income planner at the wealth management firm Klauenberg Retirement Solutions in Laurel, MD, explains that it takes tremendous willpower to say no to something we want now.

“One of the big reasons people overspend is that they don’t think ahead,” Butler says.

Too often, we allow our immediate needs to take precedence over more important needs that won’t be relevant for years — such as a retirement fund or our children’s college education. We simply lack the discipline to not exchange immediate gratification for long-term benefit.

Break the cycle: Define your long-term financial goals. Create a plan for reaching these goals with small and measurable steps. While working through your plan, assign an amount to save each month. Before giving in to an impulse purchase or an indulgence you can’t really afford, remind yourself of your long-term goals and how much longer your time-frame will need to be if you spend this money now.

Your Turn: What makes you overspend? Tell us about it in the comments.

Learn More:
thebalance.com
thedollarstretcher.com
hermoney.com
money.usnews.com
elle.com

When and Why to Take on Business Debt

by Advantage One, posted in Career, Credit, Loans, Tips & Best Practices

Taking on debt can be an inevitable step for many businesses. A loan or a line of credit can provide a struggling business with the cash it needs to expand or fund a new venture.

As with every financial move, thought, it’s best to consider all angles before going ahead with the decision. Here’s what you need to know about when and why it can make sense to take on business debt:

When is it a good idea to take on business debt?

Businesses can benefit from taking out loans or opening new lines of credit under these circumstances:

When seeking resources to help grow the business. It takes money to make money, and a small business loan can help business owners pay for an expansion when they don’t have the current resources to fund it on their own. The funds can be used to broaden the company’s line of products or services, pay for a move to a larger location, fund a marketing campaign or hire additional staff.

Before taking on debt for this purpose, it’s important for a business to first measure the anticipated return on investment (ROI) for the debt. The ROI for taking on new debt needs to exceed its post-tax interest costs for the debt to be profitable for the business. For example, if a business takes out a loan to pay for new equipment costing $10,000 that will enable it to sign a $20,000 contract, it needs to ensure that a loan won’t cost them more than $10,000 in interest and other fees. Otherwise, the business will not stand to gain from taking on new debt. The profit margin also needs to be generous enough for the venture to be worth the time and effort for the business. If the final gain is minimal, the business owner may be better off investing energy in another lower-cost endeavor.

When trying to build credit. Taking out a small loan or opening a new line of credit can be a great way to build a credit profile for a business and to strengthen its relationship with financial institutions. Small loans and lines of credit can help a business prove it is responsible and trustworthy for repaying debts. This will open the doors to larger loans that may be needed in the future.

When taking on debt for this reason, it’s important for a business to run the numbers and to be sure it can handle the monthly payments, even before the anticipated boost in revenue. If a company cannot meet its monthly payments, taking on new debt can wind up doing more harm than good to its credit.

Why is debt often a preferred source of funds?

Businesses in need of extra cash can choose from several options. Primarily, a business can decide to sell equity in its company or to take out a small business loan or open a new line of credit. Here’s why debt can be a preferred source of funds for businesses:

It has lower financing costs. Unlike equity, debt is limited. Once the loan is paid back, the business owner can forget it ever existed. On the flip side, selling equity in a company generally means forking over a part of the profit for as long as the business exists. (It’s important to note, though, that debt has fixed repayment costs as opposed to equity stakes, which are determined as a percentage of the company’s profit. This means a business owner will need to pay back debt regardless of the company’s success.)

It provides tax advantages. Business debt can decrease a company’s tax liability by lowering its equity base. As an added bonus, interest on business loans and lines of credit are usually tax-deductible.

It mitigates risk. Taking on debt to access funds, instead of selling equity, lowers the company’s risk in the event that the business does not succeed.

[If you’re ready to take out a business loan or to open a new line of credit for your business, we can help! Our business loans and the lines of credit feature favorable rates and easy terms. Call, click, or stop by Advantage One Credit Union today to secure the funds you need to grow your business.]

Your Turn: Tell us about your experience with getting a business loan or line of credit in the comments.

Learn More:
entrepreneur.com
montrealfinancial.ca
businessinsider.com