4 Steps to Having a Debt-Free Summer Vacation in 2024

It’s nearly summertime, and you know what that means: time to figure out how to pay for next year’s summer vacation! OK, maybe that’s not top of mind, but according to a new NerdWallet survey on summer travel, 26% of 2023 summer travelers will use a credit card to pay for those travel expenses but won’t pay the balance off with the first statement. Additionally, nearly 3 in 5 Americans (58%) aren’t taking a summer vacation at all, some for financial reasons.

If you want to take a trip next summer without taking on credit card debt, it’s a good idea to start planning how you’ll pay for it and how to make it less expensive. Here are four steps to make your 2024 summer vacation a debt-free reality.

1. Start saving now

Saving for a vacation takes the pressure off to either come up with the money all at once, take on debt or forgo a trip altogether. Sinking funds — or savings accounts dedicated to a specific goal — are a great way to save for an upcoming vacation.

Estimate your trip’s cost, including transportation, lodging, food, entertainment, shopping and other incidentals, and plan to save. That could mean dividing your trip budget by 12 and putting away equal monthly installments or earmarking expected windfalls, like a bonus or tax refund, for your summer trip. You can also focus on ways to lower your summer travel spending so you can save less throughout the year.

2. Consider using points/miles

According to NerdWallet’s travel rewards study, travel rewards credit card holders have 55,300 points/miles, on average. If you have rewards banked, consider spending them on next year’s summer vacation or even sooner. Over time, the value of these rewards tends to decline.

If you don’t have points/miles to spare, you can plan to earn some to cut down on your travel costs. This might mean applying for a new travel rewards credit card with a hefty sign-up bonus or switching your daily spending to a travel rewards card already in your wallet. Assuming a point/mile is worth about 1 cent each and you earn 2 points per dollar spent, monthly credit card spending of $2,000 could net you $480 worth of free travel in one year.

3. Make cuts to other parts of your budget

The summer travel survey found that around 1 in 6 Americans who aren’t traveling this summer (16%) say inflation has made their other expenses too expensive, so they can’t afford to take a summer vacation. So even as inflation cools down, your budget may be feeling the pinch. But if travel is your priority, reviewing your spending and seeing if you can make cuts to save money for future vacations is a good idea.

4. Travel on a budget

Most 2023 summer travelers (92%) are taking action to save on those travel expenses, like driving instead of flying (35%) or staying with friends or family instead of in a hotel/motel (31%), according to the summer travel survey.

Flexibility is critical if you’re looking for ways to make summer travel more affordable. You might find deals by choosing a less popular flight time or traveling at the tail end of the season after the school year begins. Planning your summer trip early may also help you travel on a budget — just another reason to start thinking about 2024 vacations now.

3 Common Credit Myths That Could Damage Your Score

Financial misinformation is rampant, and it could be hurting your credit score. A new NerdWallet survey finds that Americans hold many misconceptions about their credit, some of which could seriously damage their scores. Here are three common credit score myths and how to guard against them.

Myth 1. Leaving a balance on your credit card is good for your score

This is a sticky credit myth: Nearly half of Americans (46%) think leaving a balance on their credit card is better for their score than paying it in full, according to the survey. But carrying a balance doesn’t help your credit and can, in fact, be harmful if the balance is a large percentage of your available credit limit. That’s because it increases your credit utilization (the amount of your credit limit in use), which significantly influences your score.

Another drawback of leaving a balance on your credit card is the interest expense. Credit card debt — which you have if you leave a balance on your card, even if intentionally — is one of the most expensive types of debt due to double-digit interest rates. And while you might think leaving a small balance on your card wouldn’t be that costly, it can be because of how credit card interest is calculated.

If you don’t pay off your entire balance by the due date, interest is assessed, but not just on the remaining balance. Instead, it’s calculated on the average daily balance on your credit card. So if you leave a $10 balance on your credit card, but the average daily balance on your card over the month was $1,000, interest is charged on the $1,000 balance.

You can combat this by paying off your balance on or before the due date, which may lower your credit utilization and monthly costs.

Myth 2. Closing a credit card you don’t use is good for your credit

The survey found that close to half of Americans (46%) think closing a credit card they no longer use can help their credit score. Keeping a financial product you aren’t using seems counterintuitive, but closing a credit card can damage your score.

Closing a card may ding your credit score in two ways: increasing your credit utilization and decreasing the average age of your accounts. And while there are reasons to close a credit card account, generally, disuse isn’t enough of a reason to take the credit hit.

Even if you don’t cancel your credit card, the issuer will eventually close any account that’s not used over a certain period. To combat this, you can charge a small recurring expense — like a monthly subscription — to the card and set up autopay to wipe out the credit card balance each month.

Myth 3. A credit check won’t impact your score

More than a quarter of Americans (28%) don’t realize that a lender running a credit check can make their credit score go down, according to the survey. There are two types of credit checks, a hard inquiry and a soft inquiry. When you check your credit, it’s a soft inquiry and doesn’t affect your score. But when a lender checks your score to determine creditworthiness for a financial product, it’s a hard inquiry, and your score can go down.

There are some exceptions. For example, for certain financial products, such as a mortgage or auto loan, several inquiries made in a short period count as a single hard inquiry. The amount of time varies by credit scoring model, but it’s safest to submit all applications within a two-week period. This is known as “rate shopping” and allows you to shop around for the most favorable loan terms.

However, applying for multiple credit cards in a short period doesn’t fall under rate shopping and will result in a hard inquiry for each application. For this reason, limiting the number of card applications you submit is a good idea. Hard inquiries can stay on your credit report for two years, so before applying for a new credit card, make sure it’s available to consumers in your credit score range.

Erin El Issa writes for NerdWallet.

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5 Steps to Strengthen Your Finances in 2022

This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.

2021 was a year of financial strain for many Americans: Household debt and the overall cost of living increased, while median household income decreased, according to NerdWallet’s annual household debt study. In 2022, setting grand financial goals may not be realistic for every budget, but there are still smart steps you can take to shore up your finances.

1. Examine your spending

Household finances have changed drastically for many Americans over the past two years. Pandemic relief and stimulus programs — as well as the reduction of certain expenses due to pandemic restrictions, like commuting and travel — may have added money to some budgets. On the other hand, according to NerdWallet’s study, the overall cost of living has grown 7% over the past two years while median household income decreased 3% in the same span, putting the squeeze on many Americans.

A new year is an ideal time to examine your budget. Don’t have a budget? Start by pulling your bank and credit card statements for the past three months and adding up your spending in different categories — housing, food, utilities and so on — to see what an average month looks like for you. Knowing how much you’re spending now is key to creating a realistic budget for the future. Without this step, you might assume you should budget, say, $300 a month for groceries, but if you’re currently spending $600 a month at the supermarket, it’s probably not realistic to cut your spending so quickly by so much.

Once you’ve built a budget, compare your expenses to your income to see how much room there is to progress toward financial goals like saving and investing. You can then determine whether you need to increase your income, decrease your expenses, or both. Based on your eligibility, you might also consider seeking out programs to help you make ends meet, like an income-driven repayment plan for your student loans or the Supplemental Nutrition Assistance Program, or SNAP.

2. Add a little more to your consumer debt payments

Revolving household credit card debt — that is, credit card balances carried month to month — fell 14% over the 12 months that ended in September. But according to NerdWallet’s study, some Americans leaned on their credit cards to get through the pandemic. One in 5 Americans (20%) say they increased their overall credit card debt during the pandemic. Almost the same proportion (18%) say they relied on credit cards to pay for necessities during this time, according to the survey conducted for NerdWallet by The Harris Poll.

If you have a credit card balance and you don’t feel like you’re getting anywhere in paying it off, adding just a bit more to the monthly payment, if possible, can make a big difference.

Say you have a credit card balance of $5,000 at 17% interest, and your minimum monthly payment is $75. If you paid only that much each month, it would take more than 17 years to erase the debt, and you’d pay more than $10,400 in interest. But you could save thousands in interest charges and years of payments if you added $25, $50 or $75 to that monthly payment.

Small payment increases have a big impact

Monthly payment

Interest costs

Years to payoff













3. Evaluate your investments

Of Americans who have received pandemic relief since March 2020, 9% used at least some of that money to invest in cryptocurrency, according to the NerdWallet survey. This may be totally in line with your goals and risk tolerance, but take time to review your overall investment holdings. It’s recommended that you diversify your investments to reduce risk and increase your potential for return over the long term.

If you have a workplace retirement plan — like a 401(k) or 403(b) — participating in it can save you money on taxes in the short term and grow your nest egg in the long term. Consider investing your money there first — notably if your employer offers a match on your contributions. Otherwise, you’re passing up a guaranteed return on your investment.

4. Negotiate medical bills

Medical costs have risen by 31% in the past decade, according to the NerdWallet study. This is a staggering increase, especially when paired with a pandemic that resulted in overflowing hospitals. But medical bills are negotiable, and there are options to break up or even reduce your costs.

Many providers offer payment plans on medical bills. While you should inquire about associated fees or interest, this will probably be a cheaper option than using a credit card that charges interest. In addition, low-income patients may have access to hardship plans, which will break up your costs and potentially lower your overall bill. Ask your provider about these options.

You can also try to negotiate your balance down or seek a medical bill advocate to do it for you. Whichever route you choose, avoid ignoring your bills entirely. If your medical provider sells your debt to a collection agency, you have 180 days to deal with this debt before the collection account shows up on your credit reports. At that point, this debt can hurt your credit scores, making other financial moves harder in the future.

5. Save for something

More than 2 in 5 Americans (43%) who have received pandemic relief since March 2020 say they saved at least some of this money — for emergencies, a home or something else — according to the NerdWallet survey. So regardless of how much you can save and what your specific goals are, everyone could benefit from saving something, whether it’s $5 or $500 a month.

Your goal may be an emergency fund to help you stay afloat the next time the unexpected happens or a dream post-pandemic vacation paid in cash. But no matter what your ultimate goal is, regularly putting money aside gives you options, even if you choose to use the cash for something other than its intended purpose in the future.

Erin El Issa writes for NerdWallet. Email: erin@nerdwallet.com.

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5 Options for Your Money Before Student Loan Payments Resume

5 Options for Your Money Before Student Loan Payments Resume

This article provides information for educational purposes. NerdWallet does not offer advisory or brokerage services, nor does it recommend specific investments, including stocks, securities or cryptocurrencies.

The Biden administration has extended the federal student loan payment pause a final time, meaning borrowers won’t owe money or accrue interest until February 2022. While a new NerdWallet survey shows that over a third of federal student loan borrowers (35%) have continued making loan payments throughout the automatic forbearance, others have chosen or needed to put this money elsewhere.

With this final extension, federal borrowers whose essentials are covered have four to five more would-be payments that they might apply toward different goals. If you aren’t sure how to best use your remaining payment reprieve, here are five suggestions, plus next steps in case you aren’t ready to resume payments in February.

1. Save it in your emergency fund

Around 1 in 8 federal student loan borrowers (13%) say they put loan payment money into a savings account, according to the survey. The COVID-19 pandemic has been financially devastating for many, highlighting the importance of emergency savings. Ideally, you’d save three to six months’ worth of expenses, but even $500 or $1,000 stashed away can make a big difference in your peace of mind and ability to handle the unexpected.

2. Pay off high-interest debt

The survey found that some federal borrowers put would-be payment money toward paying off/down credit card debt (20%), private student loans (12%) or another type of debt (14%). If you’re comfortable with the amount you have saved for emergencies, focusing on high-interest debt can have a meaningful impact on your overall interest costs, especially with federal student loans at 0% interest for the next several months.

3. Avoid high-interest debt

Speaking of high-interest debt, a credit card balance of $1,000 with an interest rate of 16% would cost $160 in interest charges if carried for a year. If you don’t have any high-interest debt, but have upcoming purchases you’d otherwise let sit on your credit card — like a home improvement project or holiday expenses — you could use would-be federal loan payment money to pay for these purchases upfront. That way, you can avoid interest charges and the stress that may accompany a hefty credit card balance.

4. Put it aside to pay in one go

While payments aren’t due now, your main financial priority may be paying off your federal student loans. You can make monthly payments as normal or hang on to the payment money and make one large payment right before the pause ends. With this approach, you have cash on hand as a buffer in case something comes up. If nothing does, you can avoid the interest you’d otherwise accrue on the student loan principal.

5. Contribute to an IRA

Around 1 in 6 federal student loan borrowers (16%) say they invested the money that would otherwise go toward their loans for retirement, according to the survey. If you’re comfortable with the amount you have in emergency savings and aren’t paying off high-interest debt, you may choose to put would-be payment money into an IRA.

An IRA is a tax-advantaged retirement account that a person with taxable income (or someone who has a spouse with taxable income) can contribute to. The current annual limit is $6,000, or $7,000 for those ages 50 and older. IRA contributions for 2021 can be made until your tax return filing deadline, so even the January loan payment money can help you increase your retirement savings and potentially reduce your taxable income.

If you can’t make payments, evaluate next steps

Around a third of federal student loan borrowers (34%) say they’re using loan payment money for necessities, like rent and food, which could indicate that these expenses might not be met otherwise. When asked when it’s financially feasible for them to start making loan payments again, 11% of federal loan borrowers say 2022 or beyond and 10% of borrowers say they don’t know when they’ll be able to do so, according to the survey.

If it’s not realistic for you to restart payments in February, you have options to avoid defaulting on your loans. For borrowers who can’t pay the full amount due, an income-driven repayment plan could be a good option. It caps your monthly payments at a certain percentage of your discretionary income and forgives the remaining balance after 20 or 25 years, depending on the specific payment plan you enter into.

If you meet eligibility requirements — for instance, if you’re unemployed, receiving welfare benefits or undergoing cancer treatment — student loan deferment will pause your payments completely and may even stop accruing interest (depending on the type of loans you have).

If you don’t qualify for deferment, student loan forbearance is also an option. You can put loans in forbearance for up to 12 months at a time, but you’ll accrue interest, regardless of your loan type. All of these alternatives to a standard repayment plan can cost more in interest and time over the life of a loan. But they can also provide some necessary breathing room if your budget simply won’t allow you to make student loan payments right now.

Erin El Issa writes for NerdWallet. Email: erin@nerdwallet.com.

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5 Pandemic Credit Card Habits to Carry Forward

The coronavirus pandemic’s impact on consumer finances has led many Americans to rethink their money habits. For example, according to NerdWallet’s annual Consumer Credit Card Report, 19% of credit cardholders say card issuers cut their credit limits during the pandemic — and almost all of those people (93%) say their financial views or strategies changed because of it.

The vaccine rollout is allowing people to move away from their pandemic routines, but that doesn’t have to mean returning to pre-pandemic habits. Some money lessons are worth holding on to. Here are five credit card habits to consider keeping even as the masks start to come off.

1. Building or maintaining a dedicated emergency fund

At first glance, this may not seem like a credit card habit, but consider: Of the millions of Americans who saw their credit limits get cut during the pandemic, a quarter of them (25%) say they weren’t able to cover an emergency that came up during that time because of it. Credit card issuers can reduce your limits for any reason — even if you didn’t do anything “wrong” — so available credit isn’t a reliable substitute for savings.

Experts recommend that you have an emergency fund with enough money to cover three to six months’ worth of expenses. But even a starter fund of $500 or $1,000 can make a difference. If you’re just beginning, aim to establish a starter emergency fund quickly — perhaps by cutting back expenses for a few months or making minimum payments on outstanding debts — and then set up automatic contributions toward your ultimate goal.

Emergency funds need to be safe and easily accessible, so it’s best to keep the money in a savings account. Interest rates are at historic lows right now, so even the highest-paying account won’t earn much interest. But the main purpose of an emergency fund isn’t supposed to be its income-producing potential. It’s insurance — a resource to lean on if something urgent comes up.

Keeping cards active so they aren’t closed

One of the most important factors in your credit score is credit utilization, or the percentage of available credit you’re using. A reduced credit limit can translate into higher utilization — and a lower score.

For example, if you have a credit limit of $10,000 and a balance of $3,000, your utilization is 30%. If your limit is suddenly cut in half to $5,000, your utilization jumps to 60%. The lower your utilization, the better for your credit score. That may help explain why 29% of cardholders who experienced a credit card limit decrease say their credit score went down as a result. And while utilization has no “memory” — the damage to your score lasts only as long as utilization remains high — the effect can keep you from accessing new credit right when you need it most.

Utilization is measured both on a per-card basis and across all your accounts, so having a card account closed for inactivity can have a big impact on utilization, too. All the available credit in that account disappears, which means existing balances make up a bigger percentage of your total credit limit. One way to mitigate this risk is by making sure your existing credit card accounts remain open. If you don’t use a card for a long time, the issuer may close the account without notice. Use the card once a month to keep it active — perhaps by putting a small recurring expense on it, like a subscription.

Keeping utilization down

Speaking of credit utilization, keep it as low as you reasonably can, both for your credit score and in order to more easily withstand financial crises. The survey shows that of cardholders whose credit limits were reduced during the pandemic, 30% plan to make more than one credit card payment per month to keep their balances low. You can also consider other methods of lowering your credit utilization.

There is a potential drawback to this: If issuers choose to decrease limits en masse again, they may cut the limits of those who aren’t using much of their available credit. Still, keeping a low balance is good for your credit score, and if you’re carrying a balance from month to month, it also means you’re paying less in interest. Paired with an emergency fund, it’s likely worth the risk of a potential future limit decrease.

Balancing debt payoff and saving

Of Americans who experienced reduced credit limits during the pandemic, 27% decided to pay down their balances sooner than they originally planned because of it. Accelerating your debt payments can save you a lot of money: U.S. households that carry credit card debt pay more than $1,000 a year in credit card interest, according to NerdWallet’s annual household debt study.

That said, aggressively paying down debt shouldn’t take complete precedence over saving for emergencies. You don’t necessarily need to hit your emergency fund goal of three to six months of expenses before attacking debt — particularly high-interest debt — but aim to have some cash on hand before prioritizing your card balances. Money in an emergency fund is money you don’t have to try to borrow if disaster strikes.

5. Knowing your relief options, and their potential downsides

As incomes were disrupted during the pandemic, many cardholders enrolled in hardship assistance programs offered by their issuers. These programs can provide temporary help like reduced or deferred payments, waived late fees or reduced or waived interest payments. Most of those who tried to enroll in hardship programs at the beginning of the pandemic were accepted, according to last year’s Consumer Credit Card Report, but a large majority of them faced some sort of consequence for doing so, including reduced credit limits.

This doesn’t mean that you shouldn’t ask for help if you need it. But it’s important to go into a hardship program knowing the risks, in order to evaluate your other options in comparison. If you don’t have a better option, absolutely reach out to your issuer for assistance. But if you can tap your savings or ask a family member for help, you can avoid the pitfalls that commonly accompany hardship programs.

Erin El Issa writes for NerdWallet. Email: erin@nerdwallet.com.


How to Make Debt Less Costly When You Need It in a Crisis

The coronavirus pandemic that upended the U.S. economy has resulted in widespread job and income losses and added to the debt load for millions of Americans. More than 2 in 5 U.S. adults (42%) report that their household financial situation has worsened since the pandemic’s onset, according to NerdWallet’s annual household debt study, while just 14% say it has gotten better and 43% say it’s stayed the same. Of those who report a worse situation, close to half (45%) say they’ve taken on debt because of it.

Bar chart with the headline "How Americans with worsening finances are making ends meet" shows six green bars with the percentage of responses to survey questions: "I withdrew money from savings to pay bills/necessities, 45%; I took on debt/additional debt, 45%; I borrowed money from a friend or family member, 26%; I took on additional work, 19%; I moved into more affordable housing, 8%; Something else, 9%. Survey respondents were able to pick more than one answer.

Taking on debt may be unavoidable under the circumstances, but there may be ways to reduce the cost of that debt in terms of interest or fees. Depending on your personal situation, you might have more affordable or accessible options.

For good/excellent credit: Balance transfers, 0% credit cards, personal loans

Balance transfer credit card offers got harder to find during the pandemic as card issuers looked to reduce their risk. But those with good credit to excellent — generally defined as credit scores of 690 or higher — can still find them. If you have a balance you can’t reasonably pay off in the next few months, transferring it to a card with a 0% introductory offer could help you avoid interest for a year or more. Balance transfers typically incur a fee, though.

If you expect you may have to carry a credit card balance in the near future — because of a disruption in income, for example — a card with a 0% introductory rate on purchases can offer breathing room for a year or more. For those who need more time, a low-interest personal loan may be the better choice. You can also use a personal loan to consolidate existing balances, making it a good option if the 0% period on a balance transfer card wouldn’t be long enough for you to wipe out the debt before the rate rises into double digits.

For fair or poor credit or no credit history: Emergency loans

If you need cash fast but don’t have a good credit history, an unsecured emergency loan may be the way to go. Depending on your credit, these can have high interest rates, so this should be thought of as a fallback if you can’t borrow from family, get assistance from a nonprofit or religious organization or qualify for a 0% credit card.

Members of a local credit union might be able to get better terms and lower rates on an emergency loan, as they consider your entire financial situation instead of just your credit score. Emergency loans may not be ideal from a cost perspective, but they are there for those who don’t have good alternatives.

For those with 15% or more home equity: HELOCs

If you have sufficient equity in your home and need access to credit, tapping a home equity line of credit, or HELOC, will probably be less expensive than piling up a credit card balance. A HELOC allows you to borrow against your home equity, which is the value of your home minus the amount you owe on the mortgage.

To qualify for a HELOC, you’ll generally need equity of at least 15% of your home’s value, a credit score of 620 or higher and 40% or less for a debt-to-income ratio, which is the percentage of your gross income taken up by debt obligations.

Interest rates on HELOCs tend to be adjustable, so they can go up and down. Try to get quotes from a few different lenders so you know you’re getting the best rates available. Pay attention to the lifetime cap, which is the highest rate you can be charged. If you don’t think you can reasonably afford payments at the highest rate, it’s probably not worth it, as a HELOC carries a risk of losing your home in foreclosure if you can’t repay your debt.

For medical bills: 0% payment plans, medical credit cards, income-based hardship

Among Americans who report worsened finances since the onset of the pandemic, 14% say they took on medical debt or additional medical debt, according to NerdWallet’s study.

If you have outstanding medical bills, ask your medical providers if they offer payment plans; if so, find out about interest or fees. Some providers will allow you to make equal monthly payments within your budget, which can be a good option if there aren’t costly fees tacked onto your balance.

When an affordable payment plan isn’t an option, a 0% interest medical credit card could help you avoid interest for a certain period of time (generally six to 12 months). Keep in mind that some medical cards charge deferred interest. This means that if you don’t pay the balance in full by the time the no-interest period expires, you will owe interest on the entire original balance going back to the start.

Depending on your income, you may be eligible for a hardship plan, which can reduce your payments as well as the total amount you owe. Ask your provider if this option is available.

For multiple unsecured balances: Debt management plans

A debt management plan can be a good choice if you can’t reasonably make your existing credit payments each month. You’ll work with a credit counselor who will be an advocate for you, trying to get better terms on your existing balances and consolidating your unsecured debts into one monthly payment you make to the credit counseling agency instead of to your creditors.

If you go this route, look for a nonprofit agency accredited by the National Foundation for Credit Counseling. You’ll probably have to close your credit card accounts when going through a debt management program.

For those who are unemployed: Credit unions, crisis relief loans

Accessing credit is often hardest for those who need it most, but there are possibilities for Americans who are unemployed. Local or regional credit unions may offer loans to help get you through a tough time, and Capital Good Fund offers a crisis relief loan that looks at your pre-pandemic employment and finances. Capital Good Fund is available in a limited number of states, but those residents may find it to be just the life raft they need.

Erin El Issa writes for NerdWallet. Email: erin@nerdwallet.com.

The article How to Make Debt Less Costly When You Need It in a Crisis originally appeared on NerdWallet.

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Your Credit History Opens Doors — Here’s How to Build It

Around 1 in 8 Americans (13%) say they don’t have any credit history, according to a new NerdWallet survey. They provided a variety of reasons: Some haven’t even thought about building credit, others want to do it but can’t gain traction and some are in the middle.

Building credit is wise for just about everyone, but it’s not something you can do overnight. It may take around six months for positive credit actions to have an impact on your credit score, so waiting until you’re ready to buy a house or finance a car is too late.

Even if such things aren’t in your plans, having good credit (FICO scores of 690 or higher) still expands your financial options. And while building credit isn’t always easy, it’s not as complicated as many people think.

Build credit before you need it

Among Americans without a credit history, about one-third (34%) say it’s because they don’t feel like they need it right now. And 1 in 5 (20%) say it’s because they haven’t really thought about building credit.

Building credit is about preparing for the future, and good credit means having more choices, like qualifying for loans and credit cards with better terms and lower interest rates. But the effects go well beyond your ability to borrow money — something many Americans may not know.

A good credit score can make it easier for you to rent an apartment. It can determine the kind of cell phone plan you’re eligible for, qualify you for lower auto insurance rates and allow you to get utility service without having to provide a security deposit. Many employers now check applicants’ credit, so your score can even affect your ability to earn a living.

Debt isn’t required to build credit

Close to a quarter of Americans who say they don’t have a credit history (22%) say it’s because they’re afraid of going into debt.

Being wary of debt is understandable. But you don’t have to go into debt to build credit; you just need to show a track record of making payments.

Credit card debt is notoriously expensive — but only if you carry a balance from one month to the next. And there’s no need to carry a balance to build credit. By paying your bill in full by the due date each month, and you’ll never be charged interest.

If you’re concerned about overspending, use the card only for specific recurring expenses, then set up an automatic payment from your bank account each month. For example, instead of using a credit card for daily expenses and possibly running up debt, put your monthly power bill or streaming subscription on the card. That way you aren’t spending more than you would otherwise, but you’re still building credit and avoiding interest.

How to get started

According to the survey, 20% of Americans without credit history say it’s because they aren’t sure how to start building credit. And 13% say they’ve tried to build credit but haven’t been able to get approved for anything.

A well-known catch-22 of credit-building is that good credit allows you to borrow money, but you need to be able to borrow money to establish good credit. You can start building credit by becoming an authorized user on someone else’s credit card or by getting your own secured card.

Become an authorized user

An authorized user is added to another person’s credit card account and benefits from that primary cardholder’s good credit habits. So if you have a parent, partner or someone else with good credit who’s willing to add you to one of their credit card accounts, you can start building credit without getting approved on your own. Before you go this route, have the primary cardholder confirm with the credit card issuer that it reports credit activity for authorized users to the three major credit bureaus, Equifax, Experian and TransUnion.

Get a ‘starter’ credit card

Another option is a secured credit card, which you can get on your own if you have a few hundred dollars for a deposit. Here’s how it works: You put down a cash deposit, then you get a card with a credit limit that’s usually equal to your deposit. You use the card like any other credit card, making purchases and paying your bill on time every month. Unlike with a prepaid card, your account activity is reported to the credit bureaus. Once you’ve built up your credit, you can close the account, get a regular card (or upgrade to one, if the issuer offers it) and get your original deposit back.

For more, read NerdWallet’s guide on how to build credit, which covers getting started with credit-building, practicing good credit habits and tracking your progress by monitoring your credit report.

Erin El Issa is a writer at NerdWallet. Email: erin@nerdwallet.com. Twitter: @Erin_El_Issa.

The article Your Credit History Opens Doors — Here’s How to Build It 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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5 Back-to-College Lessons on Building Credit

Hey, college students: Summer is almost over, and before you’re busy cramming for exams, you should spend a few minutes studying up on your credit. You might be just getting started with your first card, but review these five tips and you’ll reap the benefits well after graduation day.

1. Five major factors affect your credit scores

Several companies produce credit scores, and most consider five factors: your payment history, credit utilization, the length of your credit history, the types of credit accounts you hold and any new credit accounts you’ve opened. No matter how long you’ve had credit, you can use each factor to get yours in good shape.

Payment history: Paying all of your bills on time is the most important thing you can do for your credit, even if you’re only able to make the minimum payment. If you accidentally miss a due date, send the money as soon as you can. You might incur a late fee, but if you made the payment within 30 days, it won’t be reported to the credit bureaus.

Credit utilization: Utilization is the percentage of your available credit you’re using. Keep it low, ideally below 30%. So if you have a credit card with a $5,000 limit, try to keep your balance below $1,500. Your issuer might report your balance in the middle of the month, so aim to have less than 30% utilization at all times, not just after you make your monthly payment.

Length of credit history: The older the average age of your accounts, the better, so don’t close your first credit card account when you open a second. Instead, use the first card occasionally to keep it active.

Types of accounts: It helps to have a mix of credit accounts — credit cards, student loans, an auto loan and so on. But if you have only a credit card and don’t need another account, don’t open it. This factor is less important than the first three.

New credit: Apply for new credit cards sparingly. Each new account shortens the average age of your accounts, and each new application results in a hard inquiry on your credit report, which can ding your credit score. The shorter your credit history, the more this can hurt your credit, so it’s especially important to limit your applications when you’re just starting out.

2. Bad credit hits more than just your wallet

Having bad credit can increase the interest rates you pay and even your car insurance premiums. But that’s not its only impact.

Landlords and wireless providers commonly check applicants’ credit to find out whether they’re likely to pay on time, and having bad scores can limit your options for apartments and cell phone service. If you’re on your parents’ cellular plan and live on campus, you might think this doesn’t apply to you — but it will soon.

Employers may also run credit checks, and having bad credit could keep you from getting a job in some states.

3. Try not to carry a balance

NerdWallet survey found that 41% of Americans think carrying a small balance on a credit card from month to month will improve their credit. But you won’t get a boost from maintaining a balance, and it will definitely cost you in interest charges. Use your credit cards enough to keep the accounts active, but pay each balance in full every month to avoid interest.

4. Check your three credit reports annually

Three major credit bureaus produce credit reports: Experian, Equifax and TransUnion. You’re entitled to one free copy of your report from each bureau every year via AnnualCreditReport.com. Review each for errors to keep your credit on track.

You won’t find your credit scores on any of the reports. You can find yours for free online at some websites, including NerdWallet, or perhaps through your credit card issuer. If yours doesn’t provide it, you can buy it directly from Equifax, Experian or TransUnion. Scores may vary slightly depending on the scoring model used, but they should all be in the same ballpark.

5. Build credit with a secured credit card

To get a secured card, you put down a cash deposit, usually equal to your credit limit. Banks can seize this if you don’t make your payments, so they’ll issue these cards even to people who have poor credit or lack a credit history. You’ll get the deposit back when you close your account in good standing or upgrade your account to a regular, unsecured card.

Secured cards make up less than 1% of the credit card market, but they’re great for building credit. A secured card works just like an unsecured card, with the exception of the deposit. You use it to make purchases, then pay them off, and your issuer reports your payment activity to the credit bureaus.

More credit lessons for students from NerdWallet 

The article 5 Back-to-College Lessons on Building Credit originally appeared on NerdWallet.

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