Author: Gregory Karp

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

Posted on by Gregory Karp

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

Posted on by Gregory Karp

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.

Gregory Karp writes for NerdWallet. Email: gkarp@nerdwallet.com. Twitter: @spendingsmart.

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

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Why a Cash-Back Credit Card Is a Good Place to Start

Posted on by Gregory Karp

As more banks work to improve accessibility to credit cards and introduce cards that base eligibility on factors other than credit scores, there are bound to be more new applicants. If you’re among the consumers new to credit cards, you might be both intrigued and wary. A no-fee, flat-rate cash-back card could be the answer to your concerns.

Conflicting feelings about credit cards are understandable. Maybe you grew up in a family that didn’t use credit cards or know people who have gotten into debt trouble with them. A recent NerdWallet survey found that respondents had an average of $6,741 in credit card debt in 2020.

“Credit cards may have a bad reputation, but they actually are great financial-planning and money-management tools — so long as you use them correctly,” Paul Golden, spokesman for the National Endowment for Financial Education, said in an e-mail.

If you’ll be one of those first-time applicants for a credit card, here’s why a no-fee, flat-rate cash-back card could work for you.

Why no fee?

Many people dislike the idea of paying an annual fee for a rewards credit card, and there’s a good reason: It reduces the overall annual value of your rewards. For example, if you pay an annual fee of $100 on your card, but you only earn about $100 in cash back with it each year, you’d just be breaking even.

A no-fee credit card, on the other hand, is a low commitment. If you end up disliking the card and want a different one, or you decide credit cards are not for you, you can stop using it with little consequence. You’re not out any money.

As a new cardholder, though, you’ll want to monitor your purchases closely. Do you find yourself overspending because it’s so easy to pay with a credit card? If so, credit cards might not be the best idea for you.

Note also that “no annual fee” doesn’t mean cost-free. You still could owe money if you don’t pay off the balance each month or you incur a late-payment fee, for example.

Why flat-rate rewards?

Simplicity is important with a first card, and it doesn’t get simpler than flat-rate rewards. With these cards, you’ll often get at least 1.5% cash back on all your purchases. You might even find a card that pays 2% cash back.

That rewards rate might not sound like much, but it adds up. Let’s say you normally spend $1,500 per month. If you put that amount on a flat-rate 2%-back card, you would get $360 back annually. That’s a significant amount of free money each year for spending you would ideally be doing anyway.

Some cash-back cards offer a higher percentage back, like 3% or 5%, but only on purchases from certain merchants, such as restaurants or gas stations. But those purchases might account for just a small portion of your overall spending, meaning a simpler flat-rate card could be a better choice. Also, bonus categories only add complexity, which you don’t want in your first card.

Why cash back?

“If you are looking for a card with incentives, consider one that offers flexibility and has rewards you will use,” Golden said.

Cash is the best rewards currency in terms of flexibility, because you can spend U.S. dollars on almost anything. It’s often rewarded in the form of a statement credit, so you reduce your next month’s bill. But you can also get cash rewards as a bank deposit or paper check with some cash-back cards.

By contrast, points and miles can be devalued by the issuer. It might require you to redeem more of its brand’s currency (e.g., Citi ThankYou points) for the purchase you want, whether that’s gift cards, merchandise or an airline ticket.

Long-term use

If you find you like using rewards credit cards and graduate to adding a card with bonus categories, you can still use the no-fee, flat-rate cash-back card.

A popular strategy is to use the bonus-categories card for spending in the categories, such as restaurants or gas stations. And then use your trusty flat-rate rewards card for everything else.

Gregory Karp writes for NerdWallet. Email: gkarp@nerdwallet.com. Twitter: @spendingsmart.

The article Why a Cash-Back Credit Card Is a Good Place to Start originally appeared on NerdWallet.

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10 Money Insights From 25 Years of Financial Writing

Posted on by Gregory Karp

The importance of money has less to do with affording the newest iPhone or measuring career success, and far more to do with the core of being human: freedom, ego, stress and relationships.

How we use and think about money — not just accumulating lots of it — literally can determine our happiness during the roughly 30,000 days many of us are privileged to be alive.

Those are a few of the big-picture insights I learned in 25 years of writing about money.

In 1995, some of the last millennials were being born, a jury said O.J. Simpson was not guilty and “Toy Story” played in theaters. It’s also the year I became business news editor at a daily newspaper in Pennsylvania, where I started editing guest columns written by local financial planners and stock brokers. I quickly became fascinated with the baffling world of personal finance.

How could I graduate from college — with a business degree, no less — and still not know the basics of how money works for real people in the real world? Saving, investing, taxes, credit and insurance — it’s almost like personal finance was confusing on purpose.

Tl;dr: Sometimes, it is.

I had the privilege as a financial journalist to figure out some of it by interviewing smart people about money for the next 25 years — through the dot-com bubble of 2001, the housing bubble of 2008 and the pandemic of 2020.

Here are 10 things I learned.

1. It will rain

If the COVID-19 pandemic taught us anything, it’s that bad stuff happens, no matter who you are. A rainy-day fund is fundamental to keep us financially safer in case of an unexpected large expense, job loss or even globe-ravaging viruses.

Start with $500 squirreled away and aim to build it to three to six months of living expenses. Breadwinners die, people get sick and cars crash. You also need the right insurance to keep you from financial ruin.

2. Marketing matters

Advertising existed 25 years ago, but not on a computer in your pocket that you look at 100 times a day. And not with ads targeting you as an individual. Temptation to buy has never been greater thanks to the evolution of technology and social media.

3. Score a goal

The antidote to the poison of constant marketing is having a reason to say no to temptations. You do that by establishing financial goals. That doesn’t just mean the far-off “saving for retirement.” It could mean saving for a trip to the Bahamas. You know, when people get back to traveling to the Bahamas.

4. Where goals live

To help set goals, review your calendar and bank statements. Where you spend your time and money is who you are. Time and money are what you change to become who you want to be.

5. Budgeting is overrated

There, I said it. But if you’re not going to create a household budget, at least regularly examine your past spending and categorize it. Financial websites and apps can help. Money leaks will be obvious, as will ideas for intentional spending.

6. The ledger has two sides

You can’t out-earn dumb spending and you can’t nickel-and-dime your way to prosperity. When it comes to money management, you have income and outgo. The rest is just details.

On the other hand, it really helps to know some details.

7. Time-for-money is a fail

Most people cannot get ahead solely by trading their time for money at a job. Instead, your money needs to make its own money. You can’t do that with minuscule bank interest anymore, so it means investing.

8. Where credit’s due

In 1995, you couldn’t even look up your credit score or see your credit reports. Now, you can and should. Poor credit means you could be denied for not only a loan or credit card but also for a job or an account with the electric company to turn the lights on.

9. Ride to prosperity

If you’re vigilant with only one purchase in your life, make it your next car. New cars, especially luxury brands, are wealth-repellent to all but the richest among us. That’s because of high new-car prices and their wicked depreciation, not to mention interest if you’re financing it.

Buying used is far better advice now than in 1995, when that often meant “buying someone else’s problems.” Today, used cars are far more dependable.

10. It’s unfair

Money smarts are insufficient to overcome some financial woes: stagnant wages coupled with rocketing costs for health care, housing and education, to name a few. And some careers simply don’t pay as much as others, despite requiring similar skills. That leads to different money problems and opportunities for different people. And yes, economic inequities also exist by race and sex. That means those with extra can be sloppier with money.

Those living closer to the margin? They are forced to make better money decisions every day.

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

Gregory Karp writes for NerdWallet. Email: gkarp@nerdwallet.com. Twitter: @spendingsmart.

The article 10 Money Insights From 25 Years of Financial Writing originally appeared on NerdWallet.

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3 Ways to Keep Your Distance With Contactless Payments

Posted on by Gregory Karp

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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Smart Money Moves When Cash Is Tighter Than Time

Posted on by Gregory Karp

Lots of people have more time than money nowadays. If you’re one — maybe you’re taking a staycation or you freed up commuting hours by working from home — optimize that extra time by making smart financial moves that won’t cost a dime.

“If you have time but no money, it’s time to become the best version of yourself,” says Ryan J. Marshall, a financial adviser in Wyckoff, New Jersey. “What separates successful people from people who struggle financially is often how they spend the time they are given each day.”

From the quick-and-simple to the more-involved, here are ideas to create your personalized money to-do list when you have more available hours than dollars.

Set goals

This is the obligatory recommendation to develop a household budget, perhaps using the 50/30/20 method to divvy up needs, wants, and savings or debt repayment. But creating a budget should be about liberation, not deprivation — about finding money to spend on things you care about and cutting ruthlessly on things you don’t.

— More free money moves: Calculate your current net worth (all you own minus all you owe); calculate a nest egg amount for retirement.

Assess spending

Recurring expenses are the black hole of regretful spending. Examine your credit and debit card statements to identify subscriptions and re-justify them. When a recurring expense makes the cut, try to get a better price — we’re looking at you, cable, internet and cellphone bills.

One big potential payoff? Compare auto insurance premiums by yourself or with help. “It can be a pretty painless process, by just forwarding your current insurance to a broker and having them shop it with multiple carriers,” says Autumn K. Campbell, a certified financial planner in Tulsa, Oklahoma. Some brokers work on commission only and don’t charge a fee.

— More free money moves: Plan a “spending fast” (no spending for a number of days); learn about online cash-back shopping portals; decide on an allowance for children (you don’t have to begin until you have the cash).

Plan debt payment

Develop a plan for paying down debt. Two popular strategies: Pay extra toward debt with the highest interest rate (debt avalanche) or pay extra toward the smallest debts to wipe them out quickly and get a sense of accomplishment (debt snowball).

— More free money moves: Refinance your mortgage; refinance your student loan; transfer debt to a lower rate.

Deepen money smarts

Money knowledge is the gift that gushes benefits over your lifetime.

Money advice online is abundant, but don’t forget about at-home digital access at your unsung public library. Beginners can check out the book “Personal Finance for Dummies.” Or you can consult Consumer Reports to get better products for the money you spend.

And while not everyone enjoys investing topics, you should have a basic understanding. “There are countless wonderful free resources such as Morningstar’s free investment classroom and Vanguard’s free articles hosted on their website,” says Avani Ramnani, a financial adviser in New York City.

— More free money moves: Spend one hour every Sunday night researching an unfamiliar money topic.

Monitor credit

Your creditworthiness matters to your financial life, far beyond qualifying for a new loan. People with better credit live easier and less expensively. At minimum, learn about the main factors that affect your credit: payment history, credit utilization, credit history length and credit mix.

— More free money moves: Check your credit reports at AnnualCreditReport.com; check your credit scores (numbers that summarize your credit reports, available many places online); initiate a credit freeze if you’re worried about credit identity theft.

Reconsider housing and cars

Where you live and what you drive steer your money life more than most money decisions. Think critically about how your mortgage or rent, along with the cost of your vehicles, fit your financial life.

New cars lose value like they drove off a cliff, while used ones can be bargains. That’s why you can buy a 2014 Mercedes-Benz E-Class sedan for the same price as a new Kia Forte. If your mortgage or rent is more than 28% of your gross monthly income, it’s time to ask hard questions about where you choose to live.

— More free money moves: Renegotiate rent; create a next-car account and plan to fund it; consider moving/downsizing.

Automate everything

After you make a good money decision, put it on autopilot. That way, you won’t forget to stash away money or pay bills. And ultimately, you’ll have more time and money.

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 Smart Money Moves When Cash Is Tighter Than Time originally appeared on NerdWallet.

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Side Hustle Much? You Might Have the Wrong Credit Card

Posted on by Gregory Karp

Entrepreneurial types who freelance and side hustle their way through the week likely have access to a tool that could help them thrive: a business credit card.

If you drive a rideshare part time, regularly resell on eBay or book paid photography jobs on the side, you may qualify for a business credit card. You don’t need to have a storefront, employees or an LLC.

That’s useful information for the movers and shakers of the gig economy because credit cards aimed at small businesses differ from personal cards. They offer more lucrative rewards and eye-popping sign-up bonuses you won’t find on most personal cards.

While a business credit card alone won’t determine whether your business prospers, small-business customers seem to like them. They are “significantly more satisfied” with their business credit cards than customers are with personal credit cards, according to a 2019 study by J.D. Power.

Among those is small-business owner Joe Brancatelli. He’s a publication consultant and founder of the business-travel subscription newsletter “Joe Sent Me.”

He considers his business credit cards among the tools that help make his business go. “They help me segregate my personal and business spending, which is important for tax and other reasons,” he said.

The cards also help cash flow. “It’s relatively easy access to credit, which some business folks can’t get otherwise,” he said. “The same bank that might turn you down for a traditional business loan will give you a small-business credit card.”

Of course, the key is to use the card’s credit line strategically without paying interest, he said.

Qualifying as a business

You don’t need a business credit history to qualify for a business credit card. If you engage in an activity that earns money without being someone else’s employee, you’re a business.

Your business doesn’t even need to make a profit, and you can say so on the application. If you don’t have a separate tax ID for your business — many sole proprietors don’t — you can use your Social Security number.

Getting approved

You qualify for a small-business credit card based on your personal credit history. Credit scores of 690 or above generally qualify, although issuers have their own approval criteria, which can vary by type of card.

Advantages

Business credit cards typically come with bigger sign-up bonuses than personal cards. The difference can mean hundreds of dollars in rewards value.

Rewards on business cards might fit your spending better, too. For example, business credit cards might offer extra cash back for spending on office supplies, advertising and telecommunications services. Those could be more useful than bonus categories on a personal card that might include groceries, streaming services or home-improvement stores.

Business cards typically come with a higher credit limit. And the fees can be tax-deductible when used for business spending only.

Among the biggest benefits is simply having a separate card for business spending. That can help with expense tracking, running financial reports and gathering tax-return information. Employee cards are typically free.

Disadvantages

Although it’s a credit card for your business, you generally have to provide a personal guarantee. That means if your business goes belly up, you’re personally liable to pay — even if your business structure otherwise protects you from liability, as with a corporation or LLC. Think of it as you, personally, co-signing for the credit card.

And if you want to build personal creditworthiness through your business credit card, that might not happen. Not all business credit cards report to consumer credit bureaus.

Business cards aren’t covered by the same federal consumer protection laws as personal cards. But issuers generally voluntarily offer similar protections, such as limits on fees, interest calculations and disclosures.

And those big sign-up bonuses? They typically require more spending on the card before you can earn them.

How to choose

Picking a business credit card is similar to choosing a personal card: Find one that fits your needs and business spending patterns. If you plan to carry a monthly balance, a card with an interest-free period or low ongoing interest is more important than rewards.

If you’ll pay in full, rewards cards are a good choice. They come in the same flavors as personal cards: cash back, points or airline miles. The best cards may have annual fees, but some don’t. Business travel credit cards offer perks that road warriors would appreciate.

If your goal is to build a business credit history, make sure your new business credit card reports to the main commercial credit bureaus: Dun & Bradstreet, Experian and Equifax.

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 Side Hustle Much? You Might Have the Wrong Credit Card originally appeared on NerdWallet.

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Stressed to Pick the Best? Try ‘Good Enough’ Money Decisions Instead

Posted on by Gregory Karp

Sometimes good enough is good enough.

In a world of information overload, it’s common to feel angst when making choices. You never know whether you’re making the best one.

Call it optimizer guilt. And it can be especially prominent in choosing financial products, which can be opaque and confusing: Do I have the best credit card? What 401(k) investment will give me the best return? Where should I open an account to save for my kid’s college expenses?

Besides adding stress, optimizer guilt can keep you from making important money decisions that need action now.

The solution may be the theory of “good enough,” or what academics have called “satisficing.” Make a decision based on the best information you can reasonably gather at the time, and then get on with your life. In many cases, you can revisit the decision later, if necessary — refinance your mortgage, move your retirement funds or choose a different 529 college savings plan.

“The truly great thing about ‘good enough’ — and the reason it is so powerful — is that it allows you to get to the starting line in a way that waiting for the ultimate, best possible result does not,” writes financial expert Jean Chatzky in her book “Make Money, Not Excuses.”

How simplifying can help

You may have heard the same problem called “paralysis by analysis” and the solution as, “Don’t make perfect the enemy of the good,” or the acronym KISS: “Keep it simple, stupid.”

“Good enough” is not just a financial well-being thing, it’s a happiness thing.

Having more choices is good only up to a point because of the accompanying pressure to optimize, argues psychologist Barry Schwartz in his book “The Paradox of Choice: Why More is Less.”

“As the number of choices grows further, the negatives escalate until, ultimately, choice no longer liberates, but debilitates,” he wrote in a research paper with Andrew Ward, a fellow professor at Swarthmore College. “Learning to accept ‘good enough’ will simplify decision-making and increase satisfaction.”

If you get an adrenaline rush from plotting your credit card points on spreadsheets and poring over price-to-earnings ratios of individual stocks, this concept may not be for you. You’re a die-hard optimizer who crunches numbers for sport.

The theory of good enough is for those who feel overwhelmed, thinking they should optimize their money life but feeling shame because they don’t have the time or desire. If that’s you, consider decluttering your finances. Simplify by combining financial accounts, save with automatic deposits, and skip low-value retail loyalty programs and coupons.

Here are a few specific examples of good enough.

Retirement investing

Too many choices in a company-sponsored retirement plan, like a 401(k), can lead to making no selection at all. If that sounds familiar, a good-enough decision would be to contribute enough to get all of your employer’s matching contribution and invest the money in a target-date index fund, a fund that invests based on what date you expect to retire. Is that optimal? Maybe not. But it gets you started. You can raise your contribution percentage and research other funds later. Meanwhile, your nest egg has started growing.

Rewards credit cards

If you pay your credit card balance in full every month, you’re a candidate for a rewards credit card, but how to choose among the thousands available? To get started, a good-enough choice is a flat-rate cash-back credit card that pays 1.5% or higher. It gives you a fixed amount of cash back no matter what you buy. You can always get a complicated points or miles card later. Until then, you’ll be earning rewards on everything you charge to the card in the best rewards currency: cash.

College savings

You gain tax advantages by squirreling college savings in certain types of accounts, but it can be dizzying trying to choose among them all. A good-enough option is to invest in your own state’s 529 savings plan and potentially reap a state tax break, too, depending on the state. Choose a target-date fund, based on when your child is likely to attend college. Later, you might move the money to a different state’s plan or start a different account. The point is, you started saving.

For big-money decisions or unusual circumstances, you might want to put more effort into making an ideal choice, or you might seek professional advice. But for many other decisions, settling for “good enough” can end up being optimal.

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

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The article Stressed to Pick the Best? Try ‘Good Enough’ Money Decisions Instead originally appeared on NerdWallet.

How to Stem ‘Subscription Creep’

Posted on by Gregory Karp

From Netflix, Spotify and Amazon Prime to Blue Apron, Birchbox and beer of the month, your debit or credit card statements are likely littered with subscriptions that are costing you dearly.

Not that all subscriptions are bad.

You might be happy to pay a monthly fee to work out at the gym or type in Microsoft Office 365. But maybe the benefits of subscribing to credit monitoring or razors by mail were, uh, more fleeting.

Recurring charges can be insidious, some eating away at your wealth when you don’t value the subscription anymore. Three $30-per-month subscriptions don’t sound like much until you realize they total nearly $1,100 per year.

Inertia leads to a dozen free trials morphing into mainstays on your Mastercard. (Maybe not much longer, though. Mastercard has said it will require merchants to get your approval to proceed with charges after a free trial ends, although it applies only to physical-product subscriptions, like home-delivered sampler boxes.)

“The situation with subscriptions could end up being death by a thousand cuts when it comes to your budget,” says Bruce McClary, spokesman for the National Foundation for Credit Counseling.

Adding to the problem are so-called gray charges, deceptive and unwanted credit and debit card charges that stem from misleading sales and billing practices. They total more than $14 billion a year among U.S. cardholders, or $215 each, per a 2013 study by industry research firm Aite Group.

Here’s how to spring-clean recurring charges so you can spend on things that matter to you more.

Subscription audit

Job No. 1 is to identify recurring charges. Scan recent payment statements, including credit cards, debit cards or online accounts, like PayPal. Go back 12 months to catch auto-renew annual subscriptions. Don’t ignore the analog world: lawn mowing, home security monitoring, pest-control service and memberships in social and professional organizations. Some credit card issuers, like Citi, identify recurring charges in your online account.

Multiply by 12

A frog in a stovetop pot of water will complacently boil to death if you raise the temperature slowly, the saying goes. Accumulating monthly subscriptions is similar. To feel the full impact, multiply monthly charges by 12 to get an annualized idea of what you’re spending. If you see yourself keeping the subscription five years, do that math too. Then, a seemingly insignificant $30-per-month expense becomes $1,800.

“On the surface, subscription costs may seem minimal, but when you add them up it can really pinch your monthly budget,” says Paul Golden, spokesman for the National Endowment for Financial Education. “If you’re putting subscriptions on your credit card, is that hindering your ability to pay off your balance each month? If so, this is a red flag.”

Reassess value

Do you use and value the subscription? A gym membership is perhaps the best example of a noble subscription gone wrong — when you quit going but continue paying.

Ask yourself if a subscription saves you money or time. Has it lived up to its promise? Does a delivered subscription box bring you joy or guilt?

“It’s a good idea to do a subscription evaluation on a regular basis — perhaps a couple of times a year,” Golden says.

Is it redundant?

If you have cable or satellite TV, plus Netflix, YouTube TV and Amazon Prime Video, you have overlap. “There are so many redundancies across those platforms that you’re more or less paying for the same service over and over again,” McClary says.

The same assessment goes for streaming music services, cloud storage and phone services. Are you hanging on to a landline for no reason?

Opt to share

Can you legitimately share a subscription? “Some of these subscriptions offer a buddy pass,” McClary notes. YouTube TV allows family groups to share subscriptions, and certain New York Times subscriptions come with a bonus subscription to share. Some families choose to group their wireless phones on a single plan to lower costs.

Don’t forget about freebies at your local public library, which can substitute for subscriptions: digital access to books, audiobooks, movies, music and magazines.

Downgrade

Downgrading or subscribing seasonally can work, too. Can you downgrade from the premium to free version of software or website access? Are you getting value from your credit card’s annual fee? You can probably downgrade to a fee-free card with the same issuer and keep your long credit history.

Cancel

Liberally pause or cancel services. You can always restart and re-subscribe later. You might even receive a discount offer to return.

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

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The article How to Stem ‘Subscription Creep’ originally appeared on NerdWallet.

Yes, Money Can Buy (Some) Happiness

Posted on by Gregory Karp

If you have a few extra bucks that you don’t need for necessities like rent or loan payments, consider shopping for happiness.

From ancient philosophers to current experts in behavioral economics, people have been pondering the link between money and happiness. Among them is author Gretchen Rubin, who thinks about happiness for a living. She’s written several books on happiness, including “The Happiness Project” and the forthcoming “Outer Order, Inner Calm.”

She helped think through the question of whether you can use discretionary money to buy happiness. Short answer: probably not. But you can definitely spend money to increase it. A lifetime happiness shopping list might go like this.

Buy better relationships

Key to happiness is how you deal with other humans. It’s a recurring theme. “So if you’re spending your money to broaden relationships or deepen relationships, that’s a good way to spend your money,” Rubin said. Use discretionary money to attend a college reunion or a friend’s destination wedding.

A corollary, especially for younger adults: Buy a social life. Young adults often experience an intense period of socializing with friends, searching for life partners and networking for career opportunities — all potential sources of happiness. Maybe increase social bar-and-restaurant spending or pay for a dating app.

Buy experiences — and some things

The usual advice is “buy experiences, not things.” But that requires a deeper dive.

“What I find is often the line between experiences and things is not that clear,” Rubin said. A bicycle can provide an experience, and a new camera can preserve one. So buy experiences, especially with other people, but also think about buying material things that allow you to have experiences or enhance them.

Buy solutions

Also known as “throw money at the problem” or “buy back time.”

“One thing that makes people happier is to feel they have control over their time and they’re not doing boring chores,” Rubin said. So that could mean paying someone else to do yardwork or using a full-service laundry. It’s the balancing act of money vs. time. If you have a little extra money — probably because you sold your time to an employer — buy back time by paying for convenience.

Buy according to your interests

What represents a happy experience for one person is not necessarily the same for another. Someone who mostly dines out should probably not use discretionary money to buy a fancy set of kitchen knives. But someone who loves to cook? Maybe so.

Rubin reminds us, “Beautiful tools make work a joy.”

Buy discipline

Want to improve your diet or fitness but have trouble summoning motivation? Use your money. That might mean choosing a pricier gym that’s more convenient or even hiring a personal trainer to add accountability. At the supermarket, it could mean buying healthy foods that are more convenient, like bagged salad.

“If you can make it slightly easier to get yourself to do something you want to do, that’s a good way to spend your money,” Rubin said.

Buy stress relief

Is there a simple fix for recurring arguments or sources of stress, especially with a significant other? If you argue about a messy home, can you afford maid service? Or, can you afford not to get maid service?

“The question is always, ‘Is it cheaper than marriage counseling?’” Rubin quipped.

Buy money peace

“One of the greatest luxuries money can buy is the freedom not to think about money,” Rubin said. “And financial security is something that really contributes to people’s happiness.”

Paying off debt is a good idea, and building an emergency fund is an especially good one. It provides cash for not only real emergencies, like a car repair, but all those emergencies in our heads that never happen but keep us up at night because they might. Happiness is silencing the haunting what-if voices.

“The freedom from worry is a big boost to happiness,” she said.

Buy wiggle room

If you have extra cash, use it to allow yourself to be sloppy without consequence. It could be as simple as buying a few extra pairs of underwear so you’re not pressed to do laundry every seven days.

Buy a do-gooder high

Be charitable. “Contributing to others is a great way to support the causes you believe in and put your values into the world,” Rubin said.

If you add a few of these purchases to your life’s shopping cart, chances are you’ll be happier when you check out.

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

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The article Yes, Money Can Buy (Some) Happiness originally appeared on NerdWallet.

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