5 Credit Mistakes That Can Haunt You

Some credit mistakes are a lot worse than others. Little ones, like paying a credit card bill a day late, may cost you a penalty fee, but that’s a relatively minor irritation — it’s not going to stand between you and a mortgage. Other seemingly small slip-ups can lead to full-fledged disasters.

What makes a credit mistake haunt you?

Some things can be reversed quickly. Running up credit card bills can tank your credit score, for instance, because the portion of your credit limits you’re using is weighed heavily in credit scoring. But when you pay down the debt, the damage disappears as lower balances get reported to the three major credit bureaus, Equifax, Experian and TransUnion.

Mistakes that have long-running ripple effects hurt the most, says credit expert John Ulzheimer. A late payment, for example, can get sent to a collection agency, then perhaps grow into a repossession or bankruptcy. Those batter your credit and stay on your credit record for years. Likewise, co-signing a loan for someone who is later unable to pay can hamstring your finances for a long time.

Common mistakes that can hurt your finances

Missing a payment: A payment that’s a little late might cost you a penalty fee, but your credit score won’t suffer because creditors can’t report your account as delinquent until it’s 30 days past due. If you have a high score, going 30 days late can knock as much as 100 points off your score — and it stays on your credit report for seven years. The damage gets worse if you let the account slide to 60 days past due, 90 days past due or more. Your score can recover, but it will take time. Catching up on that account, and keeping all other payments up to date and balances low, can help.

Raiding retirement funds to pay debt: Most people don’t want to file for bankruptcy. Almost half of Americans say they would not file no matter how much credit card debt they had, according to a recent study commissioned by NerdWallet. Bankruptcy attorney Roderick H. Martin of Marietta, Georgia, says some of his clients have tapped — or even emptied — retirement savings in a desperate attempt to stay afloat. That often just delays the inevitable — “then they turn around and file for bankruptcy,” he says. Retirement savings are typically protected in bankruptcy, but money already withdrawn cannot be recovered.

Co-signing a loan: Aaron Smith, a financial planner in Glen Allen, Virginia, says co-signing so a friend or relative can get credit is often a mistake. “My personal and professional opinion is if they can’t get it on their own, there must be a problem,” he says. If the primary borrower doesn’t pay as agreed, it can leave both your relationship and your credit in tatters. Even if the borrower repays as agreed, remaining on the loan can limit your borrowing capacity. Before you co-sign, ask if you can be taken off the loan at some point.

Sometimes doing nothing is the mistake

We may think we’re too busy to trouble ourselves with fine print or financial chores. Either can come back to bite us.

Not checking your credit: “I think checking your credit is like going to your dentist for a cleaning,” says Elaine King, a certified financial planner and founder of the Family and Money Matters Institute. “You need to make a habit of doing it. If you wait too long, there can be some rotten stuff there.”

A credit report isn’t exciting reading; it’s a summary of your past handling of credit. But “boring” is what you want — anything you didn’t expect to see is worth investigating in case it’s an error or a sign of fraud. Through April 2021, you can get a free credit report weekly from the three major credit bureaus by using AnnualCreditReport.com. Plan to check at least annually, and more often is better.

Ignoring the details: Not knowing your credit cards’ interest rates or when a 0% interest rate ends can cost you.

Knowing interest rates can tell you which card to use when you’re paying for a new transmission and need to carry that balance for a while, for instance. Knowing when a teaser rate ends can help you ensure you’ve paid off the balance by then. It’s important to read the fine print. Some cards — primarily store cards — charge deferred interest if there is still a balance at the end of the introductory period. That means the “savings” from the teaser rate are added to your balance, wiping out any benefit.

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

Bev O’Shea is a writer at NerdWallet. Email: boshea@nerdwallet.com. Twitter: @BeverlyOShea.

The article 5 Credit Mistakes That Can Haunt You originally appeared on NerdWallet.

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How to Handle College Loan Debt as an Unemployed Recent Grad

Entry-level jobs are scarce for recent college graduates, which leaves the Class of 2020 in a precarious position as their student loan debt comes due.

Taylor Cabrera has been job-hunting for months since graduating from the University of Mississippi last spring with dual bachelor’s degrees in biology and physics, and has moved in with family in Miami. Her only solid job lead so far was a two-week marketing stint that didn’t pan out, though she says she’s feeling good after a recent interview for an entry-level mortgage position.

Despite her challenges, Cabrera says she knows she’s fortunate when it comes to her student loans. Earning hefty scholarships meant she took on $14,000 in debt, about half of what the average undergraduate carries, according to the Institute for College Access and Success.

“It’s pretty good compared to what everybody else has, but it still hurts my soul,” Cabrera says.

Student loan payments typically begin six months after graduation. But those with federal loans like Cabrera have some respite: There’s an automatic, no-interest payment pause, known as forbearance, in place for all borrowers with federal student loans through December.

Private loan borrowers didn’t get the same break. But all borrowers have options to make payments more manageable, whatever their employment status or type of debt they carry.

Employment barriers for recent grads

Leaving college without a job offer isn’t uncommon, especially during economic downturns. But the class of 2020 faces unique challenges.

The effects of COVID-19 have hit every industry, says Nicole Smith, research professor and chief economist at Georgetown University’s Center on Education and the Workforce. She adds that outside of telecommunications and tech, very few sectors are hiring right now.

“If you’re looking for a corona-proof job, it doesn’t exist,” Smith says.

Positions with titles that include “entry level” or “new grad” have dropped 68% compared with the same time last year, according to a June 2020 report by Glassdoor. Graduates with little or no experience are competing with millions of unemployed Americans.

On top of that, new entrants to the workforce can’t access the safety net of unemployment benefits, even as the prospect of student loan payments looms.

Two options for federal student loan borrowers

Until employers start hiring again, recent graduates have some options to ease their debt burden.

The federal payment pause gives them time to breathe since loan bills won’t be due until January, barring a possible extension. To manage payments when they restart, those without jobs can choose an income-driven repayment plan or an unemployment deferment.

An income-driven repayment plan is your best long-term option. It caps payments at a portion of your income — 10% for example — and extends the repayment term. If you’re unemployed — or underemployed — your payment could be zero. You must contact your student loan servicer to enroll.

If you need short-term relief, unemployment deferment allows you to postpone repayment for up to 36 months in six-month increments. It’s less desirable than income-driven repayment because interest builds and is added to the total debt when repayment begins. To qualify for an unemployment deferment, you’ll need to apply with your servicer and prove you’re either receiving unemployment benefits or, in the case of recent graduates, seeking full-time work.

Cabrera says she plans to look into income-driven repayment.

Have a plan before payments start

If you’re planning to change your loan payments, do it as soon as possible to keep payments manageable, says Scott Buchanan, executive director of Student Loan Servicing Alliance, a nonprofit trade association representing student loan servicers.

Even if you’ve yet to begin payments, you can talk to your servicer to start off in an income-driven repayment plan when payments begin in January, Buchanan says.

Private student loan borrowers have fewer options to alter or pause payments compared with federal student loan borrowers. You must contact your lender to find out if you qualify for a temporary reduction in the payment amount or to request forbearance.

Several private lenders are offering disaster or emergency forbearance for up to 90 days in addition to any existing options. Unlike the current automatic pause on federal loans, any private loan forbearance still accrues interest.

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

Anna Helhoski is a writer at NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article How to Handle College Loan Debt as an Unemployed Recent Grad originally appeared on NerdWallet.

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Are You Saving Money in the Right Place?

If you’re working toward a savings goal, you have a lot of options for where you can put away your cash. Savings accounts, certificates of deposit, money market accounts, cash management accounts and investment accounts are all possibilities.

So which should you choose? That depends on how far away your goal is, how much you hope to earn on your cash and how often you want to access it. Here’s how to decide which savings or investment vehicle is best for you.

Factors to consider when stashing your savings

The features of different accounts can help you select the right savings vehicle. When deciding where to stash your savings, consider:

Access to withdrawals. Some accounts — such as CDs and retirement accounts — charge a penalty fee if the account owner withdraws money before a certain time. If you think you’re going to need your liquid cash in the near future, that will affect your choice of account.

Interest rate. Some types of accounts offer higher interest rates or potential investment income than others. Both factors can also vary depending on the bank or brokerage.

How far away your goal is. Think about how much you’ll need to save to achieve your financial goal and how long it will take you to get there. If it’s longer than several years, shift your mindset from saving to investing.

“Anything past four or five years is no longer savings,” said Todd Christensen, education manager for the nonprofit debt relief service MoneyFit, in an email. “You should see anything longer than four or five years instead as an opportunity to invest and build your net worth.”

With these points in mind, check out these savings options.

Where to put short-term savings

Short-term saving goals are those that will likely take less than a year to save for, like for a vacation, small emergency fund or a home improvement project. Good homes for that money include:

High-yield savings account. These accounts, typically offered by online banks, tend to offer much higher interest rates than savings accounts at traditional brick-and-mortar banks. Though the return is lower than with savings vehicles such as CDs or investment accounts, you’re able to quickly access your cash as needed.

Money market account. An MMA is a savings account that has some checking features, such as offering paper checks or a debit card. Interest rates for competitive MMAs tend to be similar to those of high-yield savings accounts.

Cash management account. CMAs — offered by brokerages rather than banks — typically have decent interest rates and some checking features, such as a debit card and ATM access.

Where to store medium-term savings

Say you want to save for something that may take a year or more, like an emergency fund with three to six months of expenses, a large wedding or a down payment on a house. An account that keeps your money safe and separate and earns a little interest is the way to go. The interest rates on these products usually don’t surpass inflation, so they won’t be optimal for building wealth.

“Instead, use these savings vehicles to keep your money safe from your impulses,” said Christensen.

High-yield savings account. Like short-term savings goals, medium-term goals are also a good match for a high-yield savings account, since they are liquid.

CDs. If you know exactly when you’ll want to use your savings — say, to purchase a house two years from now — consider putting the funds into a CD that matures just ahead of that date, allowing you to earn a set amount of interest toward your financial goal. Keep in mind that most CDs charge a penalty if you withdraw your cash before the end of the CD’s term. If that’s a concern, you can also consider a no-penalty CD, offered at some banks.

MMAs and CMAs. Money market accounts and cash management accounts can be solid options here too, due to their easy access, decent interest rates and useful checking features.

Where to keep cash for long-term financial goals

Maybe your goal is to save for or invest in something that will take a decade (or several), like retirement or your child’s college fund; here are good options.

Investment account. Over a long enough period of time, invested cash tends to earn the highest rate of return compared to other savings vehicles. If you’re saving for retirement, an account like a 401(k) or an individual retirement account (IRA) will be the best option for your savings. However, retirement accounts carry early withdrawal penalties until investors are at least 59½ years old. Another alternative: You can invest in a taxable investment account, which doesn’t have penalties for early withdrawal, but you will have to pay annual taxes on any capital gains.

A good guideline is to keep cash invested for at least five years, to weather potential stock market volatility; being able to invest for the long term can help offset such fluctuations.

529 plan. 529 savings plans are tax-advantaged investment accounts that allow parents to set aside money for kids’ college tuition and earn compounding returns. If you want to save specifically for the costs of education, 529s are worth considering.

Whatever your financial goals, you have solid options for where to stash your money and, ideally, see it grow.

Chanelle Bessette is a writer at NerdWallet. Email: cbessette@nerdwallet.com.

The article Are You Saving Money in the Right Place? originally appeared on NerdWallet.

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Surprising Things Renters Insurance Covers — And Leaves Out

Insurance is designed to offer peace of mind, but there’s a reason your policy has all that fine print: You might not have the coverage you expect. Like any other insurance policy, renters insurance has exclusions, and knowing about them ahead of time can help you avoid unexpected bills in a disaster.

Just as important, though, is knowing what is covered. All that fine print in your policy likely includes coverage you might not expect, which could save you money down the line.

Covered: Belongings outside your home

Most renters know insurance covers personal belongings within their home but may not realize their things are probably covered off-premises too, including when traveling. Barbara Madvin, an insurance agent at Gaspar Insurance Services, says vehicle break-ins are some of the most common insurance claims she sees for renters. While damage to the car itself is generally covered by your auto policy, your renters insurance pays for items stolen from the vehicle, as long as their value exceeds your deductible.

Your renters policy will also cover your belongings if you move them from your home to a storage unit, a friend’s house or anywhere else to protect them from a covered disaster. In the event of a wildfire or hurricane evacuation, this can be particularly valuable, according to Christine G. Barlow, a chartered property casualty underwriter. This coverage typically lasts 30 days.

Covered: Living expenses if your rental is uninhabitable

While your home is undergoing repairs due to a fire or other covered disaster, your insurance company will usually pay for you to maintain your normal standard of living somewhere else.

A “normal standard of living” is broader than you might think. For instance, if you live in a rental home with a pool that you use every day, “the carrier needs to put you someplace where you have access to a swimming pool,” says Barlow, who is also managing editor at FC&S Expert Coverage Interpretation, a trade publication. If you have pets, your insurer should find you pet-friendly accommodations or board the animals where you normally would.

Not covered: Common disasters

Most renters insurance covers your possessions only in the case of specific scenarios, or “named perils” listed in the policy — things like fire, theft and wind. “If something’s not mentioned in that list, then there’s no coverage,” Barlow says.

For example, flood damage is almost always excluded from renters policies and typically must be purchased separately. (One exception: USAA, which serves military families, includes flood coverage with standard renters policies.)

Not covered: Brand-new stuff

Madvin recommends asking whether replacement cost coverage is included in your policy. If not, your belongings are covered only for their depreciated value, which often isn’t enough to buy brand-new replacements.

Say your 10-year-old TV is stolen and replacement cost isn’t included. “The carrier’s going to say, ‘OK, you paid $1,000 for it 10 years ago; we’ll give you $250 for it now,’” Madvin says. With replacement cost coverage, you’ll receive enough to purchase a new TV.

Not covered: Expensive valuables

Most renters policies cover jewelry and other costly items only up to a specific limit named in the policy, typically $1,000 to $2,000. So if you have an expensive engagement ring, for example, both Madvin and Barlow recommend adding separate coverage for it. An appraisal is usually required.

How to avoid surprises

Before buying renters insurance, take inventory of your belongings. “Most renters underestimate how much stuff they have,” Barlow says, which can leave a coverage gap. Barlow recommends using the Encircle app to upload photos of your belongings and estimate their worth. Other similar apps include Sortly and Allstate’s Digital Locker.

Read your policy thoroughly. Barlow suggests marking it with what’s covered in green and what isn’t in red. Madvin advises paying particular attention to the policy’s endorsements, which are typically add-ons or exclusions to standard coverage.

Confused by all the legalese? Turn to an expert. Talking through your options with an insurance agent or broker can ensure you understand the policy you’re buying. “Unless you really know insurance,” Barlow says, “it’s very easy to miss coverages that you need or to not realize something isn’t covered.”

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

Sarah Schlichter is a writer at NerdWallet. Email: sschlichter@nerdwallet.com.

The article Surprising Things Renters Insurance Covers — And Leaves Out originally appeared on NerdWallet.

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How to Create Financial Stability in Shaky Times

In a year that has thrown a pandemic, natural disasters and economic calamity at us while we lurch closer to a presidential election, stability can feel elusive. No matter how well-laid your plans, some new crisis might be lurking around the corner, waiting to upend your life.

While it’s never been more clear how much is out of our control, you can still take steps to improve your financial stability. And it’s not just about cash flow.

Find your idea of stability

Financial stability is both a state of money and a state of mind, says Ed Coambs, a certified financial planner and certified financial therapist near Charlotte, North Carolina.

On the money side, stability is straightforward. “You have a budget, you know where your money is going, and you know how much you should be saving to meet your bigger goals,” Coambs says.

“What’s a little harder is more the state of mind,” Coambs says. This financial peace of mind is subjective and looks different from one person to the next.

Do some self-reflection to pin down what stability means for you. Maybe you don’t want to feel anxious when you check your bank balance, or you hope to save enough for retirement so you won’t have to worry about the future. Whatever your focus, feeling stable means you won’t have to constantly worry about money.

If you find yourself overwhelmed because the pandemic has destabilized your finances, follow the advice of Tara Tussing Unverzagt, a Torrance, California, certified financial planner and financial therapist. She advises people to think through the worst that could happen rather than avoiding the topic out of fear.

“This often helps people open up a way to reframe the situation from, ‘There’s no way out of this,’ to ‘I have some choices — this isn’t my preferred path, but I can move forward with this,’ ” Tussing Unverzagt says.

Once you’ve defined what personal financial stability means to you, you can build a sense of control through proactive money management.

Knock off money tasks one at a time

You can probably rattle off half a dozen serious issues to worry about right now. But how many of them can you do anything about?

Rather than hand-wringing and doom-scrolling through social media when you feel anxious, focus on actions you can take. Namely, work to improve your financial basics.

Get a grasp on spending

Pin down a budget, if you haven’t already. The 50/30/20 budget is an easy tool for this. Half of your take-home pay goes to necessities, like housing, groceries and utilities. Then, 30% of your budget takes care of wants, like takeout from your favorite restaurant or home decor to spice up your pandemic shelter. Lastly, 20% of your income goes to debt payments and savings.

If you find that your debt payments or housing costs eat up more than the allotted percentage, you could increase financial peace of mind by getting them back in line. That might mean concentrating on paying down debt or looking for less expensive housing. Tackling one or two big expenses does more for your budget than canceling a handful of streaming services.

Look into refinancing debt

With interest rates at record lows, see if you can refinance your debt. You might be able to refinance your student loans or your mortgage to get a lower interest rate. Note that you should generally only refinance private student loans, because if you refinance federal loans you will give up important options such as access to income-driven repayment plans.

But in general, paying less in interest will make your debt more affordable and free up cash in your budget. Note that you’ll generally need a steady income and a healthy credit score to qualify for the best rates.

Build your emergency fund

Increasing your savings helps you cover an unexpected expense, like your car breaking down.

“People should focus on creating a safety net, which is the emergency fund,” says  Jovan Johnson, a certified financial planner in Decatur, Georgia. Start with a goal of $500 to $1,000, which is enough to insulate you from common emergencies, then keep building over the long haul.

“A rule of thumb is three to six months of nondiscretionary expenses, and I like to include maximum out-of-pocket health care expenses in that,” Johnson says.

Stick with steady retirement savings

The stock market will go up, and down, then back up again. It’s best to be a steady investor. Make regular contributions to your IRA or 401(k) every month or every pay period to smooth out fluctuations in the cost of investments.

You can take further steps to ride out market volatility by rebalancing your 401(k) or other retirement and investment accounts, says Daniel Granucci, a certified financial planner in Sandy Hook, Connecticut.

“By doing systematic rebalancing, historically that’s been proven to minimize risk in times of distress and can add to your long-term returns,” Granucci says.

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

Sean Pyles is a writer at NerdWallet. Email: spyles@nerdwallet.com. Twitter: @SeanPyles.

The article How to Create Financial Stability in Shaky Times originally appeared on NerdWallet.

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More Grads Are Going Back to School: Should You?

College enrollment is down overall compared with last year due to the coronavirus. But the economic effects of the pandemic may actually be pushing some students back to school.

“(It’s) probably the worst time to graduate from college in this generation,” says Doug Shapiro, executive director of the National Student Clearinghouse Research Center. “What are you going to do?”

The answer, for many, is getting additional education: As of Sept. 10, graduate program enrollment was up 3.9% and post-baccalaureate certificate program enrollment was up 24.2%, according to the National Student Clearinghouse Research Center.

If you’re thinking about continuing your education — because you can’t get a job or lost yours — here’s what to consider before you enroll.

Know your timeline

It’s not surprising that recent college graduates or those who’ve lost jobs or been furloughed are looking to gain new skills.

Alana Burns, chief marketing officer of Southern New Hampshire University, said via email that the school saw similar behavior due to the 2008 recession.

Burns said enrollment in SNHU’s graduate-level programs is currently up roughly 55% compared with this time last year. That includes master’s-level courses and graduate certificate programs.

Either option could make sense if you want to make yourself more marketable. But make sure whichever you choose addresses your short-term needs or your long-term goals.

“If you are looking for a specific skill or industry-specific certification, a certificate might be best,” Burns said. “If you’re looking to stand out in the job market or change careers, a full graduate degree program might be the best fit.”

Certificate programs take less time and don’t require the entrance exams that graduate degree programs do. Shapiro points to those lower barriers as potential reasons for what he calls the “outrageous” increase in these programs’ enrollment. A degree will require more planning.

“It’s not the kind of thing you can do on the spur of the moment,” he says.

Have a plan to pay for it

Certificate programs also likely cost less, but that doesn’t necessarily mean they’re inexpensive.

For example, Kent State University in Ohio estimates the cost of its nursing administration and health systems leadership graduate certificate at $12,300. Its online master’s degree in nursing costs up to an estimated $22,500.

Bradley Sommer, president and CEO of the National Association of Graduate-Professional Students, says to consider the financial implications when deciding whether to go back to school.

“Is it something you can afford?” Sommer says. “Are there scholarships available to you?”

If you can’t get free money — via a scholarship or research grant, for example — you’ll need a plan to pay for a graduate program.

More than half of graduate students turn to loans, finishing their programs with an average debt of $71,000 in 2015-16, according to the most recent data from the National Center for Education Statistics. That total does not include any existing undergraduate loans.

But you may not be able to take out federal financial aid or private graduate student loans for a certificate. Ask the school’s financial aid office what aid a program is eligible for.

If you need to finance a certificate, you may have to put it on a credit card or take out a personal loan. Both options usually come with higher interest rates than student loans and lack those loans’ protections — like letting you pause payments if you lose your job.

Understand your return on investment

People with advanced degrees earn more money than those with a bachelor’s degree; they also face lower unemployment rates, according to the Bureau of Labor Statistics.

But not all graduate degrees offer equal returns.

For example, Edwin Koc, director of research, public policy and legislative affairs for the National Association of Colleges and Employers, says earnings increase 100% if you go from a bachelor’s degree in biology to a master’s degree. The benefit isn’t nearly as great for those with history degrees, he says.

It’s unclear how much you might gain financially from a certificate.

“It might translate into better prospects for you,” Koc says, “but I don’t have the data to support that.”

You can find data like median earnings for some graduate-level programs in the U.S. Department of Education’s College Scorecard. That can help you estimate if a program is affordable. Ideally, your total monthly loan payments would be no more than 10% of your take-home pay.

Keep in mind that those payments can be paused if you’re enrolled at least half-time, but interest may accrue on all your loans, further increasing the amount you owe.

Sommer also recommends reaching out to professional organizations to understand how a school or certificate is perceived. For example, he says there are plenty of accounting organizations across the country to contact, if you were interested in such a program.

“Or even just find a CPA in your town,” he adds, “and say do you know anything about the program at (a specific) university?”

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article More Grads Are Going Back to School: Should You? originally appeared on NerdWallet.

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3 Ways to Keep Your Distance With Contactless Payments

If you’re looking for a self-improvement task in this pandemic era, try teaching yourself to use contactless payments with your phone or “tap-to-pay” credit and debit cards.

Any germaphobe will tell you that the surfaces of bills and coins have always been gross. And handing your credit card to a cashier who has the sniffles and a hacking cough? Even in pre-pandemic times, also gross.

Now, COVID-19 has prompted the Centers for Disease Control and Prevention to advise using touchless payments whenever possible in the brick-and-mortar world.

Americans have been relatively slow to adopt touch-free payments even though they’re more convenient and secure than swiping credit and debit cards. But maybe hygiene will be the tipping point as people seek a solution for, well, yucky money.

‘A strong impetus to change’

“I think the pandemic is a strong impetus to change,” said Jodie Kelley, CEO of the Electronic Transactions Association. “I think it’s going to stick and accelerate further. As people get used to it and understand how to do it and find that it’s simple and convenient, then they’re not going to shift back.”

Consumer interest in contactless payments has spiked during the pandemic.

Since January, no-touch payments have increased at 69% of retailers surveyed by the research firm Forrester on behalf of the National Retail Federation. And two-thirds of retailers surveyed now accept some form of no-touch payment.

Learning to use contactless payments might be awkward at first, and some of your favorite retailers might not be equipped to accept them. The point is to give it a shot the next time you’re not in a rush in a checkout line that can handle contactless payments.

“The first time I went to pay with my phone, I didn’t quite know how to do it,” Kelley said. “I felt a little silly trying to figure it out. But once I figured it out, I loved it.”

As people try to return to normal and encounter in-person payment terminals more regularly, here are three ways to experiment with contactless payments and avoid dirty currency and much-touched payment terminals.

1. Tap to pay

True, the word “tap” doesn’t exactly scream contactless. But “tap to pay” credit and debit cards really only need to be within a couple of inches of the payment terminal. The cards have little antennas inside.

How to tell if your payment card has contactless capability? It will have a logo that looks like a sideways Wi-Fi symbol of radiating waves. Retail payment terminals that accept contactless payments have the same symbol.

These cards don’t require a smartphone to complete a contactless payment, and you don’t have to use a PIN. Nine of the top 10 U.S. credit card issuers are actively distributing new contactless cards to customers, Visa has said.

“For people who are not used to engaging with technology, I would say first look at your card, see if it has the symbol. And if it does, the next time you’re at a retail location, all you have to do is touch that card to the terminal,” Kelley said. “It is incredibly straightforward. I encourage people to try it.”

2. Smartphone payments

With this option, you call up your wallet app and hold your phone near the terminal, and your phone will ask for authentication. That’s the normal unlocking procedure with your phone, whether punching in a code or using thumbprint or face identification. Many smartwatches work, too, as long as they have the required technology, called NFC, or near-field communication. The most popular services are Apple Pay, Google Pay and Samsung Pay.

Phone payments require a little prep work before you get to the checkout counter. First, you must enter your payment card information into your mobile wallet app. Then, the card is saved and available to use.

3. Touchless pay at the pump

Many retailers have mobile apps that let you pay on your phone and bypass in-person payment completely. In those cases, you typically would get items delivered or visit the store for curbside or in-store pickup.

Another way to use a retail app is at major gas station chains. The apps (download them at an app store) let you identify which pump number you’re at, then authorize you to use it. You fill your tank with gas, and the charge goes to whatever payment method you identified in the gas-station app.

Just be sure to clean your hands after using the pump nozzle.

Is it secure?

As you beam your next payment to a retailer’s checkout terminal, you might wonder, “Will I have my credit card number stolen?”

The nontechnical answer is that it’s safer than the old method of swiping your card. That’s because the card or phone sends encrypted payment information to the terminal — it essentially masks your real credit card number. Even if the payment information was intercepted, it would be useless to a thief.

“It’s an incredibly safe way to pay,” Kelley said.

These days, in more ways than one.

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

Gregory Karp is a writer at NerdWallet. Email: gkarp@nerdwallet.com. Twitter: @spendingsmart.

The article 3 Ways to Keep Your Distance With Contactless Payments originally appeared on NerdWallet.

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The FAFSA Just Opened: Why You Should Apply Now

An influx of college financial aid applications this year means that money could run out for students who don’t file early.

Due to financial strain caused by COVID-19, nearly 40% of families that didn’t previously plan to apply for federal financial aid now expect to do so, according to a recently released survey from Discover Student Loans.

The federal government, states, colleges and other organizations use the Free Application for Federal Student Aid, or FAFSA, to award financial aid. You must complete the FAFSA to be considered for financial aid.

You have 21 months to submit the FAFSA for any given academic year. For the 2021-22 school year, the FAFSA opens Oct. 1, 2020, and closes June 30, 2022. But that doesn’t mean you should wait.

“There is no downside to applying early, but a lot of risk in applying late,” says Manny Chagas, vice president and head of marketing and product at Discover Student Loans.

Here’s why you should file the FAFSA now.

Better shot at more free money

The sooner you submit the FAFSA, the greater your chances are of getting free aid you don’t have to repay, such as grants or scholarships.

Federal Pell Grant money likely won’t run out, but other need-based aid, including that awarded through your school and state, is limited and awarded on a first-come, first-served basis. Jack Murphy, financial aid counselor at the University of Northern Iowa, named the Federal Supplemental Educational Opportunity Grant and his school’s tuition assistance grant as examples.

The Federal Work-Study Program also has limited funds, so you’ll want to file the FAFSA early to take advantage of it.

More time to appeal a financial aid decision

Students and parents who are dissatisfied with their aid amounts or have a change in economic circumstances can appeal the financial aid award from their school. To do this, you need to petition your school with a financial aid appeal letter and provide evidence to support your need for more aid. If you wait too long, the aid money could run out.

Those who file the FAFSA early are more likely to receive their school-based financial aid awards with their college acceptance letters. While your federal aid will be the same no matter where you attend college, you can send your FAFSA information to several schools to see which will give you the best school-based aid package. Doing so early will allow you to compare offers and appeal if necessary.

If you apply for the FAFSA late, you not only risk a smaller award to begin with, but you also have less opportunity to “shop around” and submit a successful appeal letter.

A quarter of parents surveyed by Discover Student Loans say they’ll appeal their financial aid decision because of previous award amounts and pandemic-induced changes in family finances. In speaking about the survey, Chagas emphasizes that there tends to be more money available early in the process, so students should make the FAFSA a priority.

Murphy agrees. “Filing early makes sure you’re in the running to receive as many awards as possible,” he says. “We see students that get [aid] one year, but not the next.”

They don’t lose out on aid because they no longer qualify, Murphy explains. They just waited too long.

Cecilia Clark is a writer at NerdWallet. Email: cclark@nerdwallet.com.

The article The FAFSA Just Opened: Why You Should Apply Now originally appeared on NerdWallet.

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How to Make a Debt-Free Switch to Cashless Payments

Before the pandemic, Steffen Kaplan, a social media and visual consultant in the New York area, preferred using cash to credit cards. He says cash helped him avoid overspending.

But now, with the coronavirus still potentially lurking around every corner, his habits have changed.

“I don’t carry cash around with me anymore,” Kaplan says. “Given that we have to remember to wear a mask, not touch anything, and go home and wash our hands every two minutes, it just seems easier to have a credit card rather than be fumbling around with cash,” he adds.

Like Kaplan, more Americans are shifting to digital payments amid the pandemic. Among small to medium-sized businesses that accept debit and credit card payments, almost half reported an increase in customers using or asking for contactless payments, according to a June 2020 report from the Electronic Transactions Association, an industry group, and The Strawhecker Group, an analytics and consulting firm.

But for some consumers, contactless payments also come with added overspending risks. “When you are used to a cash-based spending system, it’s extremely easy to overspend when you don’t physically ‘see’ yourself spending the money,” says Eric Simonson, certified financial planner and owner of Minneapolis-based firm Abundo Wealth.

If you’re increasingly turning to digital payments because of the pandemic but you also want to make sure to avoid debt, here are some strategies:

Try to pay off your credit card balance each month

Paying off your credit card balance each month isn’t always possible. In fact, among those who carry a balance, the average for households is around $6,124, as of June 2020, according to NerdWallet research.

But avoiding such rotating balances is a good goal because credit card debt is so expensive.

“It’s important for those making a transition to credit cards to understand the Sisyphean challenge of getting out of credit card debt,” says Sam Boyd, a certified financial planner and senior vice president of Capital Asset Management Group, a financial planning firm, citing the generally high interest rates on credit cards. They’re typically 16% or higher.

Treat your credit card like a debit card, and try not to charge more than you can afford to fully pay off in one billing cycle. One way to guard against it is to pay off purchases immediately after you make them, rather than waiting until the end of the month and having to pay one lump sum.

Give yourself limits

Simonson suggests setting a low credit limit on your credit card if you’re worried about overspending. “Set your credit limit for just above what you normally spend each month on groceries,” he advises.

The downside to doing that is that using more than 30% of your credit limit can hurt your credit score, and it also means you can’t rely on the card in an emergency if you need to purchase more than normal. But the strategy does help keep you from overspending.

He also notes that many credit card companies offer a service where you can be texted as you are approaching your credit limit. “It’s a good idea to turn this on if you are new to using a credit card, to keep track of where you are with your spending throughout the month,” he says.

Jodie Kelley, CEO of the Electronic Transactions Association, says consumers can also stick with debit cards or prepaid cards. They can upload them onto smartphones and use contactless payment methods while still avoiding the risks of credit cards.

Review your spending regularly

AnnaMarie Mock, a CFP based in Wayne, New Jersey, says there’s nothing wrong with primarily using credit cards as long as you are aware of your spending. “Regularly monitoring and comparing your actual purchases with your budget is critical to identifying any areas where you may be unknowingly overspending,” she says.

Monitoring can be done through apps that track transactions, through your account’s web portal, or on pen and paper. “Find a method that works for you,” she urges.

Kaplan does that by carefully tracking all of his receipts. “If I come home with anything I bought, [my wife] reminds me or I remember that receipts go right on the desk and then she logs them. There has to be a system in place,” he says, “or you risk being surprised by an extra $200 on your credit card bill.”

If it helps, keep using cash

David Tente, executive director at the ATM Industry Association, says cash is made out of fabric so it tends to transmit viruses and bacteria less than plastic or metal credit cards.

“It’s nothing to worry about, as long as you wash your hands,” Tente says.

For some people, he says, cash is a good budgeting tool because “you can’t spend what you don’t have. Once you run out of cash, that’s the end of spending for the month.”

When you’re using credit cards, on the other hand, you can keep spending up to your credit limit — but then you’re on the hook to pay it back.

The article How to Make a Debt-Free Switch to Cashless Payments originally appeared on NerdWallet.

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