4 Items for Your Midyear Money Checklist

A lot can happen in six months. That’s why, as we close out the first half of the year, it makes sense to check in on your financial life.

“With inflation, I think people this year are more heavily impacted than they probably have been in many years leading up to this point,” says Jason Dall’Acqua, a certified financial planner and founder of Crest Wealth Advisors in Annapolis, Maryland. “So it’s a good time to see how things have been going … as well as plan for what lies ahead in the remainder of the year.”

So where should you start? Add these four items to your midyear money checklist.

1. Review your income, expenses and goals

You don’t have to tally up every penny you’ve made and spent over the last six months. But taking a few minutes to check a bank or budget app can help you better understand your finances and course-correct if necessary.

“Right now with inflation, even if you had a budget back in January, it probably is not the same as it is today. There are some things that are going to need to be changed. So it’s just really resetting and figuring out where you stand today versus where you thought you were going to stand today,” says Kayla Welte, a CFP with District Capital Management who lives in Denver.

Look for opportunities to scale back if you’ve spent more than anticipated. For example, you can dine out less or cancel subscription services you rarely use. “Any excess spending that you’ve been doing, you may have to cut down to account for this higher cost of things that you absolutely have to buy,” Welte says.

If you set money resolutions or other financial goals earlier this year, check on those too. Have you saved as much toward retirement or an emergency fund as you planned? Are you on track to pay off debt?

2. Deal with debt

Debt is becoming more expensive to carry due to rising interest rates. Pay down debts sooner, particularly those with variable interest rates, to save money. These debts might include credit cards, personal loans or adjustable-rate mortgages.

Concentrate on reducing your highest-rate debt first, then move on to the next highest. Dall’Acqua also suggests switching from variable-rate to fixed-rate options by refinancing, if possible. “If you can lock in the fixed rate now, you’re likely to be saving yourself significantly in interest costs over time,” he says.

Be aware of end dates for loans in forbearance. For instance, federal student loan payments will resume on Sept. 1, barring another extension.

“At this point they have been on pause for nearly two years,” Dall’Acqua says. “So if that money has gotten lost within [people’s] overall spending, it’s going to be a big shock when they then have to resume paying.”

Setting aside money now in a separate savings fund can help soften the blow.

3. Plan holiday shopping

Inflation could make holiday gifts a little pricier this year. Create a shopping list and think about how much you can afford to spend. “Figure out what that would require for you to start saving on a weekly or monthly basis and start putting that money aside right now,” Dall’Acqua says.

Starting on shopping early can also help you manage the cost without accruing debt. Many retailers host major sale events in the summer, so you’ll find discounts well before Black Friday. Amazon’s Prime Day is coming in July. So is the Nordstrom Anniversary Sale.

4. Examine your taxes and benefits

Welte recommends using an online tax calculator to check whether you’re withholding too much or too little. This can help you avoid getting hit with a big tax bill unexpectedly or missing out on extra cash you may need now.

“If you do the math and you’re going to get a $6,000 tax refund, it would be a great time to change your W-4s, get more money in your pocket now to pay for these excess costs that are coming up with inflation rather than waiting until next April to get that refund,” Welte says.

If you need to make adjustments, fill out a new Form W-4 (you can find this on the IRS website) and submit it to your employer.

While you’re at it, evaluate your employee benefit selections. These benefits can include health insurance, life insurance, health savings accounts and flexible spending accounts, plus perks like gym memberships.

Reviewing your choices in the summer can prevent you from becoming overwhelmed in October and November, when open enrollment begins for most companies, says Joe Bautista, a CFP in Lake Oswego, Oregon.

The goal is to ensure you’re choosing the most cost-effective options that suit your needs. For example, “a PPO has higher premiums but a lower cost if you tend to use health care, lower deductibles and copays typically. But if someone doesn’t use that health care, then they can be overspending,” Bautista says.

Don’t worry about getting everything perfect right now. As Bautista says, “financial planning is dynamic, it’s not static.” Check in on your money plans periodically and update as needed.

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How to Afford Your Meds and Support Your Health

The cost of prescription drugs in the U.S. can be enough to make you sick.

What you pay varies enormously depending on the drug, the pharmacy, your insurance plan and your deductible, among many other factors. A drug that may have been cheap or at least affordable the last time you filled it could be far more expensive or not covered at all the next time.

Often, people have no idea what a prescription will cost until they get to the pharmacy counter, says Leigh Purvis, director of health care costs and access for AARP’s Public Policy Institute.

Still, finding a way to afford your meds is important. People who don’t take medicine as prescribed because of the cost could wind up sicker — or dead.

“What is a potentially relatively small problem today, like high cholesterol, could turn into a much bigger problem like a heart attack down the road if you don’t treat it,” Purvis says.

Check with your doctor and insurance plan

Your doctors may not know what your medications cost you, since they’re dealing with dozens of insurance plans with different formularies, or lists of drugs, and how they’re covered, Purvis explains. In addition, insurers may strike deals with certain pharmacies, so a drug that costs $60 at one could cost $160 at another.

If affording a drug is a challenge, your physician may be able to suggest alternatives, such as a generic or a different type of medication. Two other questions you can ask: whether a medication you’ve been taking for a while is still necessary and what lifestyle changes might reduce or eliminate the need for prescriptions.

If you have insurance, review your drug coverage options carefully each year at open enrollment — that yearly period in the fall when you choose your health insurance for the following year. Make a list of all your medications with their dosages, and check how those are covered by each plan. Insurers regularly change their formularies, so you may need to switch plans to get the best coverage. And even if your drugs are covered, you’ll typically have to pay out of pocket for prescriptions until you meet your deductible.

Your insurer or pharmacy may offer a mail-order option to reduce costs, but don’t assume that’s your best option. Shopping around could deliver significant savings.

Look at online prices

Start your search online. The number of online pharmacies has exploded in recent years, giving you many more opportunities to save.

Amazon launched a full-service pharmacy in 2020, joining more established dispensaries, such as Costco.com and HealthWarehouse.com. Besides those, several limited-service startups — including Cost Plus, GeniusRx, Honeybee, Ro Pharmacy and ScriptCo — offer deals on generic drugs.

The startups usually don’t take insurance, but their prices can be less than the typical co-payment, according to Consumer Reports. For example, the consumer research organization found that a 30-day supply for 20 milligrams of atorvastatin — a cholesterol drug — ranged from $14.60 at Amazon and $13.99 at Costco.com, to $3 at Honeybee and just 54 cents at ScriptCo. By contrast, insurance copayments for workers with prescription drug coverage averaged $11 to $12 last year for the least expensive drugs, including many generics, according to KFF, the nonpartisan health care think tank formerly known as the Kaiser Family Foundation.

Your savings may be offset by membership fees: Amazon’s Prime membership — which you’ll need if you want the lowest prices — is $139 per year or $14.99 per month, while ScriptCo charges $140 per year or $50 per quarter. Costco has a membership fee of $60 a year, but you don’t need to be a member to order prescriptions online or at its warehouse stores.

Investigate other discounts

GoodRx has a website and an app that allows you to compare prices at nearby chain pharmacies, and it provides free coupons that can save up to 80% off of the list price. You’ll find another price comparison tool that includes local pharmacies at NeedyMeds, a nonprofit that helps people find drug manufacturing discount programs and other ways to reduce medication costs. In addition, several chains including Walgreens, Walmart, Kroger and H-E-B have discount programs.

One often-overlooked alternative for Medicare beneficiaries is the Extra Help program, aimed at helping older people with limited incomes and resources pay for their medications, Purvis says. You can apply online or by calling 800-772-1213.

Watch out for drug interactions

Finding the best prices can take significant time and effort. And people who shop aggressively for the lowest cost drugs could face a hidden risk if they’re getting multiple medications from different pharmacies, Purvis warns. Without a single pharmacist overseeing their care, they risk potentially harmful drug interactions.

You can use an online drug interaction checker like the one at WebMD, but ideally you would ask your primary care doctor or a pharmacist to review your full list of medications at least once a year.

“Making sure that somebody has an eye on the big picture care is really important,” Purvis says.

Pass This Credit Card Quiz and Cut Your Costs

One look at a typical cardholder agreement makes clear that credit cards come with plenty of fine print. Even so, a lot of information isn’t readily available to cardholders, especially regarding what they can ask for from their card issuers and how they can manage their accounts more cost-effectively.

A recent NerdWallet survey found significant gaps in consumer understanding of credit cards — gaps that can be costly.

“The act of using a credit card is so simple, but they can be complicated products,” says Sara Rathner, a NerdWallet credit cards expert. “Knowing what your card offers, and what you can ask for, can make it significantly more valuable for you.”

Test your knowledge by taking the same quiz given to survey respondents.

1. True or false:

Moving credit card debt to a card with a lower interest rate or a 0% rate will always save you money in the long run.

balance transfer can help you pay off debt more quickly, but it isn’t always the best option. Moving debt from one card to another usually incurs a fee of 3% to 5% of the amount transferred. That fee could be more than you’d have paid in interest if you’d left the balance where it was and paid it off. So you have to compare costs. A balance transfer is effective only if it saves you money overall — and you use the money you save to pay down your debt even faster.

Answer: False.
Survey respondents who answered correctly: 22%.

2. True or false:

Credit card issuers allow you to ask for an increase in your credit limit.

You can always ask your card issuer for a higher limit, although there’s no guarantee you’ll get it. The issuer will consider various factors beyond your account record, including your income, debts and credit history.

Answer: True.
Survey respondents who answered correctly: 76%.

3. True or false:

Credit card issuers allow you to ask for a lower interest rate.

Similar to seeking a higher limit, you can certainly ask your card issuer if you qualify for a lower rate. You might not get it, but it’s worth picking up the phone to ask, especially with an account in good standing. A lower interest rate means immediate savings if you typically carry a monthly balance.

“If your current card isn’t working for you, it could be worth calling and asking for the change you want,” Rathner says. “If you’re a longtime customer in good standing, the answer might be yes. But if it’s a no, then you can vote with your wallet and shop around for a card that’s a better fit for your needs right now.”

Answer: True.
Survey respondents who answered correctly: 50%.

4. True or false:

Credit card issuers make financial hardship plans available to anyone struggling to make payments.

Some credit card issuers will temporarily lower interest charges or waive fees through a financial hardship plan for cardholders who can’t make payments due to circumstances beyond their control. For instance, you might be eligible if you’ve lost your job or had a family emergency.

But while some issuers offer hardship plans, they don’t make them available to everyone who asks. You’ll have to qualify based on your circumstances. No one is guaranteed to be accepted.

Answer: False.
Survey respondents who answered correctly: 18%.

5. True or false:

If you want to switch to a different card from the same company — for example, to get a lower annual fee or better rewards — you must ask the company to close your original account and open a new one.

Switching cards from the same issuer is called a product change. Since issuers don’t widely advertise product changes, it’s not surprising that many people don’t understand how they work.

If you’re unhappy with your current credit card because of its fees, rewards or other features, you can ask the issuer to switch the account to a different card that’s better suited to your needs. You keep the same account; it just has a new credit card attached to it. Keeping the account open can benefit your credit since scoring models consider the length of your credit history, including the age of your accounts.

Answer: False.
Survey respondents who answered correctly: 23%.

6. True or false:

Credit card issuers waive late fees.

Issuers don’t broadcast that they’ll consider waiving late fees, so it’s not surprising that many people don’t know it’s an option. Not all issuers will waive fees. Those that waive them will do so at their discretion, and they’ll consider it only if you ask. It’s not unusual for an issuer to waive the first late fee for an account in good standing. If granted, that’s a potential savings of up to $30.

Answer: True.
Survey respondents who answered correctly: 37%.

7. True or false:

You can use a credit card without ever having to pay interest.

You won’t be charged interest on purchases if you pay your credit card on time and in full monthly. If you carry a balance from one month to the next, on the other hand, you’ll incur finance charges unless you have a promotional 0% annual percentage rate period in effect.

Putting purchases on your card and paying the bill in full each month avoids interest while still reaping the benefits of a credit card, such as fraud protection, rewards and others.

Answer: True.
Survey respondents who answered correctly: 54%.

8. True or false:

Making the minimum payment every month on a credit card allows you to pay down debt quickly.

Paying only the minimum on a credit card every month can take years to get out of debt. The minimum is usually enough to cover the interest accrued over the past month, plus only a small fraction of the actual debt. Look at your credit card statement to see how long it would take at that rate. You’ll see a table that shows how long it would take to pay off the balance if you made only the minimum payment.

Answer: False.
Survey respondents who answered correctly: 64%.

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What You Need to Know About Apple’s Buy Now, Pay Later Feature

Earlier this week, at its Worldwide Developers Conference, Apple announced the release of a new feature called Apple Pay Later — a type of “buy now, pay later” plan. The feature lets users divide Apple Pay purchases into equal installments at zero cost.

Though there have been rumors of a cooling-off period for the explosive buy now, pay later industry, Apple’s entry into the market suggests this type of short-term installment loan is here to stay. And with millions of people already using Apple Pay, more borrowers will have access to a buy now, pay later plan as the cost of goods rises and household budgets tighten.

Buy now, pay later plans can be an affordable way to borrow money, but potential users should consider the risks of taking on this type of debt.

How will Apple Pay Later work?

Apple Pay Later splits your total purchase into four equal installments repaid over six weeks, with no interest or fees, according to a news release from the company.

It’s similar to plans offered by other buy now, pay later providers like PayPal, Afterpay and Klarna. The first payment is due at checkout and the remaining three payments are due every two weeks until the loan is paid in full.

For example, if your purchase is $100, you’ll pay $25 at checkout, then have three remaining payments of $25, each due two weeks apart, for a total repayment period of six weeks.

By eliminating interest and fees, Apple is an automatic standout in the buy now, pay later space. Though few current providers charge interest on a pay-in-four plan, many charge late or missed payment fees.

To use Apple Pay Later, borrowers must first apply, which can be done when they check out with Apple Pay or through the Wallet app. Apple did not mention underwriting criteria in its news release. Still, most buy now, pay later providers do not require a minimum credit score, making it an option for bad-credit or no-credit applicants. Once users are approved and opt in to the payment plan, they can view and manage upcoming payments in the Wallet app.

Payments must be tied to a debit card, which may be automatically billed. Apple will send reminders before an autopayment is processed.

Apple Pay Later will be available everywhere Apple Pay is accepted online or in-app, according to the news release. The feature will launch with iOS16, which will be released later this year.

What to know about using a buy now, pay later plan

Most financial experts urge caution when it comes to buy now, pay later plans. Though it seems easy to spread a purchase out at no additional cost, taking on debt is risky, particularly for things you don’t need.

One of the biggest concerns around buy now, pay later plans is overspending. Charles Ho, a certified financial planner based in Folsom, California, says the instant gratification built into these plans may lead to splurges you eventually regret.

“With cash, we’re much more attuned to whether what we’re buying is worth what we’re paying,” he says. “Whereas if we don’t have that pain of paying immediately, our value radar gets thrown. We’re willing to pay more for something or even buy something we otherwise wouldn’t buy.”

It’s also easy to lose track of payments and fall behind, especially if you’re managing multiple buy now, pay later loans at a time. Though Apple may not charge a fee for failed payments, your bank or credit union most likely will if you overdraw the debit card tied to your Apple Pay Later. In addition, some buy now, pay later lenders may also report late payments to the credit bureaus, which could hurt your credit score.

Finally, there are growing concerns about the lack of regulation around buy now, pay later plans. In December 2021, the Consumer Financial Protection Bureau opened an inquiry into some of the largest providers, citing data harvesting, debt accumulation and consumer protection concerns. However, the bureau has yet to release its findings.

Ho says buy now, pay later isn’t always a bad option for those who want more payment flexibility and can afford the installments. However, he recommends taking a beat before agreeing to the loan.

“If you want to take advantage of zero interest and spread out the payments, I would say, sleep on the purchase for a night,” he says. “If tomorrow you still really want it, and you can make the payments, then go ahead.”

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Don’t Let Your First Car Be a $30K Mistake

Buying your first car is already an intimidating experience; in the midst of historic supply shortages, it’s easy to feel overwhelmed.

In March of this year, the average price of a used car was $27,246, according to Cox Automotive — an automotive marketplace and data company — or 28% higher than it was a year ago. With those price increases, monthly payments have also swelled. Average payments for used cars reached $488 in the last quarter of 2021, according to Experian. On top of that, the average loan term for used vehicles was just over 67 months, or more than five years.

For many, cars are a necessity. If you have little or no credit, no co-signer or just a limited budget, it can be easy to accept a loan that pushes your budget or binds you to a car for six, even seven years.

Not being ready before stepping onto a car lot can open the door to making a purchase you’ll later regret. Set your limits before you ever stop at a dealership; with the right preparation, you can keep your purchase from becoming a burden.

Secure a loan

Your first step is calculating what loan payments you can afford and the total loan amount that’s within your budget.

Aim to keep your monthly loan payment below 10% of your take-home pay, and if you’re buying a used car, keep your loan term under 36 months. If you’re looking for a new vehicle, keep the term under 60 months. Limiting your loan term will save you money on interest and will lower the risk of your loan becoming upside-down — owing more than the car is worth.

Numbers in hand, start looking for a lender that will give you a loan. Getting preapproved for a loan before visiting dealer lots can give you a better negotiating position, keep you from going over budget and reduce what you pay in interest.

With little or no credit history — especially since you have not had a car loan before — your best shot at being approved for a loan at the lowest interest rate possible is to apply with a co-signer. But if that’s not a possibility for you, there are still financing alternatives available:

  • One of the first places to look are banks and credit unions, particularly institutions that you have an established relationship with.
  • Search your area for lenders with first-time buyer programs, which put conditions on the amount you can borrow and the vehicles you can buy but dispense with some of the credit requirements.
  • You can also look for loans from online lenders that offer bad-credit auto loans, since they will often have low or no minimum credit scores. These loans can carry interest rates of over 25%, so a year after taking one on, you can try to refinance for lower rates.

Pick the right car

Finding a cheap car used to be easy — or at least easier than it is now. If you have a $10,000 budget, your options are limited, but that doesn’t mean there aren’t options.

With a limited budget, most choices will be older, used cars, and that increases the annual cost to maintain your car. A 2021 Consumer Reports study found that 2016 model year vehicles cost $205 to maintain over the previous 12 months, while 2011 model year vehicles cost $430.

In addition to maintenance costs, there’s also fuel, insurance, registration and taxes that all add to the cost of owning a vehicle. As you search for a car, look into the cost of ownership, since it will differ from car to car.

The total cost of owning your vehicle, including your loan payment, shouldn’t exceed 20% of your take-home pay. Although some costs can’t be significantly reduced, you can minimize others — such as future maintenance, repairs and fuel — with the right car.

“The most important thing to look for is a car with good maintenance history,” Joey Capparella, a senior editor at Car and Driver, said in an email. “If the previous owner has taken good care of the car and can provide service receipts, that trumps other attributes such as the number of miles or the brand. One-owner cars are desirable for this same reason.”

Service and ownership history can sometimes be found through a service such as Carfax. Use this information, along with total mileage and the car’s age, to narrow down your search. When looking at vehicles for less than $10,000, the car with fewer miles will often be the better choice, if all else is equal.

Once you’ve settled on a car, take it for an extensive test drive, Capparella added, and pay attention to “the seating position, the visibility out of the windows, and the sound of the engine.”

If something about the car isn’t right for you, a different vehicle is likely a better choice, and don’t be afraid to be picky. You may not be buying the car of your dreams, but you could be living with your choice — and making payments on it — for years to come.

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The Case for Flying on Low-Demand Days

There are countless theories on how the influx of remote work has changed life as we know it. One of the most beneficial for travelers is the end of the five-day in-office workweek. Whether people are going fully remote or commuting on a hybrid schedule, the extra flexibility gives them the ability to choose cheaper days to travel.

But so far, “laptop luggers” aren’t moving the needle on price — at least, not yet. Average flight prices, which are notorious for fluctuating with demand, are almost unchanged from 2019, despite a major drop in business travel and a significant increase in remote workers.

The cheapest days of the week to fly are largely the same as they were before the start of the COVID-19 pandemic, when most people wouldn’t have even considered taking conference calls from the beach.

Here’s how flight pricing varies throughout the week and what that means for workers, both remote and in-person. Everyone can benefit from planning their travels to take advantage of the cheapest days.

What are the cheapest days to fly?

Tuesdays and Wednesdays are the cheapest days to travel

According to data from the travel app Hopper, flying midweek is usually still the best deal.

Domestic flights departing on Tuesdays cost about $274 round-trip in economy class on average, which is about 24% lower than the price on the most expensive day to fly (Sunday). That’s savings of about $85 per ticket. The same is generally true for business class and first class travelers.

“Remote workers have the option to be flying on these off-days, but they don’t tend to be taking advantage of it as much as they could, if airline pricing is any indication,” says Willis Orlando, senior flight analyst at Scott’s Cheap Flights. “And airline pricing is so sensitive to demand.”

If more people were to fly midweek for domestic flights, you might see a similar pattern to international flights. Because travelers often go on longer international trips, there’s less variation in pricing by day of the week. In 2022, flying internationally on the cheapest day (Wednesday) saves travelers about 12% compared with the most expensive day, according to Hopper.

Saturdays are the new Mondays

In 2019, Monday was the third least expensive day to fly domestically, according to Hopper’s data. If you couldn’t swing a Tuesday or Wednesday flight, your next best bet would have been a Monday flight, which averaged $303 round trip for a domestic economy ticket.

Three years later, Saturday and Monday have flip-flopped spots in the ranking of cheapest days to fly. Saturday flights now average $307 round trip, slightly less than the average Monday flight at $312 round trip.

Get home in time for the weekend

Depleted business travel demand is also giving travelers more opportunities to find cheaper flights. Spending on corporate travel this year is projected to reach 55% of 2019 levels, according to Deloitte.

Nowadays, travelers can snag affordable flights during the workweek, especially to destinations that are more popular with leisure travelers, like Las Vegas or Miami.

“Flying out Monday, flying back Friday used to be the highest demand time” for business travelers, Orlando says. “It’s no longer the case anymore. You can get good deals to do that bookend of the week.”

All bets are off for holidays

Holidays are exceptions to every pattern. It doesn’t matter that Tuesdays are the cheapest day to fly if it’s the Tuesday after a long weekend or the Tuesday before Thanksgiving. To get the lowest price, you’ll have to extend your trip on either side of the holiday or fly on the holiday.

This is where remote workers could come in. With their added flexibility, they can help drive down prices for everyone.

Last year, Orlando noticed a level, even surge in flight pricing the week before Christmas. Normally, he’d expect to see a huge jump in prices on the Tuesday and Wednesday before.

“Because people can work remotely, people are saying, ‘I’m going to go to my mom’s three days early,’” Orlando says. “So I think it’s going to help ease that pressure that drives the holidays prices especially through the roof.”

Rethinking your vacation strategy

Even though how people work has changed dramatically over the past two years, it’s still a bit too early to declare that it has leveled flight prices. The cheapest days of the week to fly haven’t changed, so all types of workers can and should plan their vacations around travel dates with less demand.

Orlando recommends thinking about it in terms of how much one day of paid time off is worth to you. Is it worth it to save $75 by flying on a red-eye on Wednesday instead of flying Thursday or Friday? Would you have to pay for an extra night of accommodation? Should you book a monthlong Airbnb rental, or can you handle staying extra nights at your parents’ house?

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The 15/3 Credit Card Hack Is Nonsense — Here’s What to Do Instead

Sometimes a grain of truth about a financial topic can morph into something that’s just plain misleading. One example is the 15/3 credit card payment trick — or hack — that you might have seen touted on the internet and social media as a secret tactic for improving bad or mediocre credit.

The 15/3 hack claims you can dramatically help your credit score by making half your credit card payment 15 days before your account statement due date and the other half-payment three days before.

Problem is, it doesn’t work.

“Every few years some nonsense like this gains some momentum, but there’s no truth to it,” John Ulzheimer, an Atlanta-based credit expert, said in an email. Ulzheimer has worked for FICO and credit bureau Equifax.

The number of payments you make in a credit card billing cycle — a month — does not help your number of on-time payments, a factor in widely used credit-scoring models. You’ll get credit for just one on-time payment during that month. And there’s nothing magical about 15 days and three days before your due date. In fact, it’s too late by then. At 15 days before your due date, your statement is already closed and your credit card company has likely already reported your information to the credit bureaus.

What is true about credit card payments and what can help? Making multiple payments in a month could help your credit scores temporarily by making it look like you’re using less credit, but not in the way the 15/3 hack describes.

What the 15/3 credit hack claims

Many YouTubers, blog posts and short videos on TikTok claim 15/3 is a secret sure-fire method for elevating credit scores.

We weren’t able to identify the originator of the 15/3 credit card payment method, but this is generally how it is retold in those spaces. Your credit scores will supposedly grow significantly if you:

  • Make half a payment 15 days before your credit card due date. If your payment is due on the 15th of the month, pay it on the 1st.
  • Pay the second half three days before the due date.

Some versions of the 15/3 rule swap in statement closing date for payment due date. The statement closing date comes about three weeks before the payment due date. Targeting the closing date could mean making three payments.

  • Make a payment 15 days before the statement closing date. (Not necessarily half because you don’t yet know what half is. You’re still using the card during the billing cycle.)
  • Make a payment three days before the statement closing date.
  • Pay off whatever is left after the statement closing date but before the due date so you don’t pay late fees or interest. This amount would be whatever you charged during the final three days of the billing cycle.

Why the 15/3 credit hack is wrong

The main problems with the 15/3 hack:

  • Wrong date peg. Typically, on or near your statement closing date — not the payment due date — your credit card company reports to the credit bureau or bureaus with such information as your balance and credit limit. It does this only once a month. Your due date comes about three weeks after that. So targeting the due date makes no sense. Making a payment 15 days and three days before the credit card due date, as the 15/3 hack suggests, is too late to influence credit reporting for that billing cycle.
  • Multi-payment myth. You don’t get extra credit, so to speak, for making two payments instead of one, or making a payment early. Your creditor only reports to the bureaus once a month.
  • 15/3 is random. If you use the 15/3 definition pegging payments to your closing date, that can help, for reasons we’ll discuss below. But 15 and 3 are irrelevant. You might as well make a single payment prior to the closing date. The creditor is just reporting what your balance is at the end of the billing cycle.

“There’s no relevance to when you make the payment or payments prior to the statement closing date,” Ulzheimer said. “You can make a payment every single day if you like. Fifteen and three days doesn’t do anything different than paying it off one or two days before the statement closing date.”

What’s the truth?

The grain of truth in the 15/3 hack is that credit utilization matters to credit scores.

Credit utilization is simply how much credit you’re using vs. how much credit you have. Scoring models award you a higher score if you have lots of available credit, but use very little of it.

Your credit score is a snapshot in time reflecting your creditworthiness. Purposefully lowering your utilization on a certain date is like applying lipstick before the photo is taken.

But your effort to pretty-up your utilization only lasts one month — until the next month when your creditors report your balances and limits again and you have a new utilization ratio. So unless you were going to apply for a loan or otherwise needed to show a handsome credit score on a specific date, your effort was wasted.

It’s like you put on a fine suit but sat home alone. Nobody saw it, or cared.

Credit utilization ratio details

For a single credit card, the relevant dollar figures are your last-reported balance compared with your last-reported credit limit. If you’re using $1,000 of a $2,000 credit limit on the card, you have a 50% credit utilization, which is considered somewhat high.

Generally, credit scores react best to utilization below 30%, and below 10% is ideal. With our example of a $2,000 credit limit, that means keeping your balance under $600 or $200, respectively. Of course, that’s not possible for everybody, especially not for those with relatively low credit limits. A $500 credit limit can get used up fast in a month.

Credit utilization accounts for nearly one-third of your credit score — 30% in the popular FICO score model. So lowering your utilization can, indeed, polish your scores. But with credit cards, your utilization bounces up and down during the month as you make charges and pay them off.

Overall, the 15/3 hack attempts to make your utilization look better, which is a fine goal and standard advice. It just misses the mark by offering the wrong time peg and irrelevant numbers of days before that time peg.

“This is neither novel nor some sort of a secret hack to the scoring system,” Ulzheimer said.

What really helps your credit score

Your credit score is affected by these factors, and generally in this order of importance, according to FICO:

  • Payment history.
  • Credit utilization.
  • Length of credit history.
  • Mix of credit types.
  • Recent applications for credit.

While the 15/3 hack won’t help your credit directly, it could indirectly if it keeps you disciplined to pay your credit card bill on time. Or, for example, maybe it helps you time your payments to coincide better with your paychecks.

But paying early according to the 15/3 rule generally has no merit.

“The truth is paying your bill before the due date will never, ever increase your scores by some drastic amount,” Ulzheimer said.

The article The 15/3 Credit Card Hack Is Nonsense — Here’s What to Do Instead originally appeared on NerdWallet.

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Mortgage Rates are in for a Bumpy Ride in June

June mortgage rates forecast

Mortgage rates might be volatile in June. A graph of them may resemble the cutting side of a handsaw, with sharp daily ups and downs. I predict that the average rate on a 30-year mortgage will be higher in the last week of June than in the last week of May.

I’m not brimming with confidence in this forecast. One source of uncertainty arises in the middle of the month, when the Federal Reserve meets to hash out monetary policy. As of late May, financial markets were expecting the Fed to raise the overnight federal funds rate by half a percentage point on June 15.

Experience tells you that when the Fed raises short-term interest rates, then long-term mortgage rates will go up, too. But when the stock market takes a beating (which is what happened in May), that tends to depress mortgage rates. What if investors worry that the Fed’s aggressive rate increases will cause a recession soon? In that case, mortgage rates might not rise much, or they could even fall.

To summarize: Mortgage rates probably will rise in June, but that’s not a sure thing. Meantime, we could see substantial bumps and dips day to day.

Exiting a period of steady rates

Mortgage rates were relatively tranquil from autumn 2020 to the middle of December 2021. A graph of rates during that period would be a more-or-less straight line with little squiggles day to day and week to week.

Government intervention was responsible for that era of steady mortgage rates. The Federal Reserve accomplished it by buying billions of dollars’ worth of mortgage-backed securities every month. This meant that lenders knew they would easily find investors to buy the mortgages they underwrote: If private investors didn’t want them, the Fed would buy them.

Lenders kept rates low and steady during this time, knowing they could easily find buyers for their loans. But the period of tranquility ended when the Fed announced in mid-December that it would quickly reduce its purchases of mortgage-backed securities at the beginning of the new year. Lenders didn’t wait until January for the Fed to follow through; they raised mortgage rates at the end of December, and kept raising rates into the spring.

Then, in January, the Fed announced that it would slam the brakes on mortgages even harder in February. In March the Fed said it would no longer increase its mortgage holdings. Mortgage rates steadily increased.

Entering an era of unstable rates

The central bank has accumulated hundreds of billions of dollars’ worth of mortgage-backed securities since the beginning of the pandemic. In May, it pledged to start shrinking those holdings in June. The Fed plans to reduce the amount of mortgage-backed securities it owns by up to $17.5 billion a month from June through August, then by up to $35 billion a month after that.

This means that the government is reversing its intervention in mortgage markets. Instead of adding mortgage-backed securities to its balance sheet, the Fed is letting them drain off. When the Fed was accumulating mortgages, rates remained low and steady. Now that the Fed is shedding mortgages, it’s reasonable to expect rates to trend upward, and to have bigger up-and-down swings day to day and week to week.

This volatility will add stress when deciding whether to lock a mortgage rate today or wait until tomorrow. The time-honored advice is to “lock on the dips” — to lock on a day when the rate falls, on the theory that it will soon rise again. Your loan officer may offer guidance, but keep in mind that day-to-day rate movements are unpredictable.

What happened in May

Mortgage rates rose in May, as I predicted. The 30-year fixed-rate mortgage averaged 5.32% in May, compared with 5.09% in April. My predictions have been correct in eight of the last 12 months.

The article Mortgage Rates Are In for a Bumpy Ride in June originally appeared on NerdWallet.

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