Advantages & Disadvantages of Credit Cards – Do They Help or Hurt You?

If you ever want to start an argument in a financial forum, all you have to do is bring up the topic of credit cards. It seems that everyone either loves them or hates them.

Some financial gurus, most notably Dave Ramsey, see credit cards as pure evil. Ramsey states that “responsible credit card use does not exist,” and maintains that there is simply no good reason for anyone to use one, ever. But others, such as Jeffrey Strain of the investing site The Street, argue just as passionately in their favor. Strain calls credit cards “an excellent financial tool” on account of their convenience and the protections they offer consumers.

Both fans and foes of credit cards have already made up their minds, and nothing is likely to change them. But for those who are on the fence, it’s worth taking a closer look at the arguments on both sides – against credit card use, and in favor of it – to see just how well they hold water.

Disadvantages of Credit Cards

One reason so many people are so strongly anti-credit cards is that they’ve seen how much trouble people can get themselves into by using credit cards irresponsibly. Credit card haters often point out that the majority of people who use credit cards – 55% of them, according to the 2010 Survey of Consumer Finances conducted by the Federal Reserve Board (FRB) – carry a balance from month to month, and the average amount of that balance is more than $7,000. Just the fact that it’s possible to run up this much debt with credit cards, they argue, is a good enough reason not to use them.

However, they also maintain that even for those who carry a lower balance (or none at all), using credit cards is a bad financial move. Credit cards, they point out, can suck money out of your wallet in three major ways: interest, fees, and overspending.

1. Interest Payments

The most obvious problem with credit cards is that if you carry a balance, you have to pay interest – a lot of interest. A survey of credit card interest rates by CreditCards.com shows that the average interest rate on credit cards in the U.S. is 15%. And that’s just the overall average – for users with bad credit, the typical interest rate is a whopping 22.73%.

Suppose you’re a credit card user with a balance of $2,600 – a typical amount, according to the FRB survey – and an interest rate of 15%. Based on State Farm’s credit card interest calculator, if you make only the minimum payment each month – typically 4% of your total balance – it will take you more than nine-and-a-half years to pay off your balance. Over that period, you’ll pay about $1,119 in interest – over 40% more than you’d have paid to buy the same items with cash.

Of course, in order to pay off that $2,600 balance, you also have to avoid buying anything new with the card over those nine-and-a-half years. If you charge just $100 a month to the card while paying only the minimum, these new charges offset your payments, and the balance just keeps creeping upward. Instead of being paid off after nine-and-a-half years, your balance will have risen to nearly $3,500.

Fortunately, most credit card users don’t do this. A 2012 survey on budgeting and credit card used by the American Association of Retired Persons shows that only 8% of users pay the minimum amount on their credit cards. If you pay a flat $250 a month toward your $2,600 balance instead of just paying the minimum, you can have the whole thing paid off within a year, and you will pay only $159 in interest.

Better still, it’s possible to avoid interest payments completely by paying the balance each month in full. As long as you pay the full amount listed on your credit card bill before the due date, you don’t have to pay a dime in interest. The FRB reports that roughly 45% of families with credit cards do exactly that. So while credit card interest can certainly be a major expense, it’s also one that’s quite easy to avoid.

2. Other Fees

Interest payments aren’t the only cost of doing business with a credit card company. Credit cards also hit you with fees for just about everything you can think of, including the following:

• Annual Fees. An annual fee is a payment charged once a year just for the privilege of using the card. You’re most likely to find this type of fee on cards that have generous rewards programs, such as cashback or frequent flier miles. This benefit makes the annual fee worth it for some users since they can earn more back in rewards than they pay for the fee.
• Balance Transfer Fees. When you transfer a balance from one card to another – usually to take advantage of a lower interest rate – you have to pay a fee to the bank that’s taking over the balance. A typical balance transfer fee is 3% of the amount you’re transferring, but some cards charge 4%. Paying this fee can be worthwhile if the interest on the second card is considerably lower – for instance, if the card offers you a temporary interest rate of 0% for the first 15 months on the balance you transferred. Depending on how big the balance is, that deal could make the amount you save in interest enough to make up for the fee you pay to transfer it.
• Cash Advance Fees. If you need cash in a hurry and your bank account is low, many credit card companies are happy to let you use your card to borrow some cash. The fee for this service is often between 2% and 5% of the amount you borrow. However, the even bigger cost is the interest you pay on the loan. Not only do companies usually charge much higher interest for cash advances than they do for purchases, but they also start charging it immediately, with no grace period – so before you even get your monthly bill, you already have the interest to pay.
• Foreign Transaction Fees. If you use your card while traveling in a foreign country, you often get charged a fee of up to 3%. Not all cards have this fee, however, so people who travel abroad often can look for a card without it to use when they’re out of the country. Cards with no foreign transaction fees include Chase Sapphire Preferred, Capital One Venture, and the Discover it Miles card.
• Late Payment Fees. If you’re ever late paying your credit card bill – even by just one day – you can expect to be socked with a fee of up to $25. That’s the maximum fee companies are allowed to charge under the CARD Act of 2009. However, if you miss a second payment within six months, the fee can jump to $35.
• Over-Limit Fees. If you try to charge more on your card than your credit limit allows, one of two things can happen: The card issuer can reject the new charges, or it can allow the payment to go through – and then charge you an over-limit fee of around $39. Under the CARD Act, all credit cards must be set to the first option by default, so you can’t be charged an over-limit fee unless you agree to it. A few users, however, choose to accept over-limit fees rather than risk having their credit cards rejected at the register.
• Returned Payment Fees. If you pay your credit card bill with a check, and that check bounces – that is, the bank refuses to pay it because there isn’t enough money in your account to cover it – the credit card company charges you a returned payment fee of around $35. To add insult to injury, you can also expect to pay a fee to your bank for the bounced check – so this is one fee you should definitely go out of your way to avoid.

In many cases, it’s possible to avoid fees by choosing your card wisely and sticking to the rules, such as paying your bills on time. However, credit card issuers can be sneaky. Sometimes they try to tempt you into using your card in ways that will result in a fee while burying the information about the fee itself in the fine print.

For instance, banks sometimes send you “convenience checks” that you can use as a personal check and have the payment charged to your credit card account. What they don’t usually mention upfront is that payments made with these checks are treated like cash advances, with higher interest and no grace period.

Balance transfer offers are another example. Banks often send you offers to move your balance to their card for a temptingly low rate, but you have to read all the way down to the bottom to see the information about the balance-transfer fee they charge for this service. So while it’s almost always possible to avoid credit card fees, you have to be on your toes to avoid being suckered by the banks that issue the cards.

3. Overspending

Opponents of credit cards argue that even if you always pay your balance in full and never pay a fee, paying with plastic still costs you money. Simply by swiping your card, they say, you automatically spend more than you would handing over a wad of cash.

This claim sounds bizarre, but there’s research to back it up. One study, conducted at Massachusetts Institute of Technology (MIT) in 2000, invited students to bid on tickets to a pair of sports events: a sold-out basketball game and a baseball game. Half the students were told they’d have to pay in cash if they won the auction, and the researchers checked to make sure they had “ready access” to a cash machine; the other half were instructed to pay with a credit card. The students who were paying with credit consistently bid higher on the tickets for both games than the ones who were paying with cash – in the case of the basketball game, more than twice as high on average.

In another study published by the American Psychological Association in 2008, researchers at New York University asked people how much they would expect to spend on the ingredients for a Thanksgiving dinner. Participants who were told they’d be paying with credit generally set their budget for the meal higher than those who were told they’d have to pay in cash – but only if they tried to estimate the cost of the whole meal at once. When they were told to estimate the price of each item separately and add them up, the difference between the two methods disappeared.

The authors concluded that people are willing to spend more with a credit card because they don’t feel “the pain of paying” with a card as much as they do with cash. They suggested that credit cards and other “less transparent” forms of payment (such as gift certificates) felt like “play money” rather than real money, making users more willing to spend. When participants were forced to think about the actual cost of each item they were buying, this made the money they were spending seem more real, and the differences between cash and credit disappeared.

However, not all the research on credit card spending points to the same conclusion. For instance, the MIT study also included a second auction, in which students bid on a $175 restaurant gift certificate. In this case, the researchers found that on average, students bid about the same amount when using credit cards as they did with cash. This suggests that knowing the exact dollar value of the item they were bidding on made students less inclined to bump up their bids with credit.

Similarly, a 2009 study at Carnegie Mellon University offered one group of diners entering a cafeteria a gift card if they would pay for their lunch with cash, while another group was offered a reward for paying with credit. The researchers found that on average, people in the two groups paid about the same amount for their lunches. In this real-world situation, deciding ahead of time to use credit did not boost spending.

Overall, studies seem to suggest that people really do spend more with credit cards than they do with cash – but not in all situations. In general, people seem less willing to pay extra with credit when they are thinking carefully about what they’re buying and its actual value. So if you use a credit card, being mindful about your purchases – for instance, by looking at prices and adding them up in your head as you add items to your shopping cart – looks like a good way to protect yourself from the risk of paying a premium with plastic.

Advantages of Credit Cards

Even fans of credit cards admit that it’s possible to use them unwisely. They realize that treating credit cards like free money, using them to load up with fancy clothes and electronics you don’t need and can’t afford, is a big mistake that can get you into serious financial trouble. That’s why arguments in favor of credit card use almost always start with the words, “As long as you pay them off every month.”

For those who have the discipline to use their credit cards this way, supporters argue, paying with plastic makes a lot of sense. It’s convenient, and it offers the protection you don’t get with other forms of payment. It also makes it easier to keep track of spending and helps you build up your credit score. And, as a bonus, many credit card rewards programs offer perks such as cashback or frequent-flier miles, so paying with a card can actually put money back in your pocket.

1. Convenience

For many people, the biggest advantage of credit cards is their convenience. Compared to cash, credit cards are easier to use in several ways:

• Fast Payment. 30 years ago, one person paying with a credit card could hold up a whole supermarket line for several minutes handing over the card to the clerk, waiting it to be run through a clunky machine, and then signing the sales slip. Today, it takes only a few seconds to swipe your card or insert it in a chip-enabled card reader. That means the person using a card is actually faster than the one fumbling with a wallet and coin pouch looking for an exact change – or handing over a $20 bill and waiting for change from the clerk.
• Easy Access. When you use a credit card for most of your shopping, you don’t have to worry about how much cash you have in your wallet. This really comes in handy in emergencies – for instance, if you’re stranded late at night in a city far from home and have to pay for a hotel room. Instead of having to wander the dark and unfamiliar streets looking for a cash machine, you can just whip out your card.
• Fewer Trips to the Bank. When you pay for most things with cash, you either have to carry hundreds of dollars around with you – making yourself a target for thieves – or else make frequent trips to the bank to restock your wallet. However, when you use credit for most purchases, you can walk around with just $20 in your wallet for months at a time. This means you can hit the bank less often and save yourself some time.
• Automatic Currency Conversion. It’s really nice not to worry about how much cash you have on hand when traveling outside your home country. If you use cash for all purchases, you either have to convert a large sum in dollars to the local currency before you arrive – and convert it back when you return home – or spend a lot of time hunting for banks to withdraw more money. But when you make purchases with your card, the amount you spend automatically gets converted to dollars on your bill – often at a better rate of exchange than you could get from a bank.
• More Shopping Options. There’s no way to make purchases over the phone with cash. In that situation, plastic is the only way to go. A credit card is also a necessity for shopping at many online retailers – although many also accept online payment services such as PayPal, which can withdraw money from your bank account instead.
• Making a Deposit. When you make a reservation – for a hotel room, a car rental, and sometimes even a restaurant meal for a large group – you’re often asked for a credit card number. That protects the company by allowing it to charge a cancellation fee if you don’t show up. Without a card, it’s often impossible to make a reservation at all.

Opponents of credit cards point out that you can get most of these benefits by using a debit card rather than a credit card. This, in their view, is much safer than using credit, because a debit card takes the money directly out of your bank account, so you can’t run up debt.

However, this advantage is also a drawback in some ways. Because each payment comes out of your account instantly, you have to keep a careful eye on your balance to make sure you don’t overdraw your account.

With a credit card, you get just one bill at the end of the month, and you make just one payment to cover it. This also reduces the number of transactions you have to enter in your checkbook or bank register, which means you have fewer chances to make math mistakes.

2. Consumer Protections

Another advantage of credit cards over debit cards is the increased consumer protection they provide. Obviously, both debit and credit cards offer more protection than cash. If someone steals your wallet full of cash, the money is simply gone. By contrast, if someone steals your credit or debit card number and uses it to make purchases, you aren’t required to pay for them.

There’s one key difference, however. By the time you discover your debit card has been stolen, the thief could already have used it to make purchases with money that came directly out of your bank account. You can report the theft, but you still have to wait to get your money back.

With a credit card, on the other hand, the thief’s purchases simply get added to your bill. Since you can report the theft before you actually get the bill, you never have to pay for the purchases you didn’t make. Even if you fail to report a theft right away, your credit card still limits your liability. According to the Federal Trade Commission (FTC), the most you can possibly be forced to pay for false charges made with a credit card is $50 – and if it’s only your credit card information that’s stolen, not the physical card itself, you don’t have to pay a single cent.

With a debit card, on the other hand, you could be on the hook for hundreds or even thousands of dollars. Under the Electronic Funds Transfer Act, which governs debit card transactions, the amount you owe depends on when you report the loss. It also varies depending on whether your card was actually stolen or just used fraudulently.

• If you report the loss before the thief makes any transactions, you owe nothing for any transactions made after that.
• If you report the loss within two business days after you discover it, you owe a maximum of $50 for transactions made by the thief.
• If you report the loss within 60 calendar days after receiving your statement, you owe a maximum of $500. If your card number was used without your permission, but the physical card wasn’t lost, you owe nothing.
• If you wait longer than 60 days after receiving your statement to report the loss, you lose all the money the thief took from your account, and there is no way to get it back. In this case, it doesn’t matter whether the physical card was stolen or just the card number – after 60 days, your money is gone either way.

Credit cards protect you against other forms of loss as well. For instance, if you order something online and you never receive the package – or you receive the wrong item, or the item arrives broken – then you can formally dispute the charge with your credit card issuer. (However, this is the last resort after you’ve tried to rectify the situation with the merchant.) With a debit card, the best you can do is complain to the seller and hope to get your money back.

On top of that, some credit cards offer additional perks that protect you in case a purchase goes wrong. Examples include:

• Purchase protection, which refunds your money if a brand-new purchase is lost, damaged, or stolen
• Price protection, which pays you the difference if you see the item you just bought on sale for a lower price
• Return protection, which allows you to get credit for unwanted items if the store refuses to take them back
• Extended warranties, free of charge, for items such as electronics

3. Credit Score

Using a credit card regularly, and paying the bill on time, is one of the easiest ways to build your credit history and develop a strong credit score. Your credit score is a measure of how creditworthy you are – that is, how likely you are to pay the money back on the time when you borrow it. The higher this score is, the more eager lenders are to make loans to you at favorable rates.

Having a good credit score can save you money in several different ways:

• Better Credit Card Deals. The better your credit score is, the better your chances of getting credit cards with good perks, like the consumer protections mentioned above. Users with good credit also get offered lower interest rates, lower fees, and better rewards programs.
• Lower Interest Rates. When it’s time to borrow money for a home mortgage or an auto loan, borrowers with good credit get offered the best rates. Because mortgage loans are so large, a difference of a point or two in interest can add up to many thousands of dollars in savings. For instance, according to Credit.com, a user with poor credit who wanted to borrow $200,000 for a mortgage would be charged nearly 5.5% in interest and would end up paying almost $408,000 by the time the loan was paid off. By contrast, a user with excellent credit could get the same loan at just over 4%, reducing the lifetime cost to just under $345,000 – a savings of more than $63,000.
• Cheaper Auto Insurance. The rate you pay for auto insurance depends mostly on your driving record, but many companies look at your credit score too. That’s because studies by both the FTC and the University of Texas show that drivers with higher credit scores are also less likely to be involved in accidents. Three states – California, Hawaii, and Massachusetts – don’t allow car insurers to look at credit scores, but in most states, higher scores mean lower premiums.
• Better Cell Phone Plans. Cell phone companies also check your credit score before giving you a contract. Business Insider reports that users with lower credit scores usually have to put down a higher deposit in order to get a phone – as much as $500 per line. They’re also more likely to have spending limits imposed on their usage.

Some opponents of credit cards argue that if you never borrow money, your credit score doesn’t matter. For instance, Dave Ramsay refers to the credit score as the “I-Love-Debt” score and claims that people who always pay with cash don’t need a credit rating at all.

However, even Ramsay admits that most people can’t afford to buy a house without borrowing money. That means the lower rates on mortgage loans are actually an important benefit for anyone who ever intends to become a homeowner. Similarly, the lower rates on auto insurance and cell phone plans affect everyone who drives a car or uses a cell phone. The bottom line is, it never hurts you to have a good credit score, and it often hurts to have a bad one.

4. Record Keeping

When you make most of your purchases with a credit card, you’ve got an automatic record of your spending. Your credit card bill lists all the purchases you made during the month, with their amounts, so you always know exactly where your money is going. This information can be very handy for creating a budget, or for making sure you’re sticking to the one you already have.

By contrast, when you buy most things with cash, it’s easy to lose track. You can find yourself down to your last $20, even though you know you took $60 out of the ATM at the start of the week, and have no clear idea of where the other $40 went. Of course, you can always keep track of cash spending by saving receipts or writing your purchases down in a notebook, but you have to remember to do it. With a credit card, record-keeping is automatic.

5. Rewards

Perhaps the main thing credit card fans love about their cards is the rewards. The three main types of reward programs are:

• Cash Back. This is the simplest type of reward: the bank takes a percentage of the money you spend and returns it to you, either as a check or as a credit toward your bill. Many cashback cards pay 1% on all your purchases, but some give you an additional bonus on certain purchases in certain categories, such as gas or restaurant meals. In many cases, these bonus categories change every few months, so you have to stay alert to get the most out of your rewards.
• Travel Rewards. Some credit cards reward you with frequent flier miles, which you can save up for free or discounted airline tickets. In some cases, you can also cash in the miles for gift cards, merchandise, or cash. Some travel rewards cards also give you bonus miles for the money you spend on travel expenses, such as hotels and car rentals.
• Points. The trickiest credit card programs are the ones that pay your rewards in “points.” Once you earn enough points, you can cash them in for gift cards or merchandise. However, in many cases, the cash value of the items you get with your points isn’t stated, making it hard to figure out exactly how much value you’re getting out of the program.

Credit cards can earn you hundreds of dollars in rewards each year. For instance, if you have a 1% cashback card and you charge $2,000 to it each month, you earn $240 per year. If that same card also offers 5% cashback on travel and dining during one three-month period, and you spend $3,000 in these categories during those three months, that tacks on another $120.

However, no matter how good a rewards program is, it’s never a truly good deal if you carry a balance. There’s no benefit to using your credit card instead of cash to earn 1% cashback if you immediately turn around and pay 15% in interest.

Final Word

In the credit card debate, there’s something to be said for both sides. Credit cards can either help you or hurt you, depending on how you use them. Treating your credit card as free money, never thinking about whether you can really afford what you’re buying, is a one-way ticket to financial ruin. But using it wisely, spending within your budget, and paying off the balance every month, helps protect your assets and can even put some extra cash in your pocket.

If you want to enjoy the benefits of credit cards while avoiding their pitfalls, it helps to keep a few simple tips in mind. First, always pay off your balance in full to avoid interest payments. Second, avoid fees whenever possible. Keep a close eye on your account to avoid being late with your payments or going over your credit limit, and steer clear of cash advances and balance transfers.

Finally, be mindful when you shop with your credit card. Pay attention to prices, and add up the total in your head before you head for the register, rather than carelessly swiping your card with barely a glance at the cost. Checking the balance on your credit card regularly throughout the month – say, once a week – is another good way to remind yourself of how much you’ve spent and keep yourself focused on your budget. And if you’re going out to a particular place where you have trouble controlling your shopping impulses – a bookstore, a bakery, or whatever your personal weakness is – try leaving your card at home and limiting yourself to the cash in your wallet.

What’s your position on credit cards? Are you for them or against them?

Source:http://www.moneycrashers.com/advantages-disadvantages-credit-cards/

The 3 Best Pieces of Financial Wisdom From Oprah Winfrey

It's good to be Oprah.

In 2015, Forbes estimates her net worth at $3 billion, making the actress, director/producer, entrepreneur, TV personality, and philanthropist rank as one of America's most successful women.

From movies to books to TV shows, it seems that everything Oprah touches turns into gold. There's a lot that we can learn from Oprah, so here are her three best pieces of financial wisdom.

1. Change Behaviors Holding You Back

"The greatest discovery of all time is that a person can change his future by merely changing his attitude," advises Oprah.

Successful individuals often arrive at a point in their careers or financial plans where they hit a self-imposed ceiling. The culprit is our tendency to attribute all of our current behaviors, both the good and the bad, to our past successes. We fail to see that what got us here may not necessarily get us there.

For example, back in your 20s, you may have decided that socking away $200 a month from your paycheck was enough to build a healthy nest egg. Fifteen years later, you're now married and have two beautiful kids, and you're still only contributing the same $200 per month to your retirement account. Assuming that your retirement account was to have an 8% return compounded annually, you would have $67,955.99 at the end of 15 years.

Sounds pretty good, doesn't it? After all, if you're planning to retire at age 65 and keep things up, you would have close to $1 million by your target retirement age.

However, $1 million may not be enough. Not only is your financial situation different very different from your twenties, but also more than 75% of registered investment advisors suggest a retirement savings goal of $2 million for Millennials. Set up a meeting with your financial planner once a year to determine if you need to apply any changes. 

2. Spend Money Wisely

In her book What I Know for Sure, Oprah advises, "I hope the way you spend your money is in line with the truth of who you are and what you care about."

This deceivingly simple nugget of advice encompasses two key aspects of financial planning.

Spend in Line With Who You Are

Keeping your wants versus your needs in check is a critical skill for more effective budgeting, saving, and retirement planning.

• You need a wallet to carry your money and cards, but you want a Burberry wallet.
   
• You need a case to protect your smartphone, but you want one made with Swarovski Elements.
   
• You need a car to get to work, but you want a Ferrari.

Oprah is right in recommending spending your money according to who you really are. If you're constantly complaining that you don't have any money left to save or pay more than just your minimum credit card monthly bill, then you're very likely to be living above your means. Look for ways to cut back on your expenses by finding cheaper, yet equally effective, alternatives. For example, you could stop paying $5 per shaving blade by switching to Harry's or Dollar Shave Club and instead pay just between $1 to $1.88 per blade. 

Of course, sometimes you have valid reasons to splurge, particularly if it allows you to generate income. For example, famous piano player Liberace won a case against the IRS and was able to deduct his lavish costumes as part of his business expenses.

Protect What You Care About

And what we care about the most is our loved ones. Be it your spouse, children, parents, or somebody that had a major influence in your life, your loved ones need to be protected against any type of financial hardship.

When you're the main breadwinner in your household and your spouse or children count on you for covering important expenses (such as mortgage payments and weekly grocery trips), then you need a backup plan in case you were to pass away. Nobody likes to think about their own mortality, but having a life insurance policy and building an emergency savings fund are essential pillars of any successful financial plan.

3. Tackle Goals With Patience

Despite her multiple successful ventures, critics have been quick to jump on the stumbles of Oprah's OWN network. However, not achieving immediate success didn't discourage her from her latest project.

During that period of turmoil, the President of Harvard University asked her to do the class of 2013's commencement address. Addressing the mishaps of her OWN network, she said:

It doesn't matter how far you might rise. At some point you are bound to stumble because if you're constantly doing what we do, raising the bar. If you're constantly pushing yourself higher, higher the law of averages not to mention the Myth of Icarus predicts that you will at some point fall.

This piece of wisdom is applicable to several financial scenarios.

• The price of stocks is bound to go up and down over time, causing you to sometimes lose sleep. Still, in the long run, investing in stocks is necessary to maximize your retirement account. However, it's necessary to hold stocks for a long time and not sell them at the first drop in price.
   
• There may be times that you won't be able to make contributions to your retirement account. It's important to save up for retirement, but when life throws a curveball at you, you may need every cent from your paycheck to cover medical bills and pay unexpected expenses. Don't add more wood to your fire, focus your full attention on the issue at hand, and then catch up with your retirement contributions on future paychecks. In 2015, most individuals can contribute up to $18,000 to their retirement accounts as long as it's before the end of the year.
   
• Working overtime too often has negative effects on your health. Everybody loves the extra cash that comes from an extra shift or work during a holiday. That cash may come at a price. A study found that people who work 11 or more hours a day are over twice as likely to suffer from depression than those who work seven to eight hours a day.

Nobody is perfect, so don't be too hard on yourself. As Oprah suggests, "You CAN have it all. You just can't have it all at once." Be patient and continue to work towards your financial goals.

What are other great pieces of financial wisdom from Oprah Winfrey?

Source: http://www.wisebread.com/the-3-best-pieces-of-financial-wisdom-from-oprah-winfrey?utm_source=zergnet.com&utm_medium=referral&utm_campaign=zergnet_601810

7 Perks of a Joint Credit Card

Applying or cosigning for a credit card with your loved one has its risks. The credit card and its activity appear on both of your credit reports, and you're both responsible for the balance. If your loved one has good financial habits, however, a joint credit card account comes with a lot of perks.

From helping you combine your finances to building credit and racking up rewards, a joint credit card is a great financial tool for couples. Here are seven reasons why you should open one.

1. Earn Credit Card Rewards Faster A credit card rewards program offers one of the fastest and simplest ways to earn freebies. If your card features this perk, you can earn points or cashback on every purchase. After you accumulate enough points, you can redeem them for merchandise, travel, statement credits, or cash. But even if you're earning one point or 1 percent cash back on every dollar you spend, it takes time to accumulate rewards. A joint credit card, on the other hand, helps you rack up more points.

Since you and your loved one will have access to the same credit line, you will have more opportunities to earn points. In this way, a joint credit card can be an excellent tool if you and your partner are planning a vacation and want to accumulate as many points as possible to redeem for free airline tickets, hotel stays, and more.

2. Boost Both of Your Credit Scores A joint credit card appears on both of your credit reports and affects both of your credit scores. This can be a good or bad thing depending on how the two of you manage the account. It might be your partner's responsibility to send payments each month. Just know that if he consistently makes late payments, your credit report will reflect this.

On the other hand, if you both manage the credit card responsibly by paying the bill on time and only charging what you can afford, both of your credit scores will benefit. A higher credit score means you'll be able to qualify for lower rates when applying for financing in the future.

3. Qualify for Credit Cards With Lower Rates

One in three U.S. adults says their households carry credit card debt from one month to the next, according to the 2015 Consumer Financial Literacy Survey prepared for the National Foundation for Credit Counseling. If you don't pay off your credit cards every month, it's important to find a card with the lowest rate possible. This reduces interest charges, allowing you to pay off balances faster.

Unfortunately, if you have less-than-perfect credit and apply for a credit card alone, you're not likely to get a low-rate card. The higher your rate, the more you'll pay in the long run. If you apply for a joint credit card with your partner, however, and they have excellent credit, you might qualify for a card with a lower rate and higher credit limit.

Your credit card company will evaluate both of your credit scores when determining whether to approve your joint credit card application. In some cases, one applicant's good credit history can compensate for the other applicant's fair or bad credit history.

4. You Are More Accountable for Purchases

If you have your own credit card and you're the only one managing the account, it's easier to overspend, purchase things you don't need, and ring up a huge credit card bill. When you share an account with your partner, there's an accountability factor.

"It just gives both parties a reason to pause a moment and give some extra thought before making a purchase. You know that another person will see what is being charged," said Joan Fradella, a certified family mediator at Divorce thru Mediation. "It causes you to think about whether you are being reasonable about your total charges compared to income."

When you're fully aware that another person will see every single charge you make -- and likely ask questions or become upset over unreasonable charges -- you're liable to be more responsible, forgoing impulse purchases and maintaining a reasonable balance.

5. Joint Credit Card Accounts Are Easier to Close

Nobody wants to think about death, but it's an unfortunate part of life. If your spouse dies, you might decide to close all of his or her personal credit card accounts after paying off the balances. But when you're not an account holder, shutting down an account for someone isn't as simple as calling the credit card company and making a request.

It's faster and easier to close a credit card account when you're a joint account holder. Marcia Noyes, director of communications at Catalyze, learned this lesson the hard way when her husband died in 2013. "With a joint credit card, one person can shut down the account when the other dies," she said. "Without it being a joint account, it takes an act of Congress -- death certificate, Letters of Testamentary and your information."

6. Manage Shared Expenses More Easily

If you share expenses with your spouse, such as groceries, entertainment, or recreation, using a joint credit card might be one of the best ways to track and split expenses down the middle. Since everything appears on the statement, you'll know exactly what was spent between the two of you. You and your partner don't have to worry about exchanging money or writing each other a check. Simply use the joint credit card and then pay off your share of the balance.

7. You Have Full Privileges and Access

Getting a joint credit card isn't the only way to share an account with someone. You can also add someone as an authorized user to one of your credit cards. This person can use your credit card account, and this account might appear on his credit report -- allowing him to benefit from your good credit habits. But since this person isn't a primary account holder, he doesn't receive the same privileges as a joint account holder.

He can't call the credit card company to inquire about balances, request a credit limit increase, ask for a lower rate or dispute a charge. A joint account holder, however, has full account privileges.

Some people might discourage you from getting a joint credit card account because of the inherent risks. But depending on your situation, a joint account can be financially beneficial. When opening your joint credit card make sure you understand the risks and benefits and only share a credit card if you trust that the other person will use the account responsibly.

How to Choose Your First Credit Card

Credit Cards

In the market for a new credit card? Here are the basic questions to ask yourself before settling on your first credit card.

The first banking product for most fresh grads; credit cards are a great way to kick-start a blank credit record and teach a newbie about responsible borrowing. But with hundreds of cards flooding the market - how is a first-timer to choose?

Yes, there are definitely a lot of cards, and what they offer you will be vastly different so before you ride off into the sunset with the plastic of your dreams - some factors need to be considered. Here are our tips to help you along.

Which Credit Cards Are Available to You?

There may be 300 cards in the market, but certainly, not all of them are will be available to you as credit cards start with basic minimum income requirements. The higher your salary; the more attractive the card you are eligible to apply.

That's not to say then that newbies have limited options! There are many credit cards available with the barest of minimum requirements. To find which match yours, you thankfully, no longer have to head to every bank. Check out our credit card comparison page with all the cards in one place.

Once you've narrowed down the possibilities - it's time to cut it down further to help you make a decision.

Give Priority to Cards with No Annual Fee and Low-Interest Rates

When you're a fresh grad in the working world; for the most part, you are probably starting at a fresh grad salary. You will be learning to ropes where money management is concerned and most likely will have many more bills to pay than when you were studying.

Considering the challenges - the last thing you want is for your credit card to be an unnecessary burden. So when selecting; choose the cards with the lowest interest rate and no annual fees.

Low-interest rate cards are easy enough but no annual fees may be a bit of a task to find. Many credit card companies claim to offer a waiver on annual fees but they then slip in a condition - only applicable if you swipe 12 times a year or only for the first 2 years and then subject to bank approval.

Best to avoid the cards with sneaky terms for now. When you're juggling getting used to working and life as an adult; waivers that attach themselves to spending could turn out to be a motivator to fall hopelessly in debt. You may be bummed to miss out on the awesome offers and benefits other cards tout but remember that there's always time in the future to switch once you are steadier on your financial feet.

Consider Your Lifestyle

You've probably already narrowed your choices down to a select few cards and here's where the fun starts. Now you get to decide which perks suit you best. Credit cards in Malaysia come with a range of benefits from cashback, rewards points, and air miles; some even with a combination of a few.

Think about the things you like to do; will be doing most and which benefit offered will be the most useful to you. If you're getting a little starry-eyed over the choices; you can always try the card with a range of a few benefits that may be on a lower scale. Once you've had a taste of each you will be in a better position, later on, to switch to a card that suits your newfound likes.

Have Backup Selections

Just because you've done the work and finally chosen the card you want most of all - it doesn't necessarily mean the bank is going to give it to you. You may have a spotless credit record (ie. no credit record) but depending on the bank's internal processes; there may be a host of combining factors that make you not the prime applicant at the moment.

For this reason, it helps to list a few backup card selections to apply for in case your star card is not approved.

This does not mean you go out and throw card applications left right and centre! This may backfire if all your cards are approved and you are stuck with more than you can legally hold (Bank Negara Guidelines limit the number of cards you hold when you're income is equal to or lower than RM3,000 per month) or if it entices you to swipe, swipe, swipe and be left with a mountain of debt.

Get Ready to Own Your First Credit Card!

Once the grueling selection and application are over (We recommend applying online with no fuss, forms, or bank visits via our XPress-apply page), it's time to welcome your new plastic baby!

Preparing your financial life for the arrival of a new credit card means being clear on your responsibilities to the bank and the best practices when swiping. A credit card can be a friend or foe depending on how you treat it. So spend wisely, borrow responsibly and you'll find a world of benefits open up to you.

Have fun!

5 Destructive Money Behaviors to Stop Today

Check out the money moves that diminish your well-being - and stop them cold.

You might be sabotaging your financial well-being without even knowing it. Behaviors that might seem inconsequential, or perhaps even beneficial, could be preventing you from getting ahead financially.

"Destructive money habits will keep you poor and in debt unless you change them," said Thomas Corley, author of "Rich Habits: The Daily Success Habits of Wealthy Individuals." To change these actions, you first must become aware of them, he said. Here are five common money behaviors you should stop now.

1. Watching too much TV. During his five-year study of wealthy and low-income individuals for his book, Corley found that more than 77 percent of poor adults admitted they watched more than an hour of TV a day; 74 percent said they spent more than an hour a day on the internet. By contrast, 67 percent of rich adults he interviewed said they watched less than an hour of TV a day and 63 percent spent less than an hour each day on the Internet.

"When you're wasting your time watching TV, on social media or reading for entertainment, it leaves little time to do productive things like reading to learn, building relationships with other success-minded individuals via networking or volunteering, or building a side business," Corley said.

Not only will ditching cable-free up more time to be productive, but you can also save on that monthly bill.

2. Spending aimlessly. It's easy to lose sight of where your money is going unless you take the time to monitor your cash flow. Corley said that the wealthy individuals he studied made a habit of tracking their spending in the early days of building their wealth. Most low-income individuals said they didn't monitor their spending.

"If you don't have a lot of money, you need to get into the habit of tracking every penny," Corley said. You can track your spending with a spreadsheet or even free mobile apps, such as Mint.

Another approach to limit spending might be to ask yourself before making a purchase whether it will take you away from your goals. "This question habit eliminates any need for budgeting or self-discipline by replacing it with an awareness that occurs at the point of spending," said Todd Tresidder, a financial coach at FinancialMentor.com.

3. Paying bills late. One in 4 adults doesn't pay their bills on time, according to a recent National Foundation for Credit Counseling survey. Paying a bill late every now and then won't wreck your finances. But if that becomes a routine practice because you don't have a good bill-paying system in place, then you're hurting your financial well-being in several ways.

For starters, you're getting hit with costly late fees so you'll have less money to cover your bills. Moreover, routinely paying bills late might prompt your credit issuers to hike your interest rates or lower your credit limit, according to the NFCC.

If you're more than 180 days late on a payment, your debt typically is assigned to a collection agency or debt collector. Having debt in collections will lower your credit score and will remain on your credit report for seven years, according to the credit monitoring site myFICO. What's worse, your wages can be garnished to pay the debt you owe.

Set up automatic payments through your financial institution or through the company that is billing you to avoid paying bills late. If you need help, call your bank or service provider to walk you through the process.

4. Shelling out the minimum on your balance. You might be making minimum monthly credit card payments to free up cash for other expenses, but it's not an ideal money move.

"Paying the minimum is like running on a treadmill to nowhere. Not only will it dramatically slow down the pace of your payoff, but it will also mean paying lots more in interest," said Farnoosh Torabi, financial education partner with Chase Slate. For example, if you had a $5,000 balance on a card with a 16 percent interest, and you made a minimum monthly payment of $100, it would take you nearly seven years to pay off that debt. And you'd pay about $3,300 in interest, according to the credit card payment calculator at FinancialMentor.com.

Also, if you're paying only the minimum on a card with a high balance, you're not doing your credit score any favor. "A high debt balance effectively increases your debt-to-credit ratio," Torabi said. "That ratio makes up 30 percent of your credit score." So if you're not lowering that ratio quickly, you shouldn't expect to see your credit score get a boost any time soon.

If you carry a balance on several cards, pay as much as you can toward the card with the highest interest rate first, then the next highest, and so on to reduce the total amount of interest you'll pay over time. Or take advantage of a zero-rate card or a low-rate balance transfer offer to consolidate your debt onto one credit card. Then pay it down quickly.

5. Saving for retirement before an emergency fund. It's been hammered into your head that you must save for retirement. But financial experts say you should build an emergency fund first by setting aside enough cash to cover six months of household expenses in the event of a job layoff or other situation.

About one-third of Americans don't have any emergency savings, according to a recent survey by NeighborWorks America, a nonprofit community development organization. Without cash reserves, you might be forced to borrow or withdraw money from your retirement account to cover emergencies, said Rich Arzaga, a certified financial planner and founder and CEO of Cornerstone Wealth Management.

In that case, not only will your retirement fund take a hit, but you'll also have to pay income taxes on the amount you withdraw and possibly a 10 percent early withdrawal penalty if you're younger than 59 ½. To avoid raiding your retirement account or racking up debt to cover an emergency, consider lowering your retirement contributions, and funnel your money into a savings or money market account.

4 Myths About Credit Cards That Should Be Retired

Until recently, it could be expensive and confusing for the average consumer to access their credit scores and reports. A side effect of this was a proliferation of rumors about the best way to manage credit. Like any good urban legend, it’s hard to know exactly where these got started. Since Credit Karma launched in 2008 we’ve heard a lot of them and have done our best to put them to rest.

One way that these myths can have an everyday impact on consumers is by influencing how they manage credit cards, the most common form of consumer debt. There are four major credit card myths that come up a lot and need to be retired, mistaken beliefs that can have the opposite effect on a credit score than some consumers imagine.

Carrying a balance helps your credit score

One of the most persistent myths about credit scoring is that it helps your score to carry a balance. The truth is you don’t need to pay a single penny of interest to have a great score. What’s worse, carrying a balance could actually be hurting your score. It is generally advisable to keep your credit card utilization rate (the amount of your credit limit you’re actually using) under 30 percent. Looking at data from Credit Karma members that pulled their credit profile in 2014, we can see that members with a utilization rate between 1 and 10 percent had the highest average credit scores – with scores falling away from the closer you get to 100 percent. Lenders want to see that you can use credit wisely, but if you’re using too much of your balance you’re seen as a higher risk. Using your credit cards each month and paying them off will show your creditworthiness and could help your scores.

Missing one payment isn’t a big deal

One of the easiest ways to potentially hurt your credit score is to make a late payment. Being more than 30 days late on just one payment can hurt your score significantly and late payments can linger on your credit report for over seven years. Your credit score is designed to be an indication to future lenders about how likely you are to repay debts in a timely manner, and your on-time payment percentage is an important factor in working that out. Try and develop a system that works for you, to put yourself in the best position possible to not miss a payment. Set up calendar reminders, enroll in auto bill pay, or take time to clear outstanding bills on payday. It’s not just your score that could get hit when you miss a payment, some cards also add on late fees and penalty APRs.

You should close cards you’re not using

If a card charges an annual fee, you might be better off closing it. But if there’s no immediate benefit to shutting it down, it could be in your best interest to keep it open. For a start, having more accounts open means a higher overall credit limit – assuming the temptation doesn’t result in you charging more to your cards – and could result in a lower credit card utilization rate, which credit scoring models take into close consideration. If you close an account but don’t curtail your spending, your credit utilization rate will go up and your score could fall. Closing a card can also lower the average age of your accounts. It generally isn’t as influential a factor on your score as utilization rates, but some credit scoring models only look at open and active accounts when calculating the average age of accounts and subsequently your score can take a hit, especially if you close a card that is significantly older than others.

Being an authorized user on somebody’s credit card has no impact on you

Becoming an authorized user on someone else’s credit card is a double-edged sword. You’re generally not legally responsible for the debt associated, but your credit score can be affected for better or worse since credit bureaus typically treat these credit cards as if they were your own. These cards can add years of positive credit to your report, but on the flip side, if the primary account holder misses a payment, you can miss a payment. If they have a high credit card utilization rate, you might as well. For many people, being an authorized user on someone’s account is seen as a pathway to building credit, but in the wrong situation, it can have the exact opposite result.

Source:https://blog.creditkarma.com/credit-cards/4-myths-about-credit-cards-that-should-be-retired/

How to Put More Money in Your Savings Account

Savings Account

For so many people who are dealing with debt, having a savings account may seem like an unrealistic goal. Regardless of your income and what your current financial situation is, having a savings account is vital for your financial health. If you think having a savings account is out of your reach or you are looking for simple ways to make that amount grow, here are some helpful, simple ways to increase the balance of your savings account.

How to Put More Money in Your Savings Account

1. Open a separate savings account.
   If you haven’t done so already, open a separate account for your savings. If you are trying to save money in the same account you write checks, use your debit cards, and pay for bills and living costs, it is easier to start to dip into your savings. If you open a separate account, you have a clear picture of how much you have saved.
2. Pay yourself every month.
   When you sit down to pay your student loan, credit cards, rent, and other bills each month, pay yourself by making a deposit into your savings account. Making it a habit will make it easier to increase the amount you have saved, even if it is a small amount.
3. Add savings to your budget.
   While you are creating your new budget, add savings to the list as well. Just as you factor in costs for food and entertainment, you can factor in an amount for savings each month. Make the budget balance by trimming money from your other flexible areas, like entertainment or buying gifts.
4. Create savings goals.
   It may inspire you to save more if you have goals and aspirations for your money. If you are married or have a joint account with a partner, talk about your goals with them. Outline your goals and the timeline for these goals. And of course, discuss your steps to achieve this goal. If you aren’t on the same page as your spouse, read 5 Ways to Save Money When Your Spouse is a Spender.
5. Continue “paying” completed bills.
   When you are done completely paying off a bill, such as a credit card balance or doctor bill, continue to “pay” that same amount to your savings account. You were already used to paying this balance each month, so you should be able to part with this money easily.
6. Take advantage of employee savings programs.
   If your employer offers a match in your 401K, take advantage of this fantastic program. It is saving your money plus a bonus.
7. Consider a linked debit and savings account.
   There are bank accounts that round up each purchase you make on your debit card, and then deposit that money towards your savings. For example, you might pay for a dinner that is $40.05. Instead, you would be charged $41. That 95 cents are then directly deposited to your savings account. It may not seem like much but think about each purchase you make and you’ll realize that the amount can really add up quickly.
8. Automatically save from your check.
   Some employers offer to directly deposit a portion of your paycheck into a savings account instead of putting it into your checking account. While you can do this yourself, if they offer it, it might be a good idea to sign up so you don’t even have to think about it or get tempted to spend it instead.
9. Increase your income.
   Sometimes after paying bills every month and living expenses, there is simply nothing left. If that is the case, increase your income. There are many ways to do this. If you already have a full-time job, consider if you can ask for a raise or take on extra hours. Get a part-time job. Take on side jobs like doing housework, landscaping, babysitting, tutoring, giving a music lesson, walking a neighbor’s dog, or any other small way you can increase your income. With your extra income, you can then put this towards your savings account.
10. Cut expenses.
    A quick way to increase your savings account is to cut your expenses every month. First, go through your bills you pay every month. Can you cancel your cable? If not, consider bumping down to a smaller package with fewer channels. Call your cell phone company to ask if there is a smaller, less costly phone plan. Take on a roommate to split rent and bills. Cut back on your electricity. Use what you have instead of buying new clothes or other items. Cook at home and eat leftovers instead of heading out to restaurants. Find free and cheap activities to do with your family and friends instead of paying for expensive things to do. Try to walk and bike whenever possible to save money on gas. Go through your credit card and bank statements from the last several months. Highlight the items that were “wants” that you can do without. Now try to avoid these types of purchases. Take the money you saved, and put it in your savings account.
11. Put any unexpected money into the savings account.
    Whether it is a birthday or holiday present, a tax refund, a bonus from work, a credit, rebate, or any other type of money you weren’t expecting, put it into your savings account. Some credit cards offer cash back rewards where you earn money for charging. If you are enrolled in this, when you get the cashback, put it right in the savings account.
12. Stop making excuses and putting it off.
    Many young people don’t think they need to worry about saving quite yet, and sometimes older people feel like it is too late. People feel like they don’t make enough money to save or they really don’t need to save because they will always have the opportunity to work and earn more money. Whatever your excuse is for not having a savings account and not saving money, stop using it. Saving money is hard, and it could be overwhelming because it forces you to take an honest look at your finances, but it is important.

How have you increased your savings account? If you haven’t yet, which of these ways would you like to try?

Source: http://www.mydollarplan.com/how-to-put-more-money-in-your-savings-account/#ixzz3nCnwwyif