5 Car-Buying Tips From My Days as an Undercover Salesman

Some years ago, I became an undercover car salesman at two different dealerships in Southern California, as part of an investigative series for an automotive website. What I learned surprised and scared me, as I described in the resulting article, “Confessions of a Car Salesman.”

Selling cars turned out to be the perfect training for my current job as a consumer advocate and autos editor for NerdWallet. While I posed as a “green pea” — the nickname for a beginner car salesperson — the sales managers freely revealed their secrets to me so that I would move the metal and, in turn, make money for them.

Here are just a few of the things I learned and how you can safely navigate the car-buying process.

1. Test-drive your car salesperson

Believe it or not, I felt sympathy for many of the salespeople I worked with. They face long hours, hostility from customers and constant pressure from managers who watch from “the tower,” a raised platform overlooking the car lot. Later, as I used my insider knowledge to buy more than 100 cars for an automotive website, I met many honest, intelligent, helpful car salespeople. But the work of these “good apples” was often spoiled by a rotten batch of uninformed sales stereotypes — not to mention some manipulative and even underhanded dealership managers.

I like to tell people that they should test-drive car salespeople before they test-drive the car. Here are a few things to ask yourself: Are they informed about the cars they are selling? Do they listen well and respond to your questions? Will you feel comfortable negotiating with them?

2. Check the ‘book’ value

It takes only a minute to look up the current market value of a car — and yet many shoppers wander onto the car lot without any idea of what they should pay. This one little data point would provide an amazing amount of protection. But as an undercover car salesman, I had to stand by and watch trusting, ordinary buyers overpay for their new cars.

So take a moment and check a pricing guide such as Edmunds or Kelley Blue Book for the current market value of the car you want. Bring this information with you, or download a pricing app to check prices on the fly.

3. Don’t be a monthly-payment buyer

“What kind of monthly payment are you folks looking for?” This helpful-sounding question is the favorite trick of car salespeople everywhere. And if you answer, it can be a financial disaster for you. While it sounds like the salesperson is concerned about your budget, it’s the opening gambit for a tactic called “packing payments.” If the dealer can get you to negotiate a monthly payment rather than the purchase price of the car, it’s easy to add in — or “pack” — extras and make you overpay.

Getting a preapproved car loan and telling the salesperson you are a “cash buyer” is an easy way to deflect this trick.

4. Be ready to walk

You could walk into a dealership and have the same high-pressure experience your father had when he bought cars decades ago. Or you could have a mellow, enjoyable shopping experience where you get a fair deal. There’s such a wide range of sales styles and dealerships.

I worked at a “turnover house,” meaning that if one salesperson wasn’t making progress with a customer, the customer was turned over to a different salesperson. If that didn’t work, they brought in a “closer” —  an overbearing, manipulative bully who was determined to make a deal at any cost.

If you see these warning signs, if you get a bad vibe, if you don’t like your salesperson, beat a hasty retreat — instead of going to war, go to another dealership. For example, the second dealership I worked at was very relaxed and didn’t use closers. But high-pressure or relaxed, whichever type of car lot you find yourself on, never take anything at face value.

5. Beware the finance manager

While the salesperson negotiates the price of the car and pretends to be your best friend, the real damage is done after the customer is handed off to the finance and insurance manager. Also called the “F&I guy,” this salesperson assumes the air of a financial advisor, sort of like a friendly banker. But he or she is really there to build even more profit into the deal by inflating the interest rate on your loan and selling you extra products such as extended warranties and anti-theft devices.

Before you go to the dealership, spend a few minutes being your own finance manager by using an auto loan calculator to set up your own deal. Bring these figures with you to the dealership and get the dealer to match or beat them.


The article 5 Car-Buying Tips From My Days as an Undercover Salesman originally appeared on NerdWallet.

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8 Things That Won’t Hurt (Whew!) Your Credit

Pay a credit card a month late, and you can count on it hurting your credit score. But there are some murkier areas you may wonder about: What happens if I marry someone whose credit is a lot worse than mine? Could my library fine from five years ago keep me from getting approved for a car loan? Does getting turned down for credit hurt my score?

We asked experts at the two biggest credit scoring companies to share what consumers mistakenly think can hurt their credit scores. Here’s what Tommy Lee, principal scientist at FICO, and Jeff Richardson, head of marketing and communications at VantageScore, had to say about:

1. Checking your own credit

Lee and Richardson say people worry that checking their own credit score will lower it. It won’t.

If someone checks your credit because you applied for a loan or credit card, it’s called a “hard inquiry.” Those can shave a few points off your score, but the impact disappears after six months. When you check your own credit, that’s a “soft inquiry,” which doesn’t hurt your score. You’ll see both types listed on your credit reports.

Some research suggests a link between monitoring your score and improving it, so feel free to check. It’s good credit hygiene.

2. Getting married

You may share pots and pans, but you don’t share credit. “Each of you has your own distinct credit report, with only those credit obligations you were signed up for included in that report,” Lee says. For better or worse, credit records remain separate when you marry. Your marital status and your spouse’s credit standing don’t affect your credit score.

3. Bouncing a check

Fees for overdrawing your account are bad enough. You don’t have to worry about a bounced check damaging your credit score as well. That’s because bank account information isn’t in your credit report. Your credit score is calculated from the information in your credit reports. If something isn’t in your credit reports, it can’t affect your score.

4. Library or traffic fines

It used to be that if these fines were turned over to a collections agency, the agency could report it to the credit bureaus, Equifax, Experian and TransUnion. A collection action hurts credit scores, and many people learned of forgotten fines via a large drop in their credit scores. As part of a 2015 agreement between the three credit bureaus and the New York attorney general, credit reports no longer include debts that didn’t come from a contract or an agreement to pay. That means jaywalking or a long-forgotten library book won’t hurt your credit.

5. Paying a utility bill late

Paying a credit card bill 30 days past the due date will likely put a big bruise on your credit because most card issuers report to the credit bureaus. Utility payments, however, aren’t routinely reported. A late payment could leave you without service but credit trouble isn’t likely if you eventually pay.

“If you do not pay for a lengthy period of time, those accounts go to a third-party collection agency who do report it to the credit bureaus,” Richardson says.

6. Being denied credit

Your credit score might dip a bit, but only because your credit was checked when you applied, and that happens whether your application is approved or denied. A hard credit pull — the kind that happens when you apply for credit — can shave a few points off your score, but a credit denial won’t be on your credit report and won’t affect it.

7. Paying your credit card bill in full

There’s a persistent myth that carrying a small balance on your credit card is better for your credit than paying your full balance every month.

The portion of your credit limit that you use — called “credit utilization” — does affect your credit score. But there is no benefit in paying less than 100% of your statement balance — and paying the bill in full is best for your credit.

8. Losing your job

Losing an income source can certainly make it tougher to pay your bills, but your income doesn’t directly affect your score.

It can, however, make it harder to obtain new credit, Lee says. “Lenders may look at many factors not found in your credit report when making a credit decision, such as your income, how long you have worked at your present job and the kind of credit you are requesting.”

Even more important than knowing what won’t harm your credit is knowing what will help you build credit:

  • Pay all bills on time; payment history has the biggest effect on credit scores.
  • Use no more than 30% of your credit limits; credit utilization has the second-biggest impact.
  • Monitor your credit reports and dispute any score-lowering errors.


The article 8 Things That Won’t Hurt (Whew!) Your Credit originally appeared on NerdWallet.

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How I Ditched Debt: Small Wins Help Achieve a Big Dream

Bernadette Joy and AJ Maulion

How much: $309,800 in 3 years

Bernadette Joy Maulion, 34, went to business school part time after a career in human resources, hoping to start a new chapter in her professional life. School wasn’t cheap, and she took out $72,000 in student loans.

She and husband AJ, 37, had a $57,000 mortgage on the first house they’d bought in Charlotte, North Carolina, and were using it as a rental. They also had a $180,800 mortgage on a second home they’d bought after becoming inspired by Chip and Joanna Gaines from HGTV’s “Fixer Upper.”

While in business school, Bernadette Joy had an idea for her own company, a local version of online clothing store Rent the Runway. She got the business off the ground with AJ’s help but quickly realized that debt was standing in the way of her entrepreneurial future. The Maulions knew it was time to face their debt.

They set out to pay off the student loans — selling things, taking on part-time jobs and adding a roommate while living mainly off of AJ’s salary as a project manager. Motivated by their success, they also paid off the rental home, then later sold it and put the proceeds toward paying down their primary mortgage.

Now, Bernadette Joy runs her business full time without debt. She connected with NerdWallet to share the highs and lows of her experience, which may inspire your own journey to pay off debt. 

How much debt did you have starting out?

Bernadette Joy: We had approximately $72,000 in student loans, $57,000 left to pay on the rental property and $180,800 on our primary home. Our salaries at the time were $91,000 for AJ as a project manager and $30,000 for me as an executive recruiter. AJ was eligible for annual bonuses and I was eligible for commissions.

(Note: The Maulions paid off the rental property in 2017 and sold it in 2019 for $153,000, using the proceeds to pay down their remaining mortgage.)

What triggered your decision to get out of debt?

BJ: We thought the business had great potential, and I was itching to quit my day job. I looked at my student loans my last semester of my program in January 2016, and I was completely overwhelmed. The only thing keeping me in my day job was the debt. After much crying and stress, we decided that if we could pay off the student loans it would make us feel comfortable enough for me to quit.

What strategies did you use to pay off debt?

BJ: We started with the student loans using the debt snowball method. We paid off the series of loans from smallest to largest [by amount owed]. The snowball method spoke to me specifically because I am the type of person [who] likes to see things checked off my list.

From a budgeting standpoint, being able to reduce the amount of variability in your expenses is important. It made more sense to mentally allocate AJ’s salary because it was consistent. We started living off of his income. Anything I made was like icing on the cake.

We halted any unnecessary expenses, including vacations, professional development, and I also chose to grow the business more slowly to keep it debt-free.

AJ: We put a hold on my 401(k) contributions for a year until we paid off the student loans. We really wanted to focus and put our resources into the debt. We thought it through and said once we are done with this debt, we can contribute the maximum amount. [Editor’s note: NerdWallet recommends saving for retirement even while paying off debt, to allow time for your money to grow.]

How else did you free up money for debt paydown?

BJ: My car was on a lease, AJ’s 2009 Kia Spectra was fully paid off. We got rid of the leased car, and that saved us a couple hundred bucks a month. I kind of went crazy and sold everything; we had a yard sale. AJ’s younger brother was our roommate from 2016 until April of this year. He paid us rent.

AJ: I would drive for Uber on the way home from work. I pretty much did that for six months. I was also an extra on TV shows, like “Banshee” on Cinemax and “Shots Fired” on Fox.

We also cut down on eating out and bought everything on sale at the grocery store, even Cheez-Its.

Were you ever discouraged? How did you stay motivated?

BJ: There were instances where we had to slow down because we were exhausted.

Once, I went to the mall and bought a bunch of stuff because I thought I deserved it. I went home and felt so guilty — I realized a lot of my personal spending was triggered by emotion. Knowing my trigger, I would divert that energy into [building] my business.

I used to hang Post-its on my refrigerator of our current debt number. Even if I could knock off a couple dollars I put it on a Post-it. For example, there’s this pair of shoes I really wanted at the store. Instead of buying them, I put that money toward the debt and put up the Post-it. I put photos of them up on Instagram and people reached out to me. They would ask, “Hey, where’s your Post-it?” That accountability from people was great.

AJ: You get so engrossed in [paying off debt], but don’t forget to acknowledge your successes.

You gotta keep taking those small wins. For us it took three years to pay off debt, for others it might take more. Celebrate the small wins so you can last longer.

What would you have done differently?

BJ: I would have given myself a lot more grace during that time. The reason we were able to pay off debt soon was because I was so mad about it.

Our original timeline to pay the student loan was two years. But once we started getting momentum, I thought we could pay it off sooner. I didn’t recognize that in the beginning, it’s a bit easier to trim from your budget. I wish I could have told myself: You’re still being really good; people don’t usually pay this off in two years.

How did this experience influence your business?

BJ: I chose to grow my business more slowly, not rush it. My business model was influenced by wanting to make it affordable for me to run and for my clients. It forced me to be super creative. I think if I had gone the traditional route, I would have taken a small-business loan. But it was all self-funded, no outside investors, no loans.

In reality, we didn’t stop investing [for our future] completely. We were diverting funds toward building this business.

AJ: It took me a while to get comfortable with this investment. She got me to believe in the long term, the future vision. I was taking a lot of pictures for inventory. We have a room in our house where we had clients come in to browse dresses. I felt like I was a part of something bigger for our future.

What are your financial goals now?

BJ: We want to retire early, and now that I’m not in a 9-to-5 job, we want to see how we can get AJ there, too. The picture on our fridge now is about our next vacation home. Every first Sunday of the month, we talk about how are we going to get that.

How to ditch your own debt

Inspired by the Maulions’ commitment to ditching debt? Here’s how you can get started:

  • Build a budget that gives every dollar a job to do. We like the 50/30/20 budget, which allocates 50% of your take-home pay to necessities, 30% to wants and 20% to savings and paying off debt.
  • The Maulions said staying on the same page as a couple helped them succeed. Set up regular money conversations with your partner to check in on goals, stay motivated and hold each other accountable.
  • Don’t shortchange your retirement. If your employer offers a retirement plan with a match, NerdWallet recommends contributing at least enough to get the match even while you’re paying off debt. The sooner you put money into your retirement fund, the longer it has to compound for your retirement.


In this series, NerdWallet interviews people who have triumphed over debt. Responses have been edited for length and clarity. 

The article How I Ditched Debt: Small Wins Help Achieve a Big Dream originally appeared on NerdWallet.

Photo courtesy of Bernadette Joy Maulion via nerdwallet.com

Drink Up Savings at Starbucks

One Starbucks grande Cold Brew with Salted Cream Cold Foam, please.

Even if your order sounds fancy, enjoying your coffee shouldn’t have to put you over budget.

Whatever your drink of choice, following these tips could help keep you from overspending at your favorite coffee spot — without giving up your habit.

Write a money recipe

First and foremost, recognize your Starbucks purchases as a part of your actual budget.

“I prefer that people be realistic with themselves and say, ‘Listen, this is a habit that I’m not going to give up. It makes my day. It makes me happy,’” says Marianela Collado, CEO and senior financial adviser at Tobias Financial Advisors in Florida.

“Then it should totally be a line item. If you take $5 a day for 365 days, that’s almost $2,000.”

Those who utilize a budgeting system like Mint or Quicken should create a “coffee fix” category in their budget, Collado says. This would fall under the “wants” section of your budget, much like an entertainment or beauty category. And be sure to set a monthly spending limit.

Keep your dark roast out of the red

Then, make some trade-offs. For example, Collado says she’s noticed that some members of her team regularly splurge on their afternoon lattes, but bring their lunches to work instead of going out to eat. They value getting coffee out more than they value eating out.

If you’re not sure if you can hold yourself accountable on your own, don’t discount the ability of a gift card to keep your spending on track. Using a gift card as your payment method is actually a forced budgeting technique, according to Tracie Fobes, founder of Penny Pinchin’ Mom.

She recommends loading a Starbucks gift card onto the Starbucks app with your coffee money allotment for the month. Then don’t reload the card again for the next 30 days.

“You put $40 on that card, and when that $40 is done, guess what? Your Starbucks run ends for the month.”

Swap stars for savings

You can maximize your monthly coffee allotment by joining Starbucks Rewards and downloading the coffee joint’s app.

The Starbucks loyalty program offers customers the ability to earn stars — two stars for every $1 spent — that can later be redeemed for free drinks and other rewards. There are also other benefits, such as a free treat on your birthday, according to a Starbucks spokesperson.

If you’re going to be making purchases at Starbucks anyway, it makes sense to earn rewards for your loyalty — it’ll stretch your coffee dollars a little bit further.

Brew up a bargain

Loyalty programs are a popular savings technique (Starbucks told us its rewards program has more than 16.8 million active members). But beyond simply joining, there are less conventional ways to get the most out of your cup of joe, too.

One option? Time your coffee run strategically. The coffee chain sometimes hosts discount promotions, such as happy hours. These are deals offered directly through the Starbucks app and could include offers such as 50% off drinks or buy one, get one free. These are available to all Starbucks customers and typically start at 3 p.m.

At any time of day, try asking the barista for less ice, recommends Kara Stevens, founder of The Frugal Feminista. The beverage may be slightly less cold, but the container will be filled with more drink for your money.

Pass on the pastries

Sure, you can keep the iced latte, but pass on the pricey pastries, scones, cakes and other snacks, Fobes recommends.

But if you really, really like the flavor of that iced lemon loaf cake, go to Pinterest and check for a similar recipe you can make at home.

“Somebody out there has a copycat where you can make it at home and get the Starbucks experience without paying the Starbucks price,” Fobes says.

Stevens puts her Starbucks food advice this way: Don’t linger too long. The more time you spend there, the more likely you are to be tempted by the food items.

With a little extra work, you can drink up your favorite coffee with a helping of whipped cream — and without dragging down your budget.


The article Drink Up Savings at Starbucks originally appeared on NerdWallet.

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How Student Loan Fees Work and What They Cost

Tammy Trevino wasn’t sure whether to borrow a federal student loan or a private student loan for her daughter’s education. Then she learned federal loans come with an origination fee that private loans typically don’t.

“I was surprised,” says Trevino, 52, from Victoria, Texas. “My assumption was [federal loans] would be the best, easiest option for school.”

Federal loans typically are that best, easiest option, and fees have minimal effect on these loans for undergraduates. But parents, like Trevino, as well as graduate students — who typically borrow larger amounts at higher interest rates — pay much more.

The federal government has charged about $8.3 billion in origination fees since 2013, according to the National Association of Student Financial Aid Administrators, with almost one-third coming from parent borrowers.

Here’s what borrowers should know about these fees.

How much are student loan origination fees?

An origination fee is money you pay to offset a lender’s costs for issuing a loan. This fee is expressed as a percentage of the loan’s total.

Origination fees are currently 1.062% for federal subsidized and unsubsidized loans for undergraduate and graduate students. Fees are 4.248% for federal PLUS loans for parents and graduate students. These percentages change annually on Oct. 1.

Origination fees are taken from the loan amount before the funds are applied to your education costs.

For example, say you take out $16,450 in PLUS loans — the average amount parents borrow annually, according to the most recent data from the College Board. With a fee of 4.248%, roughly $15,750 of that loan would go to the school and $700 would go to the federal government.

‘Unnecessary and unfair’

Even though you don’t use that $700, you still repay it — plus interest. Over four years in school, that’s $2,800 a borrower would owe in fees alone.

Lori Vedder, director of financial aid at the University of Michigan-Flint, says that students and families are often confused when they find out they must repay money they never received.

“This is something that is unnecessary and unfair to students,” says Vedder.

It can seem especially unfair to PLUS loans borrowers. At 7.08%, PLUS loans have a higher interest rate than the 4.53% of other undergraduate federal loans. PLUS borrowers can also take out more — up to the cost of attendance, minus other aid received, with no aggregate maximum.

As part of her daughter’s financial aid package at Texas State University in San Marcos, Texas, Trevino was offered a $13,950 parent PLUS loan, which would have an origination fee of $593.

That’s $593 Trevino, a single mother, could put toward other education expenses. It nearly meets the $780 cost of books and supplies at Texas State, based on the latest estimate from the National Center for Education Statistics.

“It’s definitely made me think that I need to do some more research,” Trevino says. She’s considering private loan options.

Private loans may lack origination fees — and protections

All federal student loans have origination fees, and schools don’t have the ability to waive these costs.

Justin Draeger, president and CEO of NASFAA, says parents and families really can’t do anything about these fees “except to realize upfront that the amount they’re [borrowing] won’t be the same amount they receive.”

But private student loans are a potential alternative. Most private loans don’t charge origination fees and may offer lower interest rates than federal loans, depending on your financial situation.

Vedder says this route could make sense in some cases, like a parent with excellent credit who’s planning to take a PLUS loan. However, she cautions borrowers to proceed carefully, even if private loans offer potential savings.

“Federal loans have built-in protections private loans typically do not,” she says.

These protections include options that can postpone or forgive your loans in certain situations, as well as repayment plans that let you pay based on your income.

Legislation seeks to eliminate fees

Federal loans offer unmatched borrower protections and programs, but they make the government money via origination fees. Draeger says this doesn’t make sense for a public benefit program.

These fees were once part of the Federal Family Education Loan Program, which used private lenders to issue federal loans and charged these fees to subsidize the lenders’ costs.

The FFEL program ended in 2010, but the fees remain.

Bipartisan legislation was introduced into the House and Senate earlier this year to eliminate origination fees. Draeger advises borrowers to write their representatives to support this change.

“This is literally just an extra tax on needy student borrowers,” Draeger says.

In a statement to NerdWallet, a U.S. Department of Education spokesman said that origination fees are now used to reduce the overall costs of the federal student aid program.


The article How Student Loan Fees Work and What They Cost originally appeared on NerdWallet.

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Renting Isn’t the Ripoff It’s Made Out to Be

“Renting is just throwing money away.”

“Renting is like paying someone else instead of paying yourself.”

You may have heard these opinions from family and friends, but it’s not that simple. In some areas (looking at you, San Francisco), renting is far more economical than buying a home. But renting can be used to fatten your credit profile as a steppingstone to your financial goals.

Millennials want to buy but face barriers

Millennials are delaying homeownership and staying in rentals longer than previous generations, multiple studies show.

Student debt — that bane of millennial existence — is one factor pushing back the age of homeownership. Rising rents and home prices coupled with slow wage growth also make it hard to save for a down payment.

The vast majority of Americans — 9 out of 10 — still equate homeownership with personal success and economic security, according to a survey released in July by the website Apartment List. The survey of a nationally representative sample of people found both renters and homeowners believe there is a social stigma associated with renting.

How to make rent work for you

You cannot fully control how much money you make. But your credit score — the key to qualifying for rewards credit cards, financing a car or even a home — is largely under your control. Rent payments can be used to beef up your score.

For many millennials, rent payments are a great way to demonstrate responsible behavior to potential creditors. But rent payments — unlike credit card, mortgage and loan payments — don’t automatically appear on credit reports. And your credit scores rely on what’s in your credit reports.

There are two ways to get rent added to your reports:

  • Ask your landlord. Two of the three major credit bureaus — Experian and TransUnion — accept payment information from landlords. Both bureaus’ websites have a simple process for landlords to sign up.
  • Do it yourself. You can use third-party companies such as RentTrack, Rock The Score and others to report rent payments directly to one or more bureaus for a monthly fee.

A 2017 TransUnion study followed 12,000 renters for a year. Scores rose 16 points on average within six months after rent reporting began, says Maitri Johnson, vice president of multifamily at TransUnion. The largest increase was for scores below 620, generally considered bad credit.

With rent reporting, payments show up on your credit report like any other account. Positive payments help your score; missed or late payments can damage it. If there are errors, you can dispute them with the bureaus.

What to know

Rent reporting lets you get credit for something you’re already doing. Better credit can get you a cash-back credit card or a cheaper car loan, saving you money in the short term and strengthening your finances for the long term. But rent reporting also has some drawbacks:

  • Not all credit scores factor in rent payments. FICO 8, the most widely used score by lenders, and the FICO versions used in mortgage lending do not use rental information to calculate scores. But newer versions, such as FICO 9 and FICO XD, do. VantageScore, FICO’s main competitor, also uses rental payment information.

“Even if it’s not something considered in your score, it’s still cosmetically on your credit report,” says John Ulzheimer, a credit expert who has worked at Equifax and FICO. “A lender considers information in good standing and that’s going to benefit you as an applicant.”

  • Reporting is not free. If you use a reporting service, you’ll pay a monthly fee ranging from $6.95 to $9.95 depending on the company, plus a one-time enrollment fee of $25 to $95. Extras like adding past rental information cost more.

Other ways to build credit

Ulzheimer points out that traditional credit-building methods are more effective than rent reporting: They don’t cost much, payments are typically reported to all three credit bureaus, and they influence all types of FICO scores and VantageScores.

  • You can become an authorized user on someone else’s credit card, preferably someone with a long history of responsible credit use.
  • You can get a secured credit card, which requires an upfront deposit. Charge a small amount on it every month and always pay on time.
  • You can apply for a credit-builder loan, available at credit unions. Your monthly payments are reported to the credit bureaus. The money you borrow is released to you once the loan is paid off.


This article was written by NerdWallet and was originally published by The Associated Press. 

The article Renting Isn’t the Ripoff It’s Made Out to Be originally appeared on NerdWallet.

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Why Streaming Services Are the New Credit Card Rewards Binge

When it comes to credit card rewards, it’s not all about gas, groceries and restaurants anymore. Issuers are moving beyond suburban staples to include millennial-friendly categories such as transit and streaming subscriptions.


The trend toward streaming rewards, in particular, is hard to miss, with cards from American Express, Chase and Wells Fargo now featuring streaming as a bonus category. But what’s behind this explosion?

For starters, streaming is wildly popular. As of 2017, more than half of U.S. households subscribed to paid video-streaming services, according to Deloitte’s digital media trends survey. But experts say it’s also about issuers forging early connections with younger consumers and ensuring that they remain customers.

“The strategy is simple: If a consumer opens a credit card when young, the [issuer] can build a long-term relationship with the consumer,” says Logan Allec, a CPA and founder of the financial blog Money Done Right.

Meeting people where they’re spending

The Deloitte study notes the percentage of U.S. households subscribing to a paid streaming video service grew from 10% in 2009 to 55% in 2017 — a 450% increase. Consumers subscribe to an average of three such services.

Issuers have taken notice. Wells Fargo made a splash last summer, revamping the Wells Fargo Propel American Express® card, which now earns triple points back per dollar spent on eligible streaming services. Terms apply. In May 2019, the Blue Cash Preferred® Card from American Express underwent a makeover, adding select U.S. streaming services as a 6% cash-back category. Terms apply.The following month, the Chase Freedom® entered the streaming fray. The card earns 5% cash back in bonus categories that rotate each quarter, on up to $1,500 in spending per quarter. (You must opt in to the bonus categories each quarter; all other purchases earn 1% back.) From July 1 to Sept. 30, 2019, one of those bonus categories is select streaming services.

Kunal Madhok, vice president of U.S. consumer lending and acquisition at American Express, noted via email that AmEx research found that a segment of millennials were spending more on “day-to-day” costs like commuting and streaming compared with five years ago. So the Blue Cash Preferred® Card from American Express was reworked to reward cardholders more heavily for these types of costs.

“The card is designed to give people the most cash back on the things they value and spend frequently on, now including quality time at home streaming their favorite show,” Madhok said.

Of course, your monthly Netflix bill likely represents only a fraction of your household budget, so don’t expect a boatload of rewards from this category alone. Say your family spends $15.99 per month on Netflix Premium, $14.99 per month on a Spotify Family plan and $5.99 per month on Hulu, for a total of $443.64 per year. If you earn 6% cash back on these services by paying for them with the Blue Cash Preferred® Card from American Express, that’s just $26.62 in rewards per year. Terms apply.

And that doesn’t take into account the card’s $95 annual fee. When choosing any rewards card, look for categories that match your spending enough to offset that cost.

Building relationships with younger spenders

Per the Deloitte survey, 70% of Gen Z households (ages 14 to 20) had a streaming subscription in 2017, as did 68% of millennial households (ages 21 to 34).

Experts say credit card issuers see an opportunity here to lure customers while they’re young, rewarding them for the spending they’re doing anyway while also converting them into long-term cardholders.

“As the consumer gets older, and presumably begins to spend more, the credit card company has already secured their business,” Allec says.

Subscription services can give these relationships staying power, too, because they’re typically “set it and forget it” transactions. If an issuer can get you to use its card as your automated payment method each month, you’re more likely to keep it — even if you never take the card out of your wallet.

“Credit card companies want consumers to choose their cards for subscriptions as it’s a regular — often monthly — recurring transaction that they can rely on as a base of card spend,” says Derek Szeto, co-founder of Butter, a tool that helps consumers track and manage subscriptions.

“Active cards are sticky cards.”

This article was written by NerdWallet and was originally published by The Associated Press.

The article Why Streaming Services Are the New Credit Card Rewards Binge originally appeared on NerdWallet.

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5 Simple Ways to Get Out of Credit Card Debt Faster

Almost half of Americans who have credit cards (47%) don’t pay off their balance in full each month, according to a new NerdWallet survey. And over the past five years, carrying a balance has gotten significantly more expensive, with the average credit card interest rate rising 35% since 2014, from 12.74% to 17.14%.

Even with the recent rate cut by the Federal Reserve, credit card interest rates remain near post-recession highs. Paying your balance in full avoids interest entirely, but not everyone is in a position to do that.

For Americans with credit cards, 77% surveyed said they have paid interest at some point. The next best thing is minimizing the interest you pay, leaving you more money to pay down your debt more quickly. Here are five easy things you can do to cut your interest costs and get out of debt faster.

1. Learn your interest rates and pay off highest-rate cards first

Almost 2 in 5 Americans with credit cards (38%) say they don’t know all the interest rates on their cards, which can cost them when they’re deciding how to pay off their balances. To save the most money and eliminate your debt in the shortest amount of time, pay off your cards in order of annual percentage rate. Make the minimum payment on each card, then put all your leftover money toward the card with the highest rate.

Let’s say you have three credit cards and can afford to allocate $150 a month to pay them off:

  • Card A: $3,000 balance, 20% APR, $60 minimum payment
  • Card B: $2,000 balance, 18% APR, $40 minimum payment
  • Card C: $1,000 balance, 15% APR, $20 minimum payment

The minimum payments on these cards add up to $120, leaving you an extra $30 to start. If you used that extra money to pay off the cards in order of interest rate, highest to lowest, you would end up paying a total of $3,316 in interest. By contrast, if you decided to pay off according to balance — lowest to highest — you would pay $3,588 in interest. This means a savings of $272 in interest costs, just by paying the cards off in order of interest rate. The more you owe, the bigger the impact with this debt payoff method.

2. Double your minimum payment

More than 1 in 10 Americans who have credit cards (11%) make only the minimum required payment. Minimum payments are enough to cover the interest on your account, so they can keep you from falling behind, but they don’t get you much closer to eliminating your debt. One simple way to make a huge impact is to pay double the minimum. Say you owe $2,000 on a credit card with a 20% APR and a $40 monthly minimum payment. If you could find an extra $40 in your budget and you paid $80 each month, you would save $1,727 in interest and get out of debt more than six years faster.

3. Apply any extra money in your budget to your payment

Credit card interest rates are likely to drop following the Fed’s action. Close to half of American cardholders who ever pay interest on a credit card (44%) say they would put any money they saved on credit card interest toward reducing their actual credit card debt. This is a wise use of that money because even small additions to your credit card payment can add up to big savings.

Say you owe $5,000 on a credit card with an 18% APR and a minimum payment of $100. It would cost you $4,311 in interest if you just paid the minimum. But what if you cut your monthly expenses by $25 and made a $125 payment each month instead? You would save $1,618 in interest charges and almost three years of payments. If you could find an extra $50 in your monthly budget, you would save $2,328 in interest and pay your debt off four years faster.

4. Split your payment in half and pay twice

Credit card interest isn’t calculated based on how much you owe on the due date or at the end of a billing period. Instead, if you carry a balance from one month to the next, your interest is based on your average daily balance. Because of this, making smaller payments more frequently can reduce the amount of interest you owe.

Let’s say you owe $4,000 on your card and you can afford to pay $500 a month. If you make that $500 payment on the 25th day of a 30-day billing cycle, your average daily balance would be $3,900. But if you make two payments of $250, one on the 10th day and another on the 25th day of the billing cycle, your average daily balance would be $3,775. Therefore, you would be accruing interest on $125 less than you would be if you made only one payment. The more months you do this, the more savings you’ll enjoy.

5. Transfer your balance to a 0% credit card

If you have good credit — generally a credit score of 690 or higher — you may be able to transfer your balance to a credit card with a 0% introductory rate that lasts 12 to 18 months. With no interest to worry about, you can focus on whittling down the core debt as fast as possible.

In general, you can’t transfer debt among cards from the same issuer — for example, you can’t transfer a Chase balance to another Chase card. Most cards charge a fee of 3% to 5% of the amount transferred, although a few cards don’t charge a fee for balances moved within a certain time frame.

If you choose this route, make a plan to pay off your full balance before the introductory period ends to avoid accruing interest charges.


The article 5 Simple Ways to Get Out of Credit Card Debt Faster originally appeared on NerdWallet.

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