Jul16

The Pros and Cons of Rewards Credit Cards

Posted: July 16, 2018 by Ashley Dull

If you’ve done even a little research into credit cards, then you’ve likely run across a number of blogs and forums with stories about people using credit card rewards to earn big bucks and fund lavish vacations.

 

But what’s the real story? Are credit card rewards really all they’re cracked up to be? The answer is: maybe. As with most things in life, rewards cards have both pros and cons, all of which should be considered before you decide to fill out an application.

 

Pro: You Can Save on Nearly Every Purchase

 

For the rewards card novice, cash back credit cards are the most straightforward and user-friendly place to start. And the most obvious pro to cash back rewards is the ability to save on just about everything.

 

With most cash back cards, you’ll earn cash back with each purchase that can later be redeemed for a statement credit. Cash back rewards are like a rebate good for any credit card purchase.

 

The amount you can earn will vary based on the card you choose and how you spend, with some cards offering big bonus rewards for purchases in popular categories like gas and groceries. And some issuers even have options for credit-builders to earn cash back rewards, so a bad credit score doesn’t have to get in the way of saving on every purchase.

 

Con: Some Cards Have Annual Fees

 

The first major con you’ll encounter with some rewards credit cards is the annual fee. The more rewards, perks, and benefits a card offers, the higher its annual fee is likely to be — but that’s not necessarily a bad thing. In fact, depending on the card, you can often come out ahead of even the highest annual fees.

 

For example, a credit card with a $100 annual fee might seem steep, but if that card offers a high rewards rate in a category you use frequently — say dining or groceries — then you could easily earn more rewards in one year than you spend on the annual fee.

 

Of course, if you won’t get more out of the card than the annual fee is worth, it’s easy enough to avoid; just select a card without an annual fee. Dozens of great rewards cards are available sans annual fee, so you don’t need to pay to earn rewards.

 

Pro: You Can Fly or Stay for Free

 

Another prominent pro of rewards credit cards is the same one you often read about: free travel. If you’ve mastered cash back rewards and want to up your rewards game (and you like to travel) then a points or miles rewards credit card can provide significant value.

 

That’s because points and miles often have variable value based on how you redeem them, with travel redemptions almost always providing the best rate. In most cases, the very best redemption value will come from transferring your credit card points to an airline or hotel loyalty program, which allows you to redeem for free flights and hotel stays with your favorite brands.

 

Most points and miles credit cards offer the ability to maximize your earnings with the right combination of bonus categories, allowing you to rack up rewards at a remarkable rate all year long for your big summer vacation. Plus, the majority of travel rewards credit cards come with large signup bonuses, many of which are valuable enough for free travel right off the bat.

 

Con: Carried Balances Accrue Interest Fees

 

Another caution of rewards credit cards is also true of any credit card: the interest fees. When you use a credit card, you are essentially borrowing money from the card issuer to make a purchase. Interest fees are the cost of borrowing that money. Since credit card interest rates can be high, especially if you have a low credit score, carrying a balance on your credit card can get expensive quickly.

 

However, you can easily avoid being charged interest simply by ensuring you never charge more than you can repay in a single billing cycle. The majority of credit cards operate with an interest fee grace period on new purchases. This means you won’t be charged interest on your balance so long as you pay it in full before your due date.

 

Pro: You Can Get Extra Perks & Benefits

 

As if savings and free travel weren’t enough, rewards credit cards have another big pro: extra perks and benefits. To start, all the major networks — Amex, Discover, Mastercard, and Visa — offer cardholder benefits for most of their rewards credit cards that can include perks like primary or secondary rental car insurance and concierge services.

 

Additionally, rewards credit card issuers also provide many money-saving cardholder benefits and useful perks, including things like cellphone protection and exclusive discounts. Travel rewards credit cards, in particular, are much-lauded for their extensive cardholder benefits that can include elite hotel or airline status, annual statement credits, and airport lounge access.

 

 

Tags: , , ,

Read More

May01

Paying for Car Repairs with Poor Credit

Posted: May 1, 2018 by Ashley Dull

While few people are overjoyed about the three- to four-figure sums that typically accompany auto repairs, the cost of getting back on the road can be downright terrifying for those without enough emergency savings.

 

Auto repairs can be particularly troublesome for poor-credit consumers who may have a hard time finding the financing they need to cover the costs. But a few options out there can help make repairs possible, some of which won’t require a deposit.

 

Use a Personal Installment Loan for Large Repairs

 

Given that the average auto repair comes in at more than $500, the bill your mechanic hands over can easily reach into the thousands. When you need to finance a sizeable chunk of money, a personal installment loan is almost always your best bet because they can be repaid through monthly payments over time.

 

Installment loans can be obtained in larger amounts than most other types of financing, typically ranging from $500 up to $35,000.  Repayment terms for most personal installment loans will range from six months up to six years. Most personal loans won’t require a deposit or collateral and can often be dispersed as soon as one business day.

 

While most mainstream lenders will prefer at least good credit for a personal loan, online lending networks can help you find lenders with flexible credit requirements. BadCredit.org’s expert-rated list of personal loan providers have large network of lenders to help you find a loan that can meet your individual needs and credit profile.

 

Use a Credit Card for Small Repairs

 

Depending on the size of your repair bill, it may be feasible to use a credit card to cover the cost. This is especially true in cases where you just need financing for a few weeks, as nearly all credit cards will offer a grace period of one billing cycle to pay off your balance before you’re charged interest.

 

At the same time, credit cards aren’t recommended for long-term financing, as they tend to have high interest rates, particularly subprime credit cards that often have APRs over 25%. Of course, even the high APRs charged by credit cards will be significantly less than that charged by a short-term or cash advance loan, which can have APRs of three digits or more.
When to Replace Instead of Repair

 

Depending on the extent of the repairs — and the state of your credit — you may be better off replacing your vehicle than putting thousands into a bottomless pit of mechanical misery. If you can get poor-credit auto financing and find an affordable car that is newer and in better condition than your current vehicle, it may be a better investment to upgrade rather than repair.

 

That being said, buying another car is a bad idea if you still owe money on your current vehicle (unless you can reasonably sell it — make sure to disclose the needed repairs in your ad). Some dealers may accept a less-than-pristine car as a trade-in, but others will likely balk at one in need of certain high-cost repairs.

 

You should also consider any additional insurance costs that you may incur from obtaining a newer car. If possible, look for vehicles that still have an active manufacturer’s warranty for the most purchase security.

 

Tags: , , , , ,

Read More

Mar19

When it’s Time to Cancel a Credit Card

Posted: March 19, 2018 by Ashley Dull

From the time we start building credit in our late teens or early 20s, many of us start collecting credit cards. Those credit cards inevitably begin to pile up, quickly overtaking even the most robust wallet.

 

By the time you can hardly sit for the bulk of your billfold, the idea of canceling a card or two starts to look pretty good. Even if your card collection has maintained a manageable size, you may need to consider whether it’s time for an upgrade; as your credit grows and financial needs change over time, your old cards may not be the best fit anymore.

 

For the most part, an unused credit card does little more harm than take up a slot in your wallet, and it may actually be helping your credit. That being said, there are two important reasons you may want to consider canceling a credit card: high fees or high interest rates.

 

To Stop Paying Unnecessary Annual Fees

 

The most pressing reason to close a credit card that isn’t pulling its weight is if it charges an annual fee. For example, while instant-approval credit cards can help build credit, they aren’t cards you want to hold on to forever due to the high annual and monthly fees they typically charge. If you’ve used the card responsibly, your credit score should increase enough to qualify for a better, fee-free card so you can leave the costly credit-builder behind.

 

At the other end of the spectrum, many elite rewards credit cards will charge high annual fees, with $400 to $500 fees not uncommon. While these cards often come with rewards and benefits that can make them worth the annual fee to some users, those who fail to make the most of the extra benefits may not be getting their money’s worth out of the annual fee. If you can’t justify the fee, cancel the card before your next fee is charged and look for a better fit.

 

To Avoid Paying High Interest Fees

 

The other main reason you may consider closing a credit card is if it charges a high interest rate. Although a card’s interest rate won’t typically matter if you never carry a balance, the temptation to use a credit card is always there so long as you have the card. If you have credit cards with interest rates above 20%, you may want to consider canceling the card and replacing it with one that offers a lower ongoing APR.

 

Credit Impacts to Consider Before You Cancel

 

While there are several good reasons to cancel an unused credit card, there is one solid reason to consider leaving it open: your credit score. Yes, closing a credit card account can potentially lower your credit score.

 

The impact of closing a credit card may be seen in several facets of your credit score, with the primary impact being to your utilization rate. FICO considers both your individual utilization rates as well as your overall utilization rate when calculating your score. Reducing your total available credit by canceling a credit card can increase your utilization rate if you currently have other credit card debt.

 

Other important FICO score factors can also be impacted by canceling a credit card, albeit to lesser degrees. Your average account age and overall credit history length (jointly worth 15% of your FICO score) can be reduced by canceling a card, particularly one that you’ve had for many years. While positive credit accounts will remain on your credit report for up to 10 years after they’re closed, closing very old accounts can have negative score impacts.

 

Lastly, creditors like to see a mix of several credit accounts and different types of accounts, as it shows you can handle a variety of credit products. As such, your overall credit mix, worth 10% of your credit score, can also be hurt by canceling a credit card, especially if you do not have very many other credit accounts.

Tags: , , , , , ,

Read More

Feb27

How to Best Use Your Tax Refund to Pay Down Debt

Posted: February 27, 2018 by Ashley Dull

Despite the fact that it starts out as our money in the first place, it’s all too easy to think of your tax refund as “bonus” money. Once you know that check or direct deposit is on its way, you may be tempted to start daydreaming of a new big screen or that oft-postponed family vacation. Before you start shopping or packing, however, you should consider the positive impact that refund can have on your bottom line, particularly if you have outstanding debt.

 

Once you’ve made the (wise, smart, excellent) decision to use your refund to tackle your current debt, you’ll need to determine the best way to distribute the funds. When it comes to prioritizing debts for repayment, there are two main methods that experts recommend, each with a fun winter-themed name: the avalanche method and the snowball method. While both debt prioritization methods can give you the desired results (i.e., no more debt) the methods may vary in the amount of time it takes to reach debt freedom, as well as the total cost to get there.

 

The Avalanche Method

 

In general, the avalanche method is most commonly recommended because it will save you the most money during the repayment process. That’s because you’ll essentially be paying off your debts in the order of expense, with the most expensive debt being addressed first.

 

To follow the avalanche method, you’ll need to list your debts in order of the interest they charge, starting with the debt with the highest interest rate, then the next-highest rate, and so on. For example, any cash advance or short-term loans or high-interest credit cards will likely be at the top of the list, and lower-interest installment loans or introductory 0% APR credit cards will be at the bottom of the list.

 

While you’ll need to make your minimum required payment for all your debts, you’ll focus any extra money — in this case, your tax refund — on the debt with the highest APR. If your tax refund is enough to pay off your highest-interest debt, apply the remainder to the debt with the next-highest APR.

 

As you pay off each debt and cross it off the list, use the money you were putting toward that debt to pay off the next debt on the list. By the time you reach your final debt, which will be the one with the lowest interest rate, you’ll have freed up funds from your previous debts and should be able to pay it off fairly quickly.

 

The Snowball Method

 

Although the snowball method isn’t the most cost effective of the two prioritization plans, research has shown that it may be the more successful method for many consumers. This is thanks to the motivational boost you get from paying off a debt and crossing it off your list.

 

To follow the snowball method, you’ll need to list your debts in order of how much you owe for each debt, starting with the smallest debt, then the next-smallest debt, and so on. So, if you had three debts with amounts of $5,000, $1,300, and $2,700, you’d pay them off starting with the $1,300 debt, then the $2,700, then the $5,000.

 

As with the avalanche method, you’ll need to make your minimum required payments for all of your debts, but you’ll focus any extra funds — including your income tax refund — on the smallest debt first. If your tax refund is enough to pay off this debt entirely, apply the remaining refund to the next debt on the list (and so on).

 

By focusing on your smallest debt first, you’ll be able to pay it off very quickly, giving you a feeling of progress and an important boost in motivation, which can help you stay on track and keep to your debt repayment plan. As you pay off debts, roll the money you were spending on each finished debt into the next debt. By the time you reach your last and largest debt, you’ll likely be applying a significant amount of money to that debt, making paying it down a realistic idea (rather than a simply overwhelming one).

 

Your Best Method Will Depend on You

 

While the avalanche and snowball methods can both be effective ways to prioritize your debt and start paying it off, every consumer’s financial situation is unique. The best way to use your tax refund to pay down debt may involve a combination of the two methods, or may not be according to either method. So long as you are actively working to pay down your debt — and are making at least your minimum payments to avoid credit damage — the specific method you choose is less important than the fact you are working toward debt freedom.

Tags: , , , , ,

Read More

Jan12

When to Consolidate Credit Card Debt

Posted: January 12, 2018 by Ashley Dull

In the early days of the internet, getting an email was an event. The friendly little voice informed you that, “You’ve got mail!” and we hurried to click the icon and explore our digital deliveries. These days, the novelty of electronic mail has long since worn off, and checking your email tends to be about as exciting as opening the mailbox to a stack of bills — mostly because those bills have wormed their way into our email inboxes.

Indeed, depending on your situation, that digital stack of bills can be just as overwhelming as their paper-printed ancestors. And when you have a series of debts that bring in a few too many bills — or just a single, larger bill with a few too many digits — your inbox can be a daily reminder that something needs to be done.

Tags: , , , , , , ,

Read More

Nov30

How to Determine the Cost of a Loan

Posted: November 30, 2017 by Ashley Dull

In a perfect world, everyone would have the cash necessary to self-finance important purchases, and debt would be a thing of the past. Unfortunately, we live in the real world, where borrowing is often a necessary part of everyday financial life.

With that being the case, it’s important to understand as much about the borrowing process as possible, not only to avoid the inevitable credit damage from bad financial decisions, but to also avoid paying far more for financial products than you really should. This is especially important for borrowers with poor credit who are already looking at higher-than-average financing costs.

Tags: , , , , , , , ,

Read More

Oct12

What to Look For in a Loan

Posted: October 12, 2017 by Ashley Dull

If there’s one thing to be said about the modern world of consumer credit, it’s that the product options are abundant. While this is great for consumers looking for the best deal, sometimes there is such a thing as too many options (a dilemma quite familiar to anyone who has had the pleasure of waiting 15 minutes for the person ahead of them in line to order coffee).

Even something as seemingly simple as taking out a loan can turn into a series of decisions that require not only a bit of thought, but a bit of knowledge, as well. For instance, each type of loan, be it a mortgage, auto, student, or personal loan, has its own variations. Do you want a conventional mortgage or an FHA-backed loan? Should you get federally financed student loans, or private ones?

Beyond the peculiarities inherent in each type of loan, the majority of installment loans operate in the same general fashion, and each will be influenced by the same basic factors. Namely, your loan terms will primarily consist of your principal (how much you’re borrowing), the interest rate, often given as an annual percentage rate (APR), the loan length — how many months you’ll make payments — and the resulting monthly payment.

Tags: , , , , , ,

Read More

Aug25

What Lenders Look for on Your Credit Report

Posted: August 25, 2017 by Ashley Dull

At the point in history when lending occurred primarily within families and small communities, many borrowers likely knew their lender — and his or her spouse and children — by name. In those days, your personal creditworthiness likely depended as much on your reputation among your neighbors as it did on your actual financial status.

Tags: , , , , ,

Read More