5 Steps to Take Before Making a Large Purchase

Have you been bitten by the gotta-have-it bug? It could be a Peloton bike that’s caught your eye, or maybe you want to spring for a new entertainment system, no matter the cost. Before you go ahead with the purchase, though, it’s a good idea to take a step back and follow the steps outlined here to be sure you’re making a decision you won’t ultimately regret.

Step 1: Wait it out

Often, a want can seem like a must-have, but that urgency fades when you wait it out. Take a break for a few days before finalizing a large purchase to see if you really want it that badly. For an extra-large purchase, you can wait a full week, or even a month. After some time has passed, you may find that you don’t want the must-have item after all.

Step 2: Consider your emotions

A bit of retail therapy every now and then is fine for most people, but draining your wallet every month to feed negative emotions is not. Before going ahead with your purchase, take a moment to identify the emotions driving the desire. Is this purchase being used as a means to fix a troubled relationship? Or to help gain acceptance among a group of friends, neighbors or workmates? Or maybe you’re going through a hard time and you’re using this purchase to help numb the pain or to fill a void in your life. Be honest with yourself and take note of what’s really driving you to make this purchase. Is it really in your best interest?

Step 3: Review your upcoming expenses 

What large expenses are you anticipating in the near future? Even if you have the cash in your account to cover this purchase, you may soon need that money for an upcoming expense. Will you need to make a costly car repair? Do you have a major household appliance that will need to be replaced within the next few months? By taking your future financial needs into account, you’ll avoid spending money today that you’ll need tomorrow.

Step 4: Find the cheapest source 

If you’ve decided you do want to go ahead with the purchase, there are still ways to save money. In today’s online world of commerce, comparison shopping is as easy as a few clicks. You can use apps like ShopSavvy and BuyVia to help you find the retailer selling the item at the best price.

Step 5: Choose your payment method carefully

Once you’ve chosen your retailer and the item you’d like to purchase, you’re ready to go ahead and make it yours! Before taking this final step, though, you’ll need to decide on a method of payment.

If you’ve saved up for this item and you have the funds on-hand for it now, you can pay up in cash or by using a debit card. This payment method is generally the easiest, and if it’s pre-planned, it will have little effect on your overall budget.

If you can’t pay for the item in full right now, consider using a credit card with a low interest rate. Most credit card payments have the added benefit of purchase protection, which can be beneficial when buying large items that don’t turn out to be as expected. Before swiping your credit card, though, be sure you can meet your monthly payments or you’ll risk damaging your credit score.

Another option to consider is paying for your purchase through a buy now, pay later program. Apps, like Afterpay, allow you to pay 25% of your purchase today, and the rest in fixed installments over the next few months. This approach, too, should only be chosen if you are certain you can meet the future payments.

Large purchases are a part of life, but they’re not always necessary or in the buyer’s best interest. Follow these steps before you finalize an expensive purchase.

Your Turn: What steps do you take before finalizing a large purchase? Tell us about it in the comments.

Learn More:
thesimpledollar.com
thebalance.com
fool.com
moneywise.com

All You Need to Know About HELOCs

If you’re a homeowner in need of a bundle of cash, look no further than your own home. By tapping into your home’s equity, you’re eligible for a loan with a, generally, lower interest rate and easier eligibility requirements. One way to do this is by opening up a home equity line of credit, or a HELOC. Let’s take a closer look at HELOCs and why they can be an excellent option for cash-strapped homeowners. 

What is a HELOC?

A HELOC is a revolving credit line that allows homeowners to borrow money against the equity of their home, as needed. The HELOC is like a second mortgage on a home; if the borrower owns the entire home, the HELOC is a primary mortgage. Since it is backed by a valuable asset (the borrower’s home), the HELOC is secured debt and will generally have a lower interest rate than unsecured debt, like credit cards. You will need to pay closing costs for the line of credit, which are generally equal to 2-5% of the total value of the loan.

How much money can I borrow through a HELOC?

The amount of money you can take out through a HELOC will depend on your home’s total value, the percentage of that value the lender allows you to borrow against and how much you currently owe on your home. 

Many lenders will only offer homeowners a HELOC that allows the borrower to maintain a loan-to-value (LTV) ratio of 80% or lower. 

A quick way to find a good estimate of the maximum amount you can borrow with a HELOC is to multiply your home’s value by the highest LTV the lender allows. For example, continuing with the above example, if your home is valued at $250,000 and your lender allows you to borrow up to 80% of your home’s value, multiply 250,000 by 0.80. This will give you $200,000. Subtract the amount you still owe on your mortgage (let’s assume $100,000) and you’ll have the maximum amount you can borrow using a HELOC: $100,000. 

Is every homeowner eligible for a HELOC?

Like every loan and line of credit, HELOCs have eligibility requirements. Exact criteria will vary, but most lenders will only approve the line of credit for homeowners who have a debt-to-income ratio of 40% or less, a credit score of 620 or higher and a home with an appraised value that is at minimum 15% more than what is owed on the home. 

How does a HELOC work?

A HELOC works similarly to a credit card. Once you’ve been approved, you can borrow as much or as little as needed, and whenever you’d like during a period of time known as the draw period. The draw period generally lasts five to 10 years. Once the draw period ends, the borrower has the choice to begin repaying the loan, or to refinance to a new loan. 

How do I repay my HELOC?

The repayment schedule for a HELOC can take one of three forms:  

Some lenders allow borrowers to make payments toward the interest of the loan during the draw period. When the draw period ends, the borrower will make monthly payments toward the principal of the loan in addition to the interest payments. 

For many borrowers, though, repayment only begins when the draw period ends. At this point, the HELOC generally enters its repayment phase, which can last up to 20 years. During the repayment phase, the homeowner will make monthly payments toward the lHELOC’s interest and principal. 

In lieu of an extended repayment phase, some lenders require homeowners to repay the entire balance in one lump sum when the draw period ends. This is also known as a balloon payment. 

How can I use the funds in my HELOC?

There are no restrictions on how you use the money in your HELOC. However, it’s generally not a good idea to use a HELOC to fund a vacation, pay off credit card debt or to help you make a large purchase. If you default on your repayments, you risk losing your home, so it’s best to use a HELOC to pay for something that has lasting value, such as a home improvement project. 

How is a home equity line of credit different from a home equity loan?

A home equity loan is a loan in which the borrower uses the equity of their home as collateral. Like a HELOC, the homeowner risks losing their home if they default on it. Here, too, the exact amount the homeowner can borrow will depend on their LTV ratio, credit score and debt-to-income ratio.

However, there are several important distinctions between the two. Primarily, in a home equity loan, the borrower receives all the funds in one lump sum. A HELOC, on the other hand, offers more freedom and flexibility as the borrower can take out funds, as needed, throughout the draw period. Repayment for home equity loans also works differently; the borrower will make steady monthly payments toward the loan’s interest and principal over the fixed term of the loan. 

A home equity loan can be the right choice for borrowers who know exactly how much they need to borrow and would prefer to receive the funds up front. Budgeting for repayments is also simpler and can be easier on the wallet since they are spread over the entire loan term. Some borrowers, however, would rather have the flexibility of a HELOC. They may also anticipate being in a better financial place when the repayment phase begins, so they don’t mind the uneven payments. 

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

Learn More:
creditkarma.com
marketwatch.com
thepennyhoarder.com
investopedia.com

How Do I Read the Fine Print on My Credit Card Paperwork?

Q: Paperwork from credit card companies always seems to be filled with tiny print that’s hard to read and even harder to understand. How do I read the fine print from my credit card issuer?

A: Fine print is designed to keep you from paying attention, but it often contains important information you can’t afford to miss. Here’s what you need to know about reading and understanding the fine print on credit card applications and billing statements.

What do all those terms mean, anyway?

First, let’s take a look at 12 basic credit card terms that are important to know but are often misunderstood:

  • Accrued interest – The amount of interest incurred on a credit card balance as of a specific date.
  • Annual Percentage Rate (APR) – The rate of interest that is paid on a carried credit card balance each year. The amount of interest charged each month will vary according to the current balance. This number can be determined by dividing the current APR by 12 to get the monthly APR rate, and then multiplying that number by the current balance.
  • Annual fee – The yearly fee a financial institution or credit card company charges the consumer for having the card.
  • Balance – The amount of money owed on the credit card bill.
  • Billing cycle – The amount of time between the last statement closing date and the next.
  • Calculation method – The formula used to calculate the balance. The most common is the daily balance method, where charges are calculated by multiplying the day’s balance by the daily rate, or by 1/365th of the APR.
  • Cash advance – Money withdrawn from a credit card account. Cash advances usually have strict limits, higher interest rates and fees.
  • Credit limit – Also known as a line of credit, this refers to the maximum amount of money that can be charged to your credit card.
  • Default rate – Also called the penalty rate, this refers to an especially high rate of interest that kicks in if the consumer is late in making monthly payments and/or has violated the terms and conditions of the card.
  • Grace period – The time between making a purchase and being charged interest on that purchase.
  • Late payment notice and fee – These will alert the consumer to a missed payment and its associated fee.
  • Minimum payment – The smallest amount of money the consumer can pay each month to keep the account current.

What’s the big deal about all the small print on my credit card application?

Don’t sign on the dotted line (or digital signature pad) just yet! Those microscopic letters on your credit card application actually contain important information. Here are some common claims you might find on an application and what the small print below these claims actually says:

Claim: Sign-up bonus: $950!

Fine print: Must spend $3,000 on the card within the first three months of ownership. Redeemable only at participating airlines.

Claim: Interest-free offer!

Fine print: Expires after 18 months, the same time a 22.5% interest rate kicks in.

Claim: 0% balance transfer!

Fine print: With a $300 balance transfer fee.

Claim: 5% cash back on grocery spending!

Fine print: Capped at $1,000 per quarter and only at participating grocery stores.

Claim: Cash advance of up to $1,500!

Fine print: With 20% interest and a $200 cash-advance fee.

Claim: Generous 25-day grace period!

Fine print: We reserve the right to shorten the grace period at any time.

How do I find the fine print on my credit card application or statement? 

Read the fine print before you sign up for a credit card offer. You can find this information on the credit card’s paper or digital application under a label marked “Pricing and Terms” or “Terms and Conditions.” You can also find this information when researching credit cards online; look for it under the “Apply Now” button where it may be labeled as described above, or as “Interest Rates and Fees” or “Offer Details.”

If you’ve already signed up for the card, you’ll find these conditions on the “Card member Agreement” that generally accompanies a new credit card. The text will be lengthy, but will likely be divided into sections, including a pricing schedule, relevant fees and payment details.

Your credit card statements will also have lots of fine print, though most of it will be on the back of the bill. This information will include all the information from your application, as well as some additional information, including reports to credit bureaus, how your interest rate on the balance is calculated, how you can avoid paying interest on your purchases and how to dispute fraudulent charges on your bill.

You can find the small print on your credit card applications and statements by looking for an asterisk (*) or dagger (†), which indicates small-type footnotes at the end of the page or document.

Do I need to read all the fine print? 

Fine print will appear all over your credit card paperwork, but it’s best to pay attention to the tiny letters near the points you most care about. For example, be sure to read up on the information given on all special promotions, introductory offers, bonuses, rewards and more. In general, you’ll find this rule to be true: “The large print giveth, and the small print taketh away.” In modern English, this means that the large print is designed to grab your attention and make you sign up for the card immediately, while the small print contains all the qualifiers, exclusions, justifications for future cancellations and more, about these claims.

Fine print written in financial jargon can be difficult to spot and to understand, but ignoring the small words on your credit card paperwork can have disastrous consequences. Let our guide help you learn how to read the fine print on your credit card applications and statements. Don’t let anything get past you!

Your Turn: Have you ever regretted missing the fine print on your credit card paperwork? Tell us about it in the comments.

Learn More:
fool.com
cardratings.com
nerdwallet.com
experian.com
cnbc.com

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

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

What You Didn’t Know About Home Loans

A home loan, otherwise known as a mortgage, enables you to purchase a house without paying the full price out of pocket at the time of the purchase.

For most people, buying a home is the biggest financial transaction of their lifetime. For that reason, if you’re in the market for a new home, it’s best to learn all you can about home loans and how they work before you get too deep into the process.

Here are some things you may not know about home loans:

Rates fluctuate daily

Borrowers who are eager to secure a home loan with a low interest rate may get into the habit of checking mortgage rates as often as some people check the weather. Interest rates fluctuate every day, which means the rate you see today may be different than the one you see when you actually are approved for the loan.

The cheapest interest rate does not guarantee the cheapest loan

When choosing a lender, borrowers will often choose the one offering the lowest interest rate, but this can actually be to their detriment. There are other factors to consider, including closing costs and the lender’s policy on releasing equity for a line of credit or a loan. Also, in adjustable-rate mortgages (ARM), the loan featuring the lowest interest rate may not have the lowest rate a few years down the line and may actually cost more in the long run.

A fixed-interest rate mortgage can ultimately cost you more

When interest rates are low, many home-buyers choose a mortgage with an interest rate that is fixed throughout the life of the loan, believing it is the most cost-effective choice. This may or may not be correct. A fixed-rate mortgage might comes with higher exit fees, or fees paid to the lender when the loan is repaid. Also, if rates drop further throughout your loan’s term, you won’t be able to take advantage of the new rates unless you refinance. Finally, interest rates on fixed-term mortgages are generally higher than the initial rate on ARMs.

A lower credit score can cost you tens of thousands of dollars in interest

Most people know that a higher credit score is generally awarded with a lower interest rate, but not many people know to what extent this is true. A high credit score can translate into tens of thousands of dollars in interest payments over the life of a home loan. A credit score difference of 100 points can increase a monthly mortgage payment by $150 or more, depending on the size of the loan and the interest rate.

If you’re thinking of applying for a home loan soon and your credit isn’t in the “very good” category (higher than 740), it may be worthwhile to spend a few months working to boost your score before you apply for a mortgage.

The housing market impacts rates

While the federal funds rate will have the greatest impact on the rise and fall of interest rates, the state of the housing market will affect it, too.  Lenders need to turn a profit from their loans, which means the higher the volume of loans they process, the less they need to earn from each one to remain profitable. Consequently, when the housing market is booming and lenders are granting loans on a frequent basis, they will be more inclined to offer lower interest rates to borrowers.

You can have your mortgage payments automated

Your home loan payments will likely be your largest monthly bill, and missing a payment or paying it late can have serious consequences. Fortunately, you can avoid these scenarios by signing up to have your monthly mortgage payments automatically deducted from your checking account. Most lenders provide this service; check with yours to see if this is an option they offer.

Buying a home will likely be the biggest purchase you ever make. Be sure to find out all there is to know about mortgages and their interest rates before applying for a home loan.

Your Turn: Do you have another lesser-known fact about home loans to share? Tell us about it in the comments.

Learn More:
kloze.com
wyndhamcapital.com
binvested.com
bankrate.com

What Do I Need to Know About Today’s Real Estate Market?

Q: The news from the real estate market can be confusing. What do I need to know as a buyer, a seller, or just an American citizen, about today’s real estate market?

A: Trends and stats in real estate are constantly changing, especially during the unstable economy of COVID-19. Here’s all you need to know about the real estate market today.

Is it a buyer’s market right now? 

Actually, pickings are slim for home-buyers right now, giving sellers the upper hand and driving up prices for buyers. According to the National Association of Realtors (NAR), inventory was down nearly 20% in October 2020 compared to October 2019.

Low supply also means homes are on the market for a shorter period of time than what would be likely in other years. According to the NAR, in October 2020, more than seven out of every 10 homes sold were on the market for less than a month. This means buyers don’t have the leisure of lingering over their decisions and may find themselves getting caught in heated bidding wars.

If you’re currently in the market for a new home, it’s best to be prepared to change some of the items on your list of must-haves into nice-to-haves. You may also want to expand your search to include other neighborhoods or home types than you originally planned. And of course, don’t forget to have your mortgage pre-approval in hand before beginning your search. This will give you a leg up on bidding wars and show sellers you’re serious about buying.

What does low inventory mean for sellers?

An uneven balance of supply and demand that favors sellers means homeowners who are looking to sell will have more offers than anticipated. They may be able to choose the best offer for their home — perhaps even at a price that is higher than expected as well.

If you’re selling your home right now and have plans to purchase another, remember that the things making it easier for you to sell your home in this market will also work against you when you purchase a new one. Prepare for prices that may be above market value and a pressured buying environment.

Is home equity up? 

According to the NAR, home prices have swelled to a national median of over $300,000, with October 2020 marking 100 consecutive months of year-over-year price gains. CoreLogic’s 2020 3rd Quarter Homeowner Equity Insights report shows that the average U.S. household with a mortgage now has $194,000 in home equity. These factors make it a great time to sell a home.

If you’re selling your home, it’s a good idea to work with an experienced agent to ensure you get the best possible offer for your home.

If you’re planning to buy a home in this market of increasing home prices, make sure to work out the numbers and to determine how much house you can afford before starting your search.

If possible, consider choosing a 15-year fixed-rate conventional mortgage, which will give you the lowest overall price on your home.

Are interest rates still low? 

Interest rates reached record lows in 2020 and economists are predicting low rates continuing through 2021.

For buyers, this helps make homes more affordable. However, it’s important not to let a low interest rate make you think you can afford a home containing a price tag that is really out of your affordability. As mentioned, be sure to run through the numbers and determine how much house you can really afford before you start looking at houses.

How is the home-buying process different right now? 

Many parts of the home-buying process are now being done virtually due to COVID-19 restrictions. Some sellers are only offering virtual tours to only very serious buyers. Other parts of the process, like the attorney review and the actual closing, may be done completely virtually using remote online notarization and electronic signature apps.

What do I need to know about the real estate market if I don’t plan to buy or sell a home this year?

According to Freddie Mac, equity will likely continue to rise in 2021. But it will be at a more controlled pace. You may want to monitor how much your home is worth this year since you may change your mind about selling before the year is up.

Similarly, if you’re a homeowner with no plans to move, this can be a great time to tap into your home’s equity with a home equity loan or line of credit from Advantage One Credit Union. Contact us at 734-676-7000 or shoot us a line at news@myaocu.com to find out more.

Your Turn: Have you bought or sold a home recently? Share your best tips with us in the comments.

Learn More:
daveramsey.com
rockethomes.com
keepingcurrentmatters.com

All You Need to Know About Checking Accounts

The most obvious things in life are often overlooked, and your checking account is just one of them. Most people hardly give a thought to this important account and how to best manage it effectively. We’re here to change that.

Here’s all you need to know about checking accounts:

What is a checking account? 

Your checking account at Advantage One Credit Union offers easy and convenient access to your funds. The minimum balance required for opening a checking account can be as low as $25. Like most financial institutions, we also allow an unlimited number of monthly withdrawals and deposits.

Checking accounts are designed to be used for everyday expenses. You can access the funds in your account via debit card, paper check, ATM or in-branch withdrawals, online transfer or through online bill payment.

Making transactions using the connected debit card, or through a linked online account, will automatically use the available balance in your account and lower the balance appropriately.

A paper check is also linked directly to your account, but will generally take up to two business days to clear. It’s important to ensure there are enough funds in your account to cover a purchase before paying with a check.

Maintenance fees 

Many banks charge a monthly maintenance fee for checking accounts.

According to Bankrate’s most recent survey on checking accounts, only 38% of banks now offer free checking, compared with 79% in 2009. Monthly fees can be as high as $25 a month.

Interest rates

Most checking accounts offer a very low Annual Percentage Yield (APY) on deposited funds, or none at all. Institutions that offer checking accounts with interest or dividends will generally charge a monthly fee, with the fee being higher for accounts that have higher rates. They also generally require a minimum balance in the account at all times or a minimum number of monthly debit card transactions. According to Bankrate’s survey, you’ll need to keep an average of $7,550 in an interest-yielding checking account at a bank to avoid a steep maintenance fee.

Security

Funds that are kept in a checking account at a bank are federally insured by the FDIC for up to $250,000. Credit unions feature similar protection for your funds, with all federal credit unions offering government protection through the National Credit Union Association. State and private credit unions may be insured by the NCUA as well, or through their own state or private insurance. Advantage One Credit Union is insured by the NCUA to offer you full and complete protection for your funds.

Managing your checking account 

Managing a checking account is as simple as 1-2-3:

1 – Know your balance

It’s important to know how much is in your account at all times. This way, you can avoid an overdrawn account, or having insufficient funds to cover your purchases. Being aware of how much money you have will also help you stick to a budget and spend within your means. You can generally check your balance by phone [or via online checking or a synced budgeting app].

2 – Automate your finances

Make life a little easier by setting up automatic bill payment through your checking account. You won’t miss the hassle of paying your monthly bills, and you’ll never be late for a payment again. As a bonus, you’ll save on the processing fee that is often charged on bill payments made via credit card.

You can also set up direct deposit to have your paycheck land right in your account.

Finally, ask us about automatic monthly transfers from your checking account to savings so you never forget to put money into savings.

[You may also want to consider signing up for overdraft protection, or to have funds transfer from your linked savings account to checking when your balance is getting low.]

3 – Keep your account well-funded, but not over-funded

Financial experts recommend keeping one to two months’ worth of living expenses in your checking account at all times. This way, you’ll always have enough funds to cover your transactions without fear of your account being overdrawn. You’ll also be able to cover the occasional pre-authorization hold that a merchant may place on your debit card transaction until it clears.

It’s equally important not to keep too much money in your checking account. Once you’ve reached that sweet spot of two months of living expenses, it’s best to keep your savings in an account or an investment that offers a higher APY, such as a money market account or a share certificate.

Checking accounts offer the ultimate in convenience and accessibility. Now that you’ve learned all about these often overlooked accounts, let this financial tool help you manage your finances in the most effective way possible.

Your Turn: How do you manage your checking account effectively? Share your best tips with us in the comments.

Learn More:
investopedia.com
discover.com
bankrate.com
thebalance.com
kiplinger.com

When Does it Make Sense to Pay a Bill with a Credit Card?

Credit cards and debit cards both offer incredible convenience. With just a quick swipe or a linked account, a payment can be instantly processed. It seems like a no-brainer to use that convenience for taking the hassle out of paying bills. But, is it a smart idea to pay monthly bills with a credit card or debit card?

Choosing to pay a bill with a card can have a significant impact on your general financial wellness — for better or for worse. That’s why it’s important to consider the many variables of this decision before going ahead with it.

Let’s take a closer look at the pros and cons of paying monthly bills with a credit card or debit card.

The advantages of paying bills with a credit card or debit card

There are many reasons you may want to pay your monthly bills with a credit or debit card when possible. Here are just a few of the advantages of paying with plastic:

  • Automate monthly payments. Setting up automatic payments for monthly bills through a credit card or debit card will help ensure payments are always on time.
  • Build credit with a consistent monthly payment. Using a credit card for a monthly bill is a great way to amp up a credit score without running the risk of overspending. Just be sure to pay the bill in full and on time every time.
  • Earn rewards for money that needs to be spent anyway. Using a credit card that offers rewards for a bill that needs to be paid anyway will help to pile on those rewards points without overspending. Many debit and/or credit card issuers, [including Advantage One Credit Union’s [debit/credit] card], also offer attractive rewards for using the card to pay for specific expenses, including some monthly bills.
  • Enjoy consumer protection. Paying with plastic offers the consumer the advantages of purchase protection, zero or minimal liability in case of fraud, guaranteed returns and more.
  • Pay your bills quickly without the hassle of writing out checks and using snail mail. With a credit or debit card, paying a bill only takes a few clicks or phone prompts.
  • Budget easily. Paying with a credit or debit card makes for easy tracking of monthly spending.
  • Payments post promptly. Bill payments made via credit or debit card will generally post within one or two business days. Contrast that with a check that needs to be mailed out, delivered to the correct party and then deposited and cleared until the payment is finally processed.

The disadvantages of paying bills with credit or debit cards

Here’s the flip side of paying bills with plastic:

  • There may be fees for paying the bill with a credit card. Pay close attention to the payment options on every bill; some service providers charge a processing fee for paying with a debit or credit card.
  • It can make a difficult financial situation worse. For consumers who are already carrying a sizable amount of debt, it may not be the best idea to charge a monthly bill to a credit card. Similarly, it isn’t responsible to set up an automatic monthly payment through a debit card that is linked to an account that may not have enough money to cover the charge each month.
  • Credit utilization may cross the threshold to an undesirable rate. One of the key components of an excellent credit score is a low credit utilization rate. For consumers with a minimal amount of available credit, charging too many bills to a credit card can cause their score to plunge.
  • Interest may accrue. Consumers who cannot pay their entire credit card bill each month would be saddled with more accrued interest than they can afford if they choose to pay their monthly bills with a credit card.

Which of my bills can I pay with a credit or debit card?

You will likely not be able to pay the following monthly bills with a credit or debit card:

  • Mortgage
  • Rent
  • Car payments

These monthly bills can usually be paid with a credit card, but you may need to pay a fee to do so:

  • Car insurance
  • Home insurance
  • Health insurance
  • Taxes

The following monthly bills usually allow you to pay with a credit card or debit card, and without a fee:

  • Subscription services
  • Phone bills
  • Utility bills
  • Internet providers
  • Cable providers

Before deciding whether to pay a specific bill with a credit or debit card, it’s best to check with your provider to find out if this is a viable option and if there will be a fee attached for paying with plastic.

The bottom line

Sometimes, paying bills with a credit card or debit card makes perfect financial sense, but it sometimes does not. Before deciding which way to go on any particular bill, consider all the relevant factors detailed above to be sure you’re making the responsible choice.

Your Turn: Do you pay any of your monthly bills with a credit card or debit card? Tell us about it in the comments.

Learn More:
thesimpledollar.com
thebalance.com
creditkarma.com

Rising Interest Rates

Report showing rising interest rate dataInterest rates have been steadily increasing over the last year. So, if you’re thinking of taking out a large loan in the near future, you might be waiting until those rates start going down again.

Here’s why that might not be the best idea.

Interest rates will continue to rise
Experts predict interest rates on financial products will continue increasing throughout the year. It’s not looking great for those who are taking out a short-term loan, either. Experts claim 2018 will see three interest rate hikes, each being 0.25%. If you need to borrow money, it’s best to do it sooner rather than later.

The inflation factor
Unemployment rates are down, but wage growth continues to crawl at an almost nonexistent pace. This, in turn, leads to limited price growth, which keeps the inflation rate stagnant. However, the feds are expecting wage growth to finally kick off in 2018, setting into motion an uptick in inflation and price growth.

The government wants to stay ahead of any surge in inflation. They do so by increasing their interest rates even before there is clear evidence of an inflation peak.

Financial institutions and credit card companies pattern their own interest rates after the government’s rate. Therefore, it’s best to work on aggressively paying down outstanding debt you have before you’re hit with increased interest rates.

Government deficits
Long-term interest rates have been rising since December. This is largely due to the growing government deficit that’s linked to recent tax cuts. The pending two-year budget plan will put the government even deeper into the red, likely causing those rates to climb even higher.

Mortgages
Mortgage interest rates are now at an all-time high; they are currently close to 4.6% and are up more than .20% from a year ago.

For the most part, mortgage rates are linked to bond yields. When bond yields rise, so do mortgage rates. The recent tax overhaul caused investors to favor stocks over bonds, and consequently, mortgage rates have been climbing since September.

Some experts are predicting a turnaround for mortgages in 2018, with the rates possibly dipping below 4% sometime this year. However, all agree that by year’s end, the mortgage rate will settle at 4.5%.

No one can be certain of anything, though, and waiting until the rates drop might prove to be pointless. In fact, you might even end up paying a higher rate for that delay.

The good news
Experts predict a great year for returns on savings, especially CDs. Some claim an average one-year CD will yield a 0.7% return by the end of 2018. So, if you’ve been thinking about opening a share certificate or other savings options, talk with [credit union] to get started.

Volatile economy got you stressed? Call, click or stop by the credit union. We’ll guide you through any financial turn!

Your Turn:
What steps are you taking in the current financial climate? Tell us all about it in the comments!

SOURCES:

https://www.kiplinger.com/article/business/T019-C000-S010-interest-rate-forecast.html

https://www.google.com/amp/s/www.bankrate.com/finance/mortgages/interest-rates-forecast.aspx/amp/

https://www.google.com/amp/s/www.bankrate.com/mortgages/analysis/amp/