Debit cards take money out of your bank account when you swipe, while credit cards add debt to your line of credit when you use them. Understanding the differences between debit cards vs. credit cards will allow you to use the right one for your needs.

In this article, we’ll cover:

• Debit cards and how they work
• Pros of debit cards
• Cons of debit cards
• Credit cards and how they work
• Pros of credit cards
• Cons of credit cards

What is a debit card?

While cash is still a viable payment option for most goods, businesses have long been progressing toward digital payment methods. Purchasing trends have also shown an increase in online shopping, even for groceries, making cash and checks obsolete.

A debit card reduces the need to carry cash or physical checks to purchase. Some retailers no longer accept physical checks as payment, which will likely increase with time.

How a debit card works

A debit card is connected to a bank account the cardholder opens up at a financial institution. You can use a debit card in one of three ways: to make purchases at a point-of-sale (POS) system in a physical store, at an ATM to withdraw cash, or to make purchases online.

The amount of money you can spend using a debit card depends on what you have in your bank account. There is no line of credit you can borrow with a debit card. If funds are unavailable in your account at the time of purchase, the transaction will likely be declined or cause an overdraft to occur.

When a purchase is made in person, you use a personal identification number (PIN) set up at the financial institution when the card is ordered. The transaction is then sent through the online network used by the merchant to remove the funds from your account.

Some debit cards allow you to forgo using the PIN and choose the “credit” option, which typically requires a signature. The transaction is then processed through the global digital payment technology company network, where a hold is placed on the amount, processing within a few days.

The benefits of debit cards

Convenience

Debit cards deduct purchases from your account immediately, so you don’t have to wait days for the money to be subtracted from your available balance. Using a debit card for transactions or to withdraw cash provides benefits like convenience and speed, and some even have rewards.

No annual fees

Debit cards do not require annual fees to stay activated. The bank account that the debit card is connected to may have monthly maintenance fees, but there are ways to avoid those fees with direct deposits or other means.

Avoid overspending

Debit cards can help you avoid overspending since you can only spend what is available in your bank account. If there are not sufficient funds to cover a purchase, the transaction will likely be declined. There are exceptions to this, and some financial institutions allow you to overdraft your account, but overdraft fees apply.

No interest

Since purchases are taken directly from your account, debit cards don’t accumulate a balance to be paid. This means debit cardholders avoid having to pay interest on a balance owed.

Debit card rewards

While they are usually not as generous as the rewards offered by credit cards, some debit cards also come with rewards, When you use your debit card for purchases, some banks might offer you cashback or discounts on specific products or services. While these rewards may be smaller, they still provide a little extra something for your everyday spending.

Cons of debit cards

Spending limit

A debit card restricts you to the money you have in your account. There may be instances where you need to spend more than what you have available. You can budget for those larger purchases, but sometimes, some emergencies require immediate funds.

Overdraft fees

If you don’t have overdraft protection on your account, there may be instances when using your debit card causes an overdraft. When an account is overdrafted, a fee is triggered as a penalty. If you immediately bring your account out of the negative, you can avoid future fees. If not, some financial institutions will charge you an additional fee every day the account is overdrafted.

Limited fraud protection

Any time a debit card is lost or stolen, you must notify your bank immediately. According to the Federal Trade Commission, if you report your lost or stolen card within two days, you may still be held responsible for up to $50 of fraudulent charges. If it takes you more than two business days, you’ll be responsible for up to $500, and anything past 60 days could make you liable for all the fraudulent charges on your account.

Don’t build credit

Since a debit card doesn’t allow you to borrow funds, it doesn’t assist in building credit. While debit cards don’t affect your credit score, other lines of credit, including a credit card, will.

What is a credit card?

Similar to a debit card, a credit card is a small rectangular piece of plastic or metal issued to you by your bank or a financial services company. However, how a credit card functions differs from a debit card.

Credit cardholders may also be granted a separate cash line of credit (LOC). In this case, cardholders can borrow a specified amount of money through cash advances at their financial institution, ATM, or by using credit card convenience checks. Cash advances come with terms that typically involve higher interest rates and no grace period.

How a credit card works

A credit card can be swiped, inserted, and tapped at a payment terminal. You can also use them online with the credit card number, expiration date, and security code. The only time you can use them to obtain physical money is through a cash advance.

Once you make a purchase, it will appear as “pending” in your account activity and take a few days to clear. Once the amount is posted, it will be added to your balance owed and removed from your available credit.

Every month, you’re required to make a payment on your credit card on a specific date. You can pay off your entire balance owed, your current statement cycle balance, the minimum payment, or an amount of your choosing. Paying any amount but the total balance will incur interest, and paying anything below the minimum payment will incur fees.

The benefits of credit cards

Build credit

A credit card can build credit. The type of credit built depends on payments being made on time and the balance owed steadily decreasing. You don’t need to maintain a balance owed to build good credit, so paying the full balance every payment cycle is the best and safest approach.

Rewards

Credit cards generally have incentives or rewards for the cardholder to encourage use. The types of rewards will depend on the card, but they can come in the form of cashback, airfare points, a free night stay at a hotel, and more.

Consumer protections

Many credit cards offer cardholders a zero-liability policy if fraudulent purchases are made on the card. In other words, you won’t be responsible for unauthorized charges. You can also dispute a charge if the product purchased was falsely advertised, unsatisfactory, or absent.

Reservations and travel perks

Certain situations require a credit card, like booking a hotel room. Aside from cash, hotels will only accept credit cards as payment for the room and incidentals, should anything in the room become damaged or go missing. Special travel credit cards have useful perks like concierge services, rental car insurance, no foreign transaction fees, and more.

Cons of credit cards

Overspending

The ease of using a credit card with a large credit limit can lead to cons like overspending. Spending to the credit limit could put you in a cycle of only being able to afford to make the minimum payments and incurring interest charges, which causes your debt to grow. High balances on your credit card can damage your credit score.

Debt

Credit cards allow you access to more funds than your budget may allow, which can lead to debt if overspending occurs. Interest charges can be about as much as the minimum payment if your balance is high, making it difficult to pay down your debt.

Interest rates

Credit cards have variable interest rates, which depend on the federal funds rate. Rising interest rates can cause credit card balances to go up, making it harder to budget and pay down debt. If a balance is left after a payment is made, finance charges can increase.

Fees

Many credit cards have annual fees, fees for adding an authorized user, fees for cash advances, foreign transaction fees, or fees for making a late payment. It’s important to review the fees and perks of a credit card, and how they may or may not impact you, so you can decide if the card is right for you.

Debit vs credit: key takeaways

Having the best of both worlds

You don’t have to choose one over the other when it comes to having a credit card or debit card. Each has its benefits and can be used for separate occasions. For example, the fraud protection on a credit card is more robust, making it the safer option for online purchases. Debit cards are more suited for everyday purchases, so you can better control your spending. Many people have both to manage their funds, establish credit, and take advantage of rewards.

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If you want to figure out how to pay off student loans faster, put together a debt repayment strategy that focuses on two considerations: spending less on interest and making extra payments. The less you pay in interest, the more you can put toward your principal. And when you pay more than the minimum payment each month, you reduce the length of time you’re saddled with student loan debt. These seven tips can help you make a plan and put it into action. 

1. Understand the impact of interest rates

You likely know the interest rate on your student loan, but do you know how much money you’ll pay in interest over the course of your repayment term? If you calculate the actual cost, you may be surprised at the number. You can use this student loan calculator to see how much interest you’ll pay over the life of your loan; that amount alone may inspire you to pay off your loans faster. 

The average student borrows around $30,000 in pursuit of a Bachelor’s degree. Interest rates vary depending on the type of loan. But say you took out a $30,000 loan at the current federal direct subsidized and unsubsidized loan interest rate of 5.50%. If you make the minimum monthly payment and plan to pay off your debt over ten years, you’ll pay over $9,000 in interest on top of the principal balance. If you make extra payments to eliminate the same loan debt in five years, you’ll pay about $5,000 less in interest. And if you can refinance at a lower interest rate, you’ll also pay less in interest and could pay off your loans faster. 

2. Budget for extra payments

Set a realistic budget for paying back your student loans, and stick to it. Many people find the  50/30/20 budget rule helpful: 50% of your income for needs like rent and groceries, 30% for wants like entertainment, and 20% for saving and getting out of debt. If you want to pay off student loans faster, consider shifting those percentages so you can make extra payments. For instance, you might decide to reduce some discretionary spending so you can devote just 20% of your income to wants and devote 30% to debt repayment and savings.

3. Watch out for debt repayment scams

When you’re trying to figure out how to pay off student loans faster, you’ll likely encounter lots of companies that promise to help you do just that. But be wary: scams are everywhere, so if something seems too good to be true, it probably is. Watch out for debt relief organizations that ask you for money upfront or that promise to immediately eliminate your debt. Do your homework before you commit to any new repayment plan.

4. Take advantage of the PSLF Program

The Public Service Loan Forgiveness (PSLF) Program offers as much as $10,000 in loan forgiveness for government and nonprofit organization employees. Here’s how it works: Full-time employees of qualifying organizations who make 120 qualifying monthly payments under a qualifying repayment plan are eligible to have the remaining balance forgiven on their Direct Loans. If you’re just starting your career and are interested in the government or nonprofit sector, do some research to see if your desired jobs and the type of loans you have qualify. 

5. Consider refinancing your loans

If current interest rates are lower than the rate you’re paying, refinancing might be a way to pay off your loans faster. Are you making multiple student loan payments each month? When you refinance your existing loans, you can consolidate those loans into one new student loan. The new loan is used to pay off your old loans, and you’re left with one more manageable monthly payment. You can refinance if you only have one loan as well. In either case, you could benefit if you refinance at a lower interest rate. 

There can be downsides to refinancing. If you consolidate federal loans into a private loan, you give up some deferment and forbearance options, and it could affect your student loan forgiveness eligibility. Also keep in mind that there may be fees associated with refinancing, so be sure the money you save on interest in the long term is worth it. And avoid the temptation to reduce your monthly payments as part of a refinancing plan; that route is less likely to help you pay off your student loans faster. 

6. Reduce your housing expenses

For most people, rent is one of the largest monthly expenses. If possible, consider ways to reduce that financial burden. Solutions may include moving somewhere less expensive, living with family, or splitting costs with roommates. Reducing your housing expenses can free up some of your income to put toward extra payments on your student loans. 

7. Reduce other expenses

Reducing your expenses across the board can free up money to put toward extra payments so you can pay off your student loans faster. Look for a variety of ways to save money, like reducing impulse spending, finding better deals on expenses like insurance and utilities, and letting go of some nice-to-haves that you can live without. A little austerity now means you’ll have more financial flexibility later. 

Remember, student loan debt is temporary

With careful planning and discipline, you can get free of student loan debt sooner than you think. Student loan debt is temporary; when you plan out how to pay off student loans faster, you can take more control of the timeline. Federal Student Aid has handy calculators that can simulate various scenarios, such as eliminating your debt in less than 10 years or developing the fastest plan to pay off $200k in student loans. The most effective way to pay off student loan debt is unique to each individual; these tools can help you make a plan for your particular circumstances.

For many people, getting out of student loan debt quickly is worth the effort because it frees up money to save for goals like buying a house or contributing to a retirement account. And the faster you pay off your loans, the less you spend on interest over the long term; that’s money you can save and invest for your future. 
Stash can help you stay on top of your spending with built-in budgeting tools and helpful insights about where your money is going. Get ahead on your student loan payments today so you can focus on your long-term financial goals tomorrow.

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However, with some guidance and discipline, it’s possible to overcome these challenges. This guide is designed to help you gain a better understanding of your credit card debt and develop the strategies and motivation you need to pay your debt off faster. With careful planning and discipline, you can take the first step toward your life without credit card debt today and start focusing on your other financial goals sooner.

In this article, we’ll cover:

• Knowing what you owe
• Debt repayment strategies
• Making more and spending less
• Negotiating with creditors
• Staying motivated

Understanding your credit card debt

Taking control of your credit card debt starts with an understanding of your current debt situation. Once you have the full picture, including the amount you owe and your monthly expenses, you can build a budget conducive to getting out of debt. 

Evaluate your current debt situation

Knowing what you owe is the first step to eliminating debt. Whether you’ve accumulated debt on one credit card or ten, start by understanding the total amount of money you owe across all your cards. Then, consider details like interest rates and minimum payments for each credit card. 

Here’s how to get started:

• List all your outstanding balances: Your most current statements show you what you owe on each account. Make a list that includes the name of each card and your outstanding balances.
• Determine your interest rates: The average credit card interest rate as of 2023 is between 23% and 24.5%, which can have a significant impact on how much your debt grows every month. Check the interest rate for each of your cards to help determine how much additional debt you’ll incur each month you carry a balance. Interest rates can vary widely based on the credit card issuer, the individual’s credit score, and other factors.
• Know your minimum monthly payments: List the minimum payments for each account and add them up to determine your total minimum debt payment each month. You’ll need to budget for the minimums to avoid racking up fees, and likely need to pay more than the minimums to eliminate your balance entirely.  

Track your expenses and create a budget

It’s important to know how much money you have coming in and going out each month so you can make a budget. If you don’t already track your expenses, now is the time to start. Analyzing your spending habits can help you identify areas where you might be able to cut back and reallocate funds to debt repayment. Once you understand your habits, you can build a budget that includes plans for paying more than your minimum credit card payments. Online banking tools and budgeting apps are both useful ways to monitor your expenses in real-time and make sure you’re sticking to your budget.

Strategies for debt repayment

Now that you know what you owe and have a monthly budget, it’s time to choose a debt repayment method. Here are three popular strategies to consider.

Debt snowball method

With the debt snowball method, you organize your debts from smallest to largest and dedicate as much of your monthly income as possible toward paying off your smallest debt first. Once that’s paid off in full, you tackle the next-smallest balance. The theory behind this strategy is that you’ll gain confidence and momentum as you pay off these smaller amounts more quickly. The snowball method doesn’t take interest rates into account, just the account balance, so it isn’t always the fastest method for paying off your total debt. But if you’re motivated by small but meaningful victories, the debt snowball method could be right for you.

Debt avalanche method

Unlike the debt snowball strategy, the debt avalanche method is all about interest rates. Start by listing all of your credit card debts by interest rate, from highest to lowest. Then focus on paying off the card with the highest interest rate first, followed by the next highest, and so on until you’re debt-free. It might take longer to pay off one balance entirely with the debt avalanche method, but by eliminating your higher interest rate debt first, you can often save yourself money in the long run. 

Debt consolidation

Debt consolidation rolls all of your credit card bills into one easy-to-manage monthly payment, which can be helpful if you’re carrying a balance on multiple cards. There are a few options available. These include using a debt consolidation service, taking out a personal loan, tapping into your home equity, or using a balance transfer card. In general, debt consolidation could be advantageous if the interest rate on your new card or loan is lower than the rates on your existing cards

Be aware that your credit score could impact the options available to you and the interest rates you can get. In addition, debt consolidation services and balance transfer credit cards often come with fees, so be sure you fully understand all the costs before you go this route. 

Increase your income and reduce expenses

Finding ways to increase your income and reduce your expenses can allow you to put more money toward paying off your credit card debt. And the good news is that there are concrete actions you can take to make it happen.

Generate additional income sources

If it fits in with your current lifestyle, consider exploring a side hustle, like a part-time job, freelancing, or even starting a small business. Start by identifying the skills, talents, and interests you have that could be monetized. Offering freelance services in your area of expertise or taking on gigs like pet sitting or making deliveries could help generate the additional income you need to reduce your credit card debt. Several online platforms and apps offer part-time, hourly, and on-demand work opportunities that can put more cash in your pocket.

Reduce your expenses

Finding ways to save money can give you extra money to put toward eliminating your credit card debt. Review your monthly expenses and prioritize your needs over your wants. What non-essential items or services can you cut back on? Consider finding alternatives to any pricier habits, products, or services. For example, you could cancel your unused subscriptions or commit to cooking and making coffee at home instead of dining out. It may also pay to research competitive rates and leverage your findings to request discounts, promotions, or price negotiations with service providers. If possible, consider using a debit card exclusively to limit your spending to the money you actually have in the bank and avoid incurring more credit card debt. 

Negotiate with creditors

Although it might seem intimidating, it is possible to negotiate with your creditors for lower interest rates or more manageable payment plans. Proactive, honest communication and a friendly attitude can go a long way. You may also consider seeking professional credit counseling to assist you with debt management.

Contacting credit card companies

Many creditors will be open to adjusting how you repay your debt when you’re facing financial difficulties. Approaching your credit card company with transparency about your current financial situation allows them to offer alternative payment options or other assistance. Though this may not work in every case, it’s always worth a try, and you might be surprised by the results. Here are a few tips for successfully negotiating lower interest rates or payment plans:

• Research competitive interest rates and mention them during negotiations.
• Highlight your positive payment history or loyalty to the credit card company.
• Explore balance transfer options to lower interest rates.
• Discuss payment plans with reduced monthly payment options.
• Stay persistent and assertive, but always respectful, on the phone. 

Seeking professional help

Credit counselors are professionals with specialized training in debt, credit,  budgeting, and other financial matters. Not only can they advise you about personal money management, but they can also work on your behalf to arrange debt management plans and lower interest rates. But keep in mind that professional debt counseling services usually aren’t free. So while you may benefit from your credit counselor’s knowledge and negotiation skills, you may be charged for the service. Look for reputable credit counseling businesses by reading reviews online and checking companies’ ratings with the Better Business Bureau. 

Stay motivated and avoid further debt

Remember that paying off your credit card debt is a process, and it may not be a quick one. But you’re not alone on your debt repayment journey: Americans have accumulated over $986 billion in credit card debt, averaging about $2,700 in unpaid balances per person. If you stay focused and motivated, it is possible to become free of credit card debt. Here are some tips to help you stay the course and accomplish your debt repayment goals:

• Set realistic goals and milestones
• Commit to budgeting and tracking your spending
• Celebrate small victories along the way
• Seek support from family, friends, or support groups
• Develop healthy financial habits to prevent future debt accumulation

There is life after credit card debt 

By prioritizing debt repayment today, you can take control of your financial situation and create hope for the future. It may not be the easiest thing you’ve ever done, but it’s likely to be one of the most rewarding.

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The burden of debt can cause stress, tighten your budget, and hinder your ability to save for the future. However, if you’re grappling with numerous loans and looking for a path to become debt-free, the debt snowball method could be your ideal strategy. It provides not just a blueprint for debt repayment, but a journey that transforms your financial outlook, making the goal of a debt-free life tangible and achievable.

In this article, we’ll cover:

• How the debt snowball strategy works
• An example of the debt snowball strategy
• The debt snowball vs. avalanche method
• Debt snowball method pros and cons

How the debt snowball strategy works

When employing the debt snowball method, you factor in all your debts, including credit cards, auto loans, personal loans, medical debt, student loans, and mortgages. Here’s how it works:

1. Begin with a budget: Create a budget that reflects your monthly income and expenses, including minimum payments on your debts, and look for ways to save money so you can put more toward debt repayment. You might want to try the 50/30/20 budget rule as a starting point 
2. Organize your debts: List your outstanding balances from the smallest to the largest debt. This is the order in which you’ll tackle paying off your debts.
3. Pay off your smallest debt first: Make the minimum payment on all your debts each month, and allocate as much money as possible to making more than the minimum payment on your smallest debt.
4. Pay off one debt, then move to the next: Once you’ve completely paid off your smallest debt, start paying more than the minimum payment on the next-largest account. Put the same amount of money you’d been paying on the smallest debt toward this next one.

Debt snowball strategy example

To illustrate the debt snowball strategy, let’s look at a hypothetical example in which you aim to get out of $30,000 in debt. 

First, break down your outstanding balances, from the smallest debt to the largest debt:

Using the debt snowball method, you would first focus on paying down your smallest debt: credit card #1. Let’s say you can afford to put an extra $75 each month toward getting out of debt. Here’s what your debt payments would look like each month:

1. Credit card #1: $115; ($40 monthly minimum payment plus an extra $75) 
2. Credit card #2: $50 (monthly minimum payment) 
3. Car loan: $100 (monthly minimum payment)  
4. Student loan: $130 (monthly minimum payment) 

Once credit card #1 is paid off, it’s time to tackle credit card #2. Add the total amount you’d been paying toward credit card #1 ($115) to the monthly minimum payment for credit card #2 ($50); you’ll now be paying $165 toward credit card #2 each month. Continue the process until all your debts are paid off.  

Debt snowball vs. avalanche method

The avalanche method is another popular strategy for paying off debt. With this approach, you tackle your debts in order of highest to lowest interest rate in order to minimize your overall interest payments and get out of debt faster. Neither approach is necessarily better; it depends on your particular needs and goals. The avalanche method may help you pay off $30,000 more quickly and save on interest, but the snowball method could be more helpful in keeping you motivated.

Debt snowball pros and cons

As you evaluate methods for getting out of debt, consider the debt snowball method’s advantages and disadvantages.

Advantages of a debt snowball strategy

It can be difficult to stay optimistic when you owe money on multiple accounts. This is where the snowball method can come in handy, providing you with a sense of accomplishment as you progress through your debt payment. 

• Gain confidence and momentum: Completely paying off a debt feels great. Tacking your smallest debts first gives you that feeling more quickly, spurring you on to keep up your efforts. 

• Reduce the number of debts more quickly: By eliminating smaller debts, you’ll have fewer monthly payments, which can reduce stress and make it easier to manage your bills.

• Easy to implement in your budget: Once you figure out how much extra money you can put toward getting out of debt, the snowball method is simple to work into your budget.

Downsides of a debt snowball strategy

While the debt snowball method offers its advantages, it’s important to consider the potential downsides as well. 

• You may pay more interest over time: Prioritizing smaller debts based on balances rather than interest rates means that higher-interest debts may accrue more interest in the long run.

• It may take longer to pay off all your debt: While the snowball method provides psychological benefits, it may not be the most efficient approach for paying off all your debts in the shortest possible timeframe.

Is the debt snowball method right for you?

If you’re still wondering if the debt snowball method could really work for you, consider the following factors. If any of these statements apply to you, you might benefit from this strategy:

• You want a sense of accomplishment and momentum quickly. If quick wins give you the motivation you need to stick with your debt-payoff plans, the snowball method can give you that mental boost.

• You want to reduce the number of debt payments faster. By eliminating smaller debts, you’ll have fewer monthly payments to manage, streamlining your financial management.

• Your debts have close to the same interest rates. When the interest rate differences between your debts are minimal, the snowball method won’t necessarily lead to you paying more in interest over time.

• Your smallest debts have the highest interest rates. If your smallest debts are also your highest-interest debts, the snowball method would allow you to spend less on interest overall in addition to its psychological benefits.

When dealing with debt, a repayment strategy can be critical in climbing out of the hole. Whether you choose the debt snowball method, the debt avalanche method, or another strategy, don’t discount the importance of creating and maintaining a budget. By taking consistent steps and making informed decisions, you can gain control of your money and work towards a debt-free future.

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In fact, the nearly 1.3 million active members of the military have a special set of circumstances that they have to keep in mind when they’re mapping out their finances. If you’re in one of the military’s seven divisions, you may have to leave your family at a moment’s notice when you’re deployed, with the average tour of duty lasting up to 12 months. Being in the military also means potentially risking your life, which could possibly expose your family to financial risk.

To help you plan, you can take advantage of some key benefits available only to members of the armed forces, including loans, mortgages, retirement plans, insurance, and discounts. Here are some things to keep in mind if you’re in the military and starting to build a financial blueprint.

Create a budget

Whether you’re part of the military or not, the first place to start when planning your finances is with a budget. One budget you might consider is the 50-30-20 one, which requires you to split your monthly income into 50% for your fixed, essential expenses, 30% for your variable, nonessential expenses, and 20% for saving and investing. 

When you’re creating your budget, take note of your regular paycheck, as well as any other income you have, from an approved part-time job or from a military stipend. Remember that if you have a family, you’re eligible to receive a monthly stipend for housing, depending on how many dependents you have. You’ll also receive a separation allowance if you’re away from your family for more than 30 days.

Maybe you’re saving up for a house, an engagement, or to have kids. You may want to prioritize your savings in that case, and allocate more than 20% of your income to your savings, if you’re able to do so.

Protect yourself

As a member of the military, you can protect yourself, your family, and your things with insurance.¹ Having insurance can provide financial security for you and your family should something happen to you. There are military credit unions designed specifically for service members that can help you bank and may get you the protection you need, including Andrews Federal, Navy Federal, Pentagon Federal, Security Service Federal, and the United Services Automobile Association (USAA).  

USAA, for example, offers a variety of services from auto insurance, homeowners insurance, life insurance, loans, brokerage accounts, and more. Navy Federal offers different kinds of bank accounts, credit cards, loans, and more. Before being deployed, you’ll want to make sure your life insurance policy includes an “act of war” clause in case something happens to you, says Brandon Young, a financial planner and the founder of Fulgent Wealth Management, based in Tempe, Arizona. “Many credit unions and military banks offer life insurance during deployment with such clauses,” says Young. 

Before being deployed, you should also call your auto insurance provider and let them know you’ll be away from your car for a while. “Most automotive insurance groups will allow a deployed member to save money on their auto insurance by contacting them,” Young says. “Generally their rate will have been reduced while deployed and sometimes for a few months after. ” 

You should also consider having a power of attorney (POA) document before deploying. A POA  names a spouse or other family member to handle any financial emergencies that come up in your absence.  “One scenario we see often is when a person is deployed and their account has fraudulent activity or some other issue,” says financial counselor Jennifer Stogner from Huntsville, Alabama-based Redstone Federal Credit Union. In that case, having a POA can guarantee that someone will be able to work with the proper authorities to fix that situation. 

Save for the future and retirement

Perhaps one of the most important things you can do is put money away for the future, whether you stay in the military or not. Since you’re employed by the federal government, you’re entitled to a federal retirement arrangement known as a Thrift Savings Plan (TSP). Your TSP is similar to a 401(k), meaning that you’ll contribute pre-tax income to the account and pay taxes when you withdraw from it in retirement.

If you joined the military after January 1, 2018 or if you’re covered under the Blended Retirement System (BRS), which made military retirement plans more similar to civilian ones, the government will match up to the first 5% you contribute to your TSP every pay period. So try to contribute as much as you can to your TSP. Remember that in 2023, you can contribute up to $22,500 to your TSP.

The TSP also allows servicemembers to purchase an annuity, which is a long-term investment handled by an insurance company providing regular payments during retirement. People might choose to purchase an annuity to help protect against outliving their retirement money. It can also ensure that a beneficiary will continue to receive those payments after you pass away. You can find more information about annuities here.

It’s also important to save for emergencies and long-term goals. “Most servicemembers I worked with not only invested in their TSP, but they set aside additional funds within an IRA or a taxable brokerage account,” Young says. Investing some money in the market through a brokerage account can lead to higher returns than leaving your money in a savings account. However, all investing involves risk, and you can lose money. Stash urges customers to follow the Stash Way, our financial philosophy, which includes investing regularly in a diversified portfolio that includes stocks, bonds, and exchange-traded funds.

Capitalize on military discounts 

Your status as a member of the military can qualify you for certain discounts and financial benefits. As an active member of the military or as a veteran, you can have access to loans and mortgages backed by the Department of Veterans Affairs (VA), often with better terms than typical loans offer. Serving at least 90 consecutive days during wartime or 181 days during peacetime allows you to apply for those loans. “Over the course of a conventional 15-to-30-year mortgage, you will save thousands and thousands of dollars,” says Adem Selita, the founder of credit counseling service The Debt Relief Company based in New York. 

You should also always keep an eye out for any discounts for members of the military, Selita suggests. Certain schools, including St. Joseph’s University, Berklee School of Music, California Southern University, and more offer tuition discounts for active duty members of the military and the veterans. You can also get reduced rates from cell phone providers, retailers, amusement parks, and some travel. You can find out about military discounts here.

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The post Planning Your Finances as a Member of the Military appeared first on Stash Learn.

If you’re not sure how to build credit, you’re not alone. The Consumer Financial Protection Bureau (CFPB) reports that approximately 1 in 10 American adults lack a credit record; that’s 26 million people. Another 19 million Americans have a credit record but no credit score because their credit history is either out of date or too thin to show up on a credit report. 

If you’re starting from scratch, figuring out how to build credit doesn’t have to be complicated. Here are some simple credit-building steps you can take to get started.

In this article, we’ll cover:

• How to build credit with credit cards
• How to build credit without credit cards
• How to monitor your progress

Build credit with a credit card

Opening a credit card can be one of the fastest ways to build credit if you use your card wisely. But how can you get approved if you have little to no credit history? There are a few options to make it more accessible:

• Get added as an authorized user: A family member or significant other can add you as a user on their credit card; that card’s payment history will then be added to your credit report
• Open a student credit card: Many financial institutions offer this type of card for college students
• Open a secured credit card: This type of credit card is backed by a cash deposit you make upfront 

If you’re not a college student and it’s not practical for you to become an authorized user on a family member’s card, that’s okay. Those solutions aren’t available to everyone. So let’s focus on building credit with a secured credit card.

Get a secured credit card

A secured credit card functions like a standard unsecured credit card, with one major difference:  you deposit cash when you open the card, which serves as collateral if you’re unable to make your payments. Generally, your secured card’s credit limit will be equal to the amount of your deposit. A secured credit card is not the same as a debit card; any money you charge to your card is a debt you have to pay back, and you’ll have to pay interest on any balance you don’t pay off each month.

Because the card issuer shares information about your credit usage with credit reporting agencies, regular responsible usage can help build up your credit history. Visa, Mastercard, and nearly all of the leading credit card lenders offer a secured card option. You can also inquire at your bank or credit union about applying for a secured credit card.

Keep your card balance low

Your card’s credit limit is the maximum balance you can have at any given time, but just because you can borrow up to the limit doesn’t mean it’s a good idea. One factor that credit agencies use to calculate your credit score is credit utilization. That’s the amount of credit you have available compared to your balance. Generally speaking, using more than 30% of your available credit at one time can hurt your credit score. For example, if your credit limit is $1,000, keeping your balance below $300 is a good guideline.

Another important reason to keep your balance low is to avoid spending money on interest or running up debt you can’t pay off without squeezing your budget. Think of your credit card as a convenient way to pay for everyday things you know you can pay off within your billing cycle, not a long-term loan. 

Best practices for keeping your card balance low:

• Keep your credit utilization at 30% or less
• Make more than one payment per billing cycle
• Don’t use your card to buy more than you can afford to pay off every month  
• If you can’t pay your full balance each month, at least pay more than the minimum

Set up automatic monthly payments

Payment history makes up about 35% of your credit score, so delinquent payments can quickly turn your efforts to build credit into creating bad credit. Additionally, late credit card payments are often subject to fees or penalties, so you’ll end up owing even more the next month.  

Setting up automatic monthly payments ensures you won’t miss the crucial deadline. Most cards give you several options for autopay, such as the minimum balance, a fixed amount, or the entire credit card balance each month. 

Request a credit limit increase

Increasing your credit limit without increasing your spending lowers your credit utilization ratio, which could benefit your credit score. After you’ve established a track record of on-time payments, your credit card company may be willing to increase your credit limit. If you have a secured card, you might have to add additional funds to your security deposit, but not always. In some cases, the institution might even automatically increase your credit limit after a certain period of time. Since credit utilization is an important part of developing a good credit score, it’s worth calling your institution to ask about your options. 

Open a second credit card

Once you’ve been using your secured credit card responsibly for about a year, you may be eligible to upgrade to an unsecured card. With your credit history established, there might be many more options for cards you could qualify for, so shop around to find the right one for you. Consider factors like the interest rate and whether the card has an annual fee. Some credit cards even offer added benefits like points or cash back that might interest you.

When you open a new credit card, it may be wise to stop using your first card so you don’t have to keep track of balances and bills for multiple credit cards each month. But don’t close that account. Credit reporting bureaus look at the age of your accounts when calculating your credit score; the longer an account has remained open and in good standing, the more it works in your favor. Essentially, older credit accounts give more credence to your credit history than new credit.    

Build credit without a credit card

Responsible use of a credit card is one of the best ways to establish your credit history, but it’s not the only path. It’s possible to build new credit without a credit card through a credit builder loan or by leveraging your rent and utility payments.

Apply for a credit builder loan

A credit builder loan (CBL) is a type of personal loan made specifically to help borrowers build credit history and improve their credit scores. Here’s how it works: Instead of the bank loaning you a lump sum that you repay over time like a standard loan, your lender will hold the loaned money in a secured savings account until the loan is repaid. You make fixed monthly payments and then get the principal back at the end of the loan term. 

Research shows that opening a CBL can increase your likelihood of establishing a favorable credit score by 24% and increase existing credit scores by 60 points or more, depending on your individual financial situation. While CBLs are not as common as other types of loans, you may be able to establish one with your bank or credit union.

Keep in mind that, just like with credit cards, making your payments on time is crucial; late payments reflect poorly on your credit score. And you’ll likely pay interest on the money you borrow, though some institutions will credit you back some of the interest after you’ve paid off the loan.

Leverage your rent and utility payments

If you pay your rent and utilities on time every month, you might be able to use your good payment history to build credit. These kinds of payments aren’t automatically shared with credit reporting agencies, but all three major credit bureaus, Equifax, Experian, and TransUnion, will include rent and utility payment information in credit reports if they receive it. 

You can’t report your payments to the bureaus yourself, and landlords and utility companies often won’t do so on your behalf because they have to pay a fee. The good news is that there are many rent-reporting services that will verify and report your payments. 

The options offered by these services and the fees they charge vary, so comparison shop to find the right one for you. Some just report rent, while others will also include various types of utilities. Some will also report your past payments, which can be a benefit if you’ve always paid on time. You’ll also want to find out which bureaus the service reports to, as not all of them include all three agencies. 

If you use a rent-reporting service to help build credit, remember that consistent on-time payments are essential if you want a positive impact on your credit score. 

Take your time and watch your numbers climb

Building credit takes patience and diligence; after all, it’s called credit history for a reason. It can take six months or more to generate your first credit score after you get started with a credit card or CBL loan. Having only that new credit won’t necessarily get you to a high credit score; keeping accounts in good standing over a longer period of time, maintaining a low credit utilization ratio, and making all your payments on time are key to increasing your score over time.

As you put your plan for how to build credit into action, keep an eye on how your credit score is affected. You can get a free credit report once a year from all three of the major credit reporting bureaus; check it to see your progress and make sure no issues bringing your credit score down. If you want to keep an even closer eye on your progress, a free credit score app will give you a more frequent look at your credit report, and many offer personalized tips for improving your credit score. And remember: building credit is just one piece of the puzzle. Your budget, savings, and investments are also core components of working toward a brighter financial future.     

The post How to Build Credit: Why You Need It and How to Get It appeared first on Stash Learn.

While each individual’s circumstances vary, trends show that, on average, Gen Zers hold the least amount of debt, while Gen Xers shoulder the highest debt burden.

For common types of consumer debt, here’s how the average debt owed per consumer breaks down per category.

Debt’s effect on your life

You may have heard references to “good debt” and “bad debt.” Generally speaking, things that may have a long-term positive impact on your financial health are considered “good debt.” That includes student loans, which may increase your long-term earning potential, and mortgages, which can add to your net worth if your home rises in value over time. When people refer to “bad debt,” they often mean things like money you owe on credit cards or an auto loan: purchases that depreciate in value. 

There’s no shame in being in debt, whether it’s the “good” or “bad” type. The difficulty is that carrying debt over time can have a negative effect on your life in a number of ways, such as:

• Cash flow: Monthly debt payments can eat into the money you have available to spend each month. If your minimum payments are particularly high, it can even be difficult to budget for necessities. 
• Credit score: Having a lot of debt or late payments can lower your credit score, making it more difficult to be approved for a loan or line of credit if you need one. Some employers even look at applicants’ credit scores as part of their hiring process. 
• Saving for the future: Every dollar you spend on debt payments and interest is money you can’t put into savings and investments that could help you work toward your long-term goals or save for retirement.
• Risk of falling behind: Even if you have only “good debt,” it can turn bad if you fall behind on payments. Late payments can lower your credit score and result in fees and increased interest rates; it can also be difficult to catch up later.
• Stress: Worrying about debt and finances can take a toll on your mental health as well as your financial well-being. The American Psychological Association reports that 65% of Americans cite money and personal finance concerns as a significant source of stress.   

But the good news is that you can counter the negative effects by learning how to get out of debt, making a plan that works for you, and taking steps now to start your journey toward debt-free living. 

How to pay off your debts faster

Paying off debt takes planning and discipline, but there are techniques you can use to succeed. Depending on the amount you owe and your current financial position, it may take you a longer or shorter amount of time to pay off your debt than another borrower. But regardless of your situation, the sooner you start figuring out how to get out of debt, the sooner you’ll be able to put the money you spend on interest back in your own pocket.

These six tips can help you make a plan and start taking action now:

1. Stop borrowing money 
2. List all your debts
3. Make a budget
4. Negotiate your interest rates
5. Use a debt repayment method
6. Put extra money toward monthly payments

1. Stop borrowing money

Don’t continue to accumulate debt. It may sound obvious, but your spending habits can allow additional debt to creep into your life, sometimes unwittingly. 

You may wish to take a look at how you use credit cards first. Remember that a line of credit is really a type of loan, and you’re paying interest on the money you borrow each time you whip out your card to make a purchase. By using your debit card instead of your credit card, you’ll only be able to spend the money you have in the bank. This may entail reducing spending on non-essential items in your budget, like entertainment. 

Another sneaky way more debt can accumulate is if you routinely use credit cards to earn points or rewards. If you pay off your credit card balance every month, before interest can accumulate, you won’t add to your debt. But it’s easy to spend more than you’d planned and wind up with additional debt if you can’t pay off the full balance when it’s due. 

Review all your auto-payments to see which ones are being charged to credit cards, and switch them to your debit card instead. That way, you won’t be adding to your credit card debt without realizing it. This is also a good opportunity to check for monthly or annual subscriptions you’ve signed up for but are no longer using; it’s easy to start a free trial and forget to cancel it.

Finally, avoid accruing additional debt in the form of loans. If you need to borrow money to make a larger purchase, like a new car or home improvements, consider whether you can delay those purchases.

2. Gather your debts

To plan how to get out of debt, you’ll need a clear picture of exactly how much you owe. Make a list of all of your debts, including student or auto loans, credit card debt, your mortgage, and any purchases you’ve made on installment plans. Track the amount you owe, the interest rate, and your minimum monthly payment for each debt. Having the complete picture will help you better understand how much you’re actually paying toward your debt each month, and whether you’re able to contribute more toward debt that carries a higher interest rate.  

To ensure you track down all your debts, you might want to take a look at:

• your bank account statements for the last year
• your credit card statements
• records in digital payment apps
• your credit report; you can get a free copy of your credit report without negatively impacting your credit score 

3. Adopt a budget that you can stick to

Creating a budget and regularly tracking your spending is a cornerstone of planning how to get out of debt and managing your money to put that plan into action. When you have a budget, you can see exactly how much money you’re bringing in, plan how to spend it, and track where it’s going. You decide what’s essential and what’s optional, giving you the power to make decisions that help you reach your debt-free goals. 

Making a budget is the first step; sticking to it is another matter. Luckily, there are many different budgeting approaches, and you can choose one that fits best with your lifestyle. 

50/30/20 budget

The 50/30/20 model is a popular approach because it provides clear guidelines for allocating your money. With this method, you divide your spending into needs, wants, and savings/debt, then allocate your after-tax earnings to each category.

• 50% to needs: Things you need for survival, like groceries, utilities, minimum loan payments, insurance, and health care
• 30% to wants: Things you want to make life more enjoyable, such as dining out, vacations, entertainment, and just-for-fun purchases
• 20% savings/debt: Savings, investing, and/or making additional payments on your credit card debt and other loans

4. Negotiate and reduce your interest rates

There may be options to reduce your interest rates for some of your debts. The more you’re paying in interest, the longer it’s likely to take to wipe out your debt, so it might be worthwhile to investigate your options.

• Credit card debt consolidation: You might be able to transfer your balance from one or more credit cards to a card with a lower interest rate. Keep in mind that you must be in good standing with your credit card payments and be able to qualify for the new lower-interest card, and there are often fees when you transfer a balance. 
• Credit card interest rate reductions: Some credit card companies have programs for reducing your interest rate. Some issuers might reduce your rate if you have a history of on-time payments or are facing financial hardship. Others have programs designed especially for people whose debt has become unmanageable. 
• Student loan options: Your student loan issuer may have a variety of options for reducing your interest rates, including debt consolidation if you have multiple loans and deferment if you’re facing financial hardship. There are also a variety of federal programs you may qualify for.  
• Other loan options: Any loan issuer might offer programs or be willing to negotiate a lower interest rate, so it’s worth calling to ask.
• Overall debt consolidation: If you have multiple debts, you may wish to research debt consolidation loans. With these programs, the financial institution provides a loan to pay off all your other debts, and then you pay off that single loan. If you go this route, make sure the interest rate on the loan is lower than the rate of all your other debt.  

Be aware that any debt consolidation or interest-rate reduction programs may have fees associated with them, so do the math to ensure any fees don’t outweigh the savings you’ll get by reducing your interest rate. 

5. Tackle your debts with the snowball method

When you have multiple debts, it may feel overwhelming. One approach that can have a big impact is to start small and work your way up: that’s the debt snowball method in a nutshell. Many people find this strategy effective and encouraging when they start their get-out-of-debt journey. 

Here’s how it works: Take your list of debts and organize them by the total amount you owe, from smallest to largest. Every month, make the minimum payment on each account. Then, pay extra on the smallest debt every month. When that’s paid in full, shift all the money you were paying toward that debt to the next largest one, and continue paying the minimum on everything else. 

Here’s a hypothetical example of how it could work in practice. Pat has the following debts:

• Store credit card: $500 balance, $25 minimum payment per month
• Major credit card: $1,200 balance, $65 minimum payment per month
• Car loan: $5,000 balance, $130 minimum payment per month
• Student loan: $15,000 balance, $190 minimum payment per month

Pat pays the minimum payment for all those loans each month, plus an extra $100 toward the store credit card. When the store credit card is paid off, Pat starts paying an extra $125 a month on the major credit card; that’s the total of the store credit card’s $25 minimum payment plus the extra $100. 

One reason this method is so effective is that you gain a sense of accomplishment each time you completely pay off a debt. And the amount you can put toward paying off debt gets bigger and bigger as you go along, just like rolling up a snowball. 

Try the avalanche method for high interest debts

The snowball method isn’t the only approach you could take. People who have some debts with especially high interest rates might want to try the avalanche method, in which you pay extra on the debts with the highest interest rates first. While the easiest method for getting out of debt depends on your situation, what matters is choosing a strategy that works best for you.

6. Pay more than your required minimum payment

The consequences of making only the minimum payment on your debts each month can add up quickly. Say, for example, you have $5,000 in credit card debt, with a minimum payment of $125 and an 18% interest rate. If you only make the minimum payment each month, it will take you nearly four years to pay off your debt, and you’ll spend a total of $2,013.21 in interest. If you up your payment to $300 per month, you’d accrue around $800 in interest and pay off your debt in less than two years. 

Even if you have a fairly low interest rate, the longer you have debt, the more you spend on interest. Putting extra money toward your monthly payment will help you get rid of debt faster, and you’ll pay less in interest as well. 

Your debt-free future

If credit card and loan payments are straining your budget, the tips above can help ease the burden, no matter how small you start. Even if you have relatively little debt now, making a plan for how to get out of debt may be a smart move so that you don’t wind up further in the hole. 

Whether you have “good debt” or “bad debt,” paying it off sooner rather than later can help you build a stronger financial future. When you get rid of debt, you can put the money you were spending on loan payments and interest into savings and investments that may earn profit over time. The institutions that hold your debt are making money from those loans; imagine how much better it would feel to have that money earning interest and returns for you instead.  

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Debt payment FAQ

What is the easiest way to get out of debt?

It depends on your circumstances and personal preferences for managing money. Both the snowball method and the avalanche method can be helpful strategies. Creating and sticking to a budget can help you put more money toward paying off debt and avoid going into more debt in the future. 

What can I do if I can’t pay my debt?

When what you owe is more than you afford to pay back, you can look for ways to reduce your payments by contacting lenders. Depending on the type of debt and the financial institution, you might have options that will reduce your monthly payments or interest rate, or even get a forbearance that pauses your payments for a period of time. 

You can also look into refinancing options for your mortgage or student loans if current interest rates are less than what you’re paying. A similar tactic can be used for credit card debt by transferring your balance to a card with a lower interest rate.

Some people also find that debt consolidation services can help. Institutions that offer a debt consolidation loan sometimes also negotiate with creditors on your behalf to reduce the balance of your debt.

Finally, you might also consider picking up a side hustle to earn extra income that you devote solely to paying off debt.

Can you remove debt without paying?

Generally speaking, once you have debt, you have to pay it off. Even if you declare bankruptcy, you’ll generally have to sell some of your assets to pay back as much of the debt as possible before the rest of the debt is discharged. And certain kinds of debt, like student loans and child support, cannot be discharged through bankruptcy.

That said, there are a few government programs for student loan forgiveness that apply to certain individuals and circumstances.

The post How to Get Out of Debt in 6 steps appeared first on Stash Learn.

That’s a common misconception held by nearly a quarter of all credit card holders, who believe carrying a balance will help improve their credit scores, according to a new study by Creditcards.com.

That misunderstanding is even greater for millennials, nearly a third of whom believe carrying a balance improve their credit.

Listen up, it’s simple: It’s usually better to pay off your credit card balances as quickly as you can.

Not only will that improve your credit score, it will save you money. Credit cards typically charge a high rate of interest, on average about 24.24%. That amount is added as a percentage of your outstanding balance every month you’re not paid off.

What’s a balance?

A balance is any unpaid amount on your credit card, that carries over from one month to the next.

The average U.S. consumer carries an unpaid balance of $7,279 on credit cards.

What’s a credit score?

A credit score is a point-based score developed by a company called Fair, Isaac Co. It’s sometimes referred to as a FICO score. It uses credit history data compiled by credit bureaus Experian, Transunion, and Equifax. Your credit usage information is regularly transmitted to these three agencies.

A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850.

How is my credit score determined?

Your credit score is determined based on your use of credit.

The most important factor is how well you handle credit, which chiefly means how timely your payments are. If you are late with payments or have stopped paying a loan, that’s going to have a negative impact on your credit.

If you fail to make a payment within 60 days of your bill due date, that will be reported to a credit bureau, which will hurt your credit rating, according to the report.

The other key thing that determines credit score is something called credit utilization. That’s essentially the percentage of the entire amount of credit that you have available to you,  that you’re using at any given time.

Say you have credit lines worth $10,000, if you’re close to maxing out your lines, that’s likely to have a negative impact on your credit.

What else influences my credit score?

Another thing that influences your credit score is the variety of loans you have.

Generally speaking, the more kinds of credit you can handle well, the higher your score is going to be. For example, if you’re managing to make timely payments on two credit cards, a car loan, and a mortgage simultaneously, your score is likely to be better than someone with just credit card loans.

Other things that influence your credit score include the length of time you’ve had credit, and whether you’ve applied for new lines of credit. The more frequently you apply for credit, the more that will affect your score.

Why does good credit matter?

Your credit score determines the rate you’ll get on everything from credit cards to car loans and mortgages. The higher your rate, the more you’ll pay, particularly for installment loans like cars and mortgages.

Women more likely to make late payments

It turns out that women may be more likely to make late payments on their credit cards than men.

The top reason, according to the survey, might be economic. Women earned an average of 82% of what men earned, according to data from Pew Research.

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The post Why Keeping a Balance Won’t Improve Your Credit Score appeared first on Stash Learn.

The tech company is introducing a product called Apple Pay Later, which will allow users to split payments into four equal installments without interest or fees. The payment plan can be used anywhere Apple Pay is accepted. 

At online retailers and at registers these days, you may encounter the option to pay with a service known as “Buy Now Pay Later” (BNPL). It’s another way to pay, that doesn’t rely on credit or debit cards, or even cash.

Buy Now Pay Later services provide loans to consumers, letting them pay for something in installments, instead of paying the entire sum at checkout. BNPL companies operate by fronting the money to shoppers, and charging them over the course of a multi-month payment plan that they select. Rather than charging compound interest, as a credit card company might, Buy Now Pay Later companies often charge no interest, or less than credit cards do. 

And that’s one reason they have taken off with younger consumers, such as Gen Z and Millennials, who are looking for alternatives to credit cards. (Learn more here.)

The idea behind these businesses is that they let customers make big, often necessary, purchases without putting them on a credit card and potentially racking up debt. And in fact, they operate much like the layaway plans of old, which thrived before the invention of credit cards. But there are still risks. For example, some BNPL services will hit you with late fees if you miss payments. Missing payments might also negatively affect your credit score if the BNPL service you use reports to a credit bureau.

On the plus side, Buy Now Pay Later companies can also give people without a credit history access to credit. Retailers may benefit too. They often pay Buy Now Pay Later providers to feature them as a payment option on their sites. (In contrast, merchants must pay to accept credit cards.) Stores will reportedly pay even higher fees than they do to credit card companies because they expect consumers to spend more money with BNPL. Services such as Klarna, Sezzle, Afterpay, and Affirm offer point-of-sale short-term loans to consumers, paying the retailer upfront and charging the buyer in installments. 

How BNPL Works

Digital retailers will tell you which BNPL services they offer when you go to checkout. In order to use a BNPL service, you’ll have to download the service’s app on your phone. You’ll then have to provide basic information, such as your name, billing address, and sometimes your social security number. You’ll also have to verify your information with an email or mobile code, and accept terms and conditions. Then you can provide your method of payment, such as a credit card, debit card, or check. At checkout, you’ll make a down payment, and agree to a payment schedule. Payments will then be applied to your debit or credit card, or deducted from your checking account. 

You can also use these apps at the point of sale at retailers that accept them. Getting approval from a BNPL service can reportedly take less than 10 minutes.

How BNPL payments are structured

The payment terms for BNPL companies vary, but are often structured as four equal payments of roughly 25% of the owed amount, including taxes and any fees, with the first payment due at checkout. Some, like Afterpay and Klarna, offer you the ability to pay off your loan in four payments without interest, but will charge fees if your payments are late. Klarna also allows shoppers to pay back a loan interest-free in 30 days, an option known as  “Pay Later,” and offers long-term loans—from 6 months to 36 months—with interest. Others, such as Affirm, may charge interest as soon as you take out the loan, but don’t charge late fees. When you sign up to use Affirm, they’ll typically let you know how much your payments with interest will be, but you won’t pay extra fees if a payment is late.

The interest rates offered by certain BNPL providers can be comparable to those offered by credit card companies. Affirm, for example, charges an Annual Percentage Rate (APR), which reflects the annual interest rate you pay as well as fees, from 0% to 30% depending on how big the loan is, your credit score, and which payment structure you choose. Afterpay and Klarna, meanwhile, do not charge interest but can charge late fees up to 25% of the purchase’s value. 

In contrast, the average credit card rate is reportedly 16.77%, as of June 2022., as of September 2021. Credit card interest typically compounds on a daily basis, which means that if you don’t pay off your balance within your billing cycle, you might owe a much higher amount than you originally did as the interest compounds. 

How BNPL can affect your credit score

For people who haven’t started building credit yet, or are rebuilding their credit, BNPL can be an alternative to credit cards. Afterpay, for example, reportedly instantly approves applicants without checking their credit score. Other options such as Klarna and Affirm perform soft credit checks. A soft credit check appears on your credit report when it’s checked for reasons that are not necessarily related to borrowing money, while a hard credit check appears on your report when you want to borrow money, for example by applying for a credit card, mortgage, or car loan. A hard credit check usually temporarily lowers your credit score, but a soft credit check doesn’t. “This can be an advantage if you don’t have a great credit score or any credit score at all, and it’s fast,” says Ted Rossman, New York-based senior industry analyst at Creditcards.com and Bankrate.com. 

Everyone’s credit situation and financial background is different. You should be aware of how BNPL can affect your credit before you sign-up for it. If a BNPL reports to a credit bureau, your payment history can affect your credit score. “Once you start using [BNPL], if you pay your bill on time, your credit score will….slowly improve,” says Carter Seuthe, chief executive officer of debt management company Credit Summit, based in Austin, Texas. On the other hand, Seuthe says if you fail to pay, your account will be marked as delinquent and that could affect your credit score. “If your account is handed to collections you will see a significant drop in score,” Seuth adds.

Nevertheless, staying on top of your payments if you decide to use BNPL is crucial. In a recent survey, 44% of respondents said that they’ve used BNPL to acquire an item they need. Of those who’ve used BNPL, 34% have reportedly fallen behind on one or more payments and 72% said they believed falling behind hurt their credit scores.

Other considerations before you use BNPL

Keep in mind also that you can earn points as you spend with a credit card, which you can use to pay down your bill, book travel, shop online, and more. You won’t earn those points using BNPL. (Remember that both credit cards and BNPL are forms of debt financing—paying off a loan over time—so you should be careful with both.) A credit card may be a more efficient way to build credit but if you don’t have a strong credit profile or want to avoid a ton of credit card debt, BNPL might be an option worth considering. 

And while BNPL companies often charge little or no interest, there can be hidden fees such as late fees. Missing payments could result in extra costs, and your debt could be sent to a debt collector. If your BNPL payments are taken automatically from your bank account, you should also be mindful of any overdraft fees that your bank charges, in case you don’t have enough in your account to cover the payments. As with anything, it’s important to read any fine print and disclaimers when you apply to use BNPL.

Another potential pitfall with BNPL is that, much like a credit card, it can increase the chances of accruing debt. While it might feel like you’re only paying a small portion of the cost you owe upfront, you will ultimately pay the whole sum over time, plus any fees. 

Follow the Stash Way

Whether you use BNPL or some other financial service to borrow, it’s important to practice good financial habits by budgeting for your essential and non-essential spending. Budgeting is part of Stash’s financial framework the Stash Way, which also includes saving for the short-term and the long-term, and making room in your budget to invest small amounts regularly. 

The post Buy Now Pay Later: How it Works and What You Should Know appeared first on Stash Learn.

The couple, who are based in Las Vegas, soon realized they were facing more than $50,000 in debt, living in a basement apartment and unable to afford what they truly wanted out of life. 

“We do have a lot of outside pressures telling us what we should want, what a successful gay looks like,” Schneider says. “Our spending was not at all aligned with what really mattered to us. We wanted to save for a comfortable retirement, travel much more than we had at that point, but to do it on cash and not come back with a credit card hangover, and to give back to their community.”

The couple, together for more than 17 years and married since 2017, are now the authors of “4: The Four Principles of a Debt Free Life” and the Debt Free Guys website, geared toward helping LGBT people climb out of debt and live smarter financial lives.

They confirm what the numbers show—that LGBT Americans are less financially stable than the general population and face unique challenges that affect their bank accounts.

Nearly half of the 500 LGBT respondents in a wide-reaching 2018 Experian survey said they struggle to maintain adequate savings, compared to 38 percent of the non-LGBT population surveyed, and more than a third said they have “bad spending habits” that they’d like to improve or change, compared to about one-fourth of their non-LGBT counterparts. 

Bias and discrimination has caused financial challenges for 62 percent of LGBT respondents, who also reported being passed over for jobs or promotions, being harassed at work and higher housing costs due to discrmination.

The LGBT population is also more inclined to spend money than save it, according to the Experian survey, and have more challenges when it comes to retirement planning.

Schneider and Auten focused their attention on LGBT finances after attending FinCon, the world’s largest financial content conference, in 2015, a year after they launched Debt Free Guys. They found groups dedicated to black finances, mommy bloggers, Christian bloggers, but not LGBT finances.

“That kind of put a little bit of a weight on our shoulders that said if no one else is going to do this we have to do it,” Auten says.  “We have the responsibility and the privilege to do that.” 

They also recognize that, as cis, white men, they have a privilege that can translate into helping other LGBT people who may be marginalized because they are people of color, transgender or living in poverty.

“I think that we need to be very encouraging to each other in the community that there are as many options and opportunities available to us as there is everyone else,” Auten says. “It may not feel like it at times, but it is.”

We’ve broken down the most pressing financial challenges for the LGBT community along with tips for financial stability.

Savings and Student Loans

Successfully entering adulthood often depends on strong family support and education — two things LGBT youth often don’t have. 

Though LGBT youth comprises just 5 percent to 10 percent of the population, they account for 40 percent of homeless youth. LGBT young adults are 120 times more at risk of being homeless than heterosexual, cisgender young adults.

That sets up the LGBT population for years, if not a lifetime, of struggling, financial stress and low paying jobs.

“You’re worried about where you are going to sleep at night or whether you’re going to be able to get through the day without getting beaten up, or every day you’re dealing with microaggressions because of who you are,” Schneider says. “It’s a little hard to then say, despite all this, I’m going to focus on saving enough for retirement.”

Saving and planning for a stable financial future is a privilege that many LBGT people don’t have the luxury to consider.

“Oftentimes when we think about finances in our community, it’s more from a position of desperation and not as much from a position of opportunity,” he added.

The lack of familial support also means much higher student loan debt for LGBTQ+ youth that make it to college. 

About 4 in 10 respondents in a Student Loan Hero survey of LGBTQ+ borrowers in 2019 said they’ve been denied financial help due to their sexual orientation. Nearly 30 percent say their student loans are unmanageable and a whopping 87 percent said their student loans have prevented them from reaching important milestones.

Still, college is a lifeline for many. Nearly 60 percent said they felt welcomed and accepted on their college campus.

Budgeting Differences

Once you do get to a point of budgeting and saving, it may look different than your hetero, cisgender counterparts.

“A lot of our budgeting needs will be different. A lot of our budgeting goals will be different,” David Rae, a Los Angeles-based certified financial planner whose firm caters to LGBTQ+ and LGBTQ+-friendly clients, says.

Fewer gay and lesbian couples have children than heterosexual couples. While exact numbers are hard to trace because some parents may feel scared to accurately report their status on the U.S. census, there are an estimated 2 million to 3.7 million children living with a parent that identifies as LGBTQ+, according to the most recent data.

Those families that do choose to parent children will spend more to bring those children into their families, through surrogacy, sperm donation, reproductive medicine and adoption fees.

LGBTQ+ Americans also face unique medical costs that can put a major strain on their budgets. This can include anything from higher HIV/AIDS treatment and medication, hormone therapy, and delayed or less effective medical treatment due to the stigma of being LGBTQ+.

For some transgender people who choose gender reassignment surgery, the medical costs can be crippling — almost six figures in some cases. That can be financially devastating for those who are uninsured or whose policies don’t cover the costs.

The Cost of Living (and Keeping Up with the Joneses)

Just a generation or two ago, rampant, dangerous homophobia and laws against gays and lesbians, Rae says, forced people into the safe havens of major cities like San Francisco, New York City or Los Angeles.  

“We don’t have to live in the ‘gayborhood’ necessarily anymore,” Rae says. ““But I do think for the most part, we are ending up in cities… which drives up the average cost. And some of that is to feel safe.”

There is also the very prevalent stereotype of the lavish gay lifestyle, especially among, gay men, according to Rae and the Debt Free Guys, and that plays a major part in spending beyond their means on things they may not even want.

“We want to prove that [LGBTQ+ people] are worthy, that we are just as good as our straight neighbors,” Auten says. “I think it’s a lot of [keeping up with] Mr. and Mr. Jones, Mrs and Mrs Jones.” 

The Atlantic even published a report about the myth of gay affluence, that pointed to a disparity between popular culture, such as Will & Grace and Modern Family and the reality that LGBTQ+ Americans live with a disproportionate amount of poverty and debt. Auten and Schneider says they have friends in New York City, a gay couple, who both earn six figures each, but who are drowning under six figures of credit card debt. 

The Experian study showed that nearly 50 percent of respondents ages 25-34 reported feeling financially out of control along with more than 40 percent of respondents ages 35-44.

“I think the media and the consumerism side of corporate America do a really, really good job, of showing us this is what really fabuous gay men look like,” Auten says. “If you want to be a good gay, you need to look like this.” 

Money Matters at Work

LGBTQ+ Americans continue to face financially devastating discrmination at work, from being denied jobs or promotions to making less money than their straight co-workers. Only 22 states and the District of Columbia have laws to prohibit discrimination on the basis of sexual orientation or gender identity, according to the Human Rights Campaign.

Lesbians reported making $45,606 to straight women’s $51,461, a difference of nearly 13 percent, according to a report from insurance company Prudential  about finanical experiences of the LGBTQ+ community. Meanwhile gay men reported making an average of $56,936 to heterosexual men earning $83,469, a difference of 46 percent. And the unemployment rate for transgender Americans is three times higher than the national average, according to a report from Out & Equal, a workplace advocacy group. (Note: The Prudential report, from 2016-2017 is the company’s most recent on the subject. The 2019 report from Out & Equal is also that organization’s most recent.)

“The best way you can bridge that gap is to build your skill set,” Rae says, “and be as marketable and as valuable an employee as possible.” 

LGBTQ+ Americans, especially those who are younger, don’t have to consign themselves to service jobs or low-paying gigs that don’t come with benefits simply because they are gay or may present outside of the binary, Auten says. 

“There are as many options and opportunities available to us as there are to everyone else,” he adds. “We should be supporting and encouraging each other to reach for those higher paying jobs.” 

Tips for Financial Success and Supporting the LGBT Community

LGBT Americans may face more of an uphill battle in erasing debt and building wealth, but the advice is the same no matter how you identify.

“Create your own opportunity. And a big piece of having that opportunity is having your finances in shape, ” Rae says. “If you’re drowning in credit card debt, you are dependent on that job. You need that paycheck. You don’t have the opportunity leave.” 

Support LGBT and ally businesses. Not only are they a potential source of employment, but they understand, accept and support other LGBT Americans. 

“We as a communty can benefit from supporting gay businsses, supporting gay-friendly businsess,” Rae says, adding that he keeps a constant eye on social justice investments for his clients. “Some of that is our spending and some of that is our investing.”

Save for retirement, even a little at a time. This should be a goal for all Americans, but LGBT Americans as a group are behind the savings curve. Saving for retirement was the top financial concern for LGBTQ+ respondents of the Experian survey. 

But it’s not easy. For one, Rae and the Debt Free Guys pointed out, the HIV/AIDS crisis killed almost an entire generation of LGBTQ+ Americans who would now be nearing or at retirement age and could have set the standard.

Also, retirement planning imagery often involves a “straight, white couple and their golden retriever walking down the beach,” Auten says. “If you don’t see yourself in any of the imagery then you don’t think it’s necessarily for you. As an LGBTQ+ person, you may not even engage with this.” 

Looking for an LGBTQ+ retirement advisor or certified financial professional (CFP) can go a long way toward helping you secure the future you want.

The post Why Saving and Debt are Big Problems for LGBTQ+ People appeared first on Stash Learn.

But getting a degree and entering the next phase of your life comes with a whole new set of expectations and responsibilities. Graduation often means starting your first full-time job and getting your first significant paycheck. That paycheck also comes with more financial responsibilities, like budgeting to pay your bills on time, saving, and even planning for retirement. 

New grads are entering a hot job market. There were a record 11.55 million available jobs as of March 2022, with the number of job openings outweighing the number of available workers. Still, inflation at its highest level in decades, which could eat into your pay once you get your first job.

Stash put together a checklist of six things new college graduates should know as they enter the “real world:”

#1 Create a budget

You might already have a budget from college. But if you don’t, and  you’re starting a full-time job or have a summer gig, the first thing you should do is make one, or alter the one you have to fit your post-graduate circumstances. 

One good template to follow is the 50-30-20 budget. First, you need to calculate how much money you have coming in each month. If you get two regular paychecks per month, their total is your monthly income. If you’re waiting tables or working a gig where your income varies, monitor how much you make in a month and use that as your benchmark. 

Then, you need to tabulate your monthly expenses. Maybe you just rented your first apartment or leased a car. Figure out how much you’ll spend each month on necessary, fixed expenses and include that in your budget. Under the 50-30-20 framework, your fixed expenses should be 50% of your income. You will also need to know how much you spend on nonessential, variable expenses like going out to eat or shopping. These expenses should make up 30% of your budget. The remaining 20% of your budget should be saved, for whatever your long-term goals may be. 

You can adjust the percentages as you see fit. Maybe you’re living with your parents and can afford to put a little more than 20% in savings.

#2 Start a rainy day and emergency fund 

You may be tempted to spend that first adult paycheck on a pair of sneakers you’ve always wanted or a big screen TV for the new apartment. While it’s fine to splurge from time to time (as long as it’s in your budget), you should also try to start saving small amounts of money for short-term and long-term goals. 

You’ll want to have a rainy day fund where you keep $500 to $1,000 in case you get hit with an unexpected expense, like a car repair or broken iPhone. Your rainy day fund should be liquid so that you can use it at a moment’s notice. You’ll also want to consider having an emergency fund, with three to six months’ worth of expenses, in case of something more serious like a layoff or medical emergency. This money can be kept somewhere that it can earn a return, such as in a high-yield savings account or a brokerage account. 

#3 Make a plan for repaying student loans

As of April 2022, 46 million Americans owed federal student loan debt, amounting to a total debt of $1.75 trillion. So if you graduated with some student loan debt, you’re not alone. While you probably don’t want to think about your student debt immediately after graduation, it’s best to start planning early.

Depending on what kind of federal student loans you have, you likely don’t need to start making payments towards your debt for six months. People with Direct Subsidized, Direct Unsubsidized, or a Federal Family Education Loan have a six-month grace period during which they don’t have to make payments. 

However, you should know when your first payment is due, and how you’ll make those payments. You’ll need to set up a repayment plan with your loan servicer. You may consider setting up your loan payments in advance so that you make them automatically. You should also include those payments in your budget when it comes time to make them.

#4 Start saving for retirement 

When you’re just leaving college, you’re probably not worried about your retirement savings. But the earlier you start putting away money, the better off you may be when it comes time to retire.

The sooner you start investing, the more money can work for you through the power of compounding. Compounding is any return earned on your principle, or your initial investment, plus your past returns. 

For example, say you start with $100 and put $50 a month away for 20 years, with an annual return of 8%.¹ You’d have just under slightly more than $30,000, but you’d only have put away a little more than $12,000. In this scenario compounding could add about $18,000 to what you save. 

Using the same example above, the person who starts saving in his or her 20s may be able to put away almost twice as much as the person who starts in his or her 30s, which could set you up for a more financially sound retirement. (Find out more about how saving early for retirement can help here.)

If you have a full-time job, your employer might offer you a retirement plan, such as a 401(k) or, if you’re a teacher or government worker, a 403(b). Know what your options are, and start putting a percentage of your paycheck into your retirement account. Your employer may even match up to a certain percentage of your retirement contribution. 

If your employer doesn’t offer you a retirement plan, you can still start saving by opening an individual retirement account (IRA). IRAs allow people to save for retirement independently, without having to rely on an employer. There are two different types of IRAs: traditional and Roth IRAs. The main difference between these two types is that you pay taxes on the money you contribute to a Roth IRA, so that you don’t have to pay taxes when you withdraw from the account during retirement. You contribute to a traditional IRA with pre-tax income, so you have to pay taxes when you withdraw during retirement. 

You can set up a traditional or Roth IRA with a Stash Growth plan ($3/month).  

#5 Start building credit

Your credit history is the sum of all the transactions that have been reported to credit bureaus in your name over the years; these are all recorded in your credit report. Your credit score is a point-based rating system that assesses how responsible you are with loans and debt over time. Having a credit score can give you access to things you might want later in life, like a mortgage, student loans for graduate school, and even a mortgage for a house. 

Credit scores run from a low of 300 to a high of 850, which is considered perfect credit. A score of 670 or above is considered good credit.  Paying your student loans, credit card bills, and others each month can help you maintain a strong credit score. Another general rule of thumb is to never use more than 30% of the total credit you have on all of your cards or credit lines.

When you’re just starting off after college, you might not have a credit history or score. So depending on your situation, now may be a good time to sign up for a credit card, if you haven’t yet. Something to consider is that you may only want to get a credit card if you’re absolutely certain you can pay your credit card bill in full each month.

Debit cards are an alternative to credit cards. They draw money directly from your checking account, rather than a credit line, and they can help you stay on top of spending while keeping you out of debt. They may not help you develop a credit history, however. You can learn more about the difference between credit and debit here.

#6 Consider insurance coverage

This new chapter in your adult life often comes with things like getting a first apartment, a car, or if you’re lucky a house, all of which you may want to protect with renters, auto, and homeowners insurance.  Apartment insurance will protect things like your furniture, clothes, headphones, and computer, as well as offer liability  protection in case someone injures themself in your home. Auto insurance, which is required in most states, can help cover medical costs, repairs, property damage, even the replacement cost of your car if you get into an accident, or if your vehicle is stolen. Having renters and auto insurance can protect you and your things in the case of accidents, theft, and more. 

You should also consider signing up for health and life insurance. If you’re on your parent or guardian’s health insurance plan, you may be able to stay on that plan until you’re 26. Or you may be able to enroll for health insurance through your employer. (Just make sure you don’t miss the enrollment deadline.) If neither option is available to you, you can get insured through HealthCare.gov, the health insurance marketplace established by the Affordable Care Act. You may also be able to get life insurance through your employer, but there are other ways to get a plan as well. 

#7 Start investing small amounts

No matter where you stand in your post-graduation life, you can start investing small amounts of money to save for your future with Stash. Stash allows you to invest regularly in stocks, bonds, and exchange-traded funds (ETFs). Just remember to follow the Stash Way® , our investing strategy which includes regular investing, investing for the long term, and creating a diversified portfolio. 

If you want to take the guesswork out of investing, another option is to consider Smart Portfolio. You can find this in the Stash app, or upgrade your subscription to our Growth or Stash+ plans. It’s a discretionary managed portfolio that Stash’s investment team of financial experts developed and recommends for you based on your risk profile. Smart Portfolios also align with the Stash Way®, to minimize risk.

The post Congrats, Grad! Here are Six Financial Goals Now That You Have That Degree appeared first on Stash Learn.

Being financially literate means having an essential understanding of how you manage your money, including budgeting, saving, spending, and investing. It also means having an understanding of how the economy can affect your personal financial situation. 

No matter how much you already know about money, everyone has room to learn more. Take Stash’s financial literacy quiz to find out where you stand on some basics:

1/12

The Financial Literacy Quiz

 

Do you know what the current rate of inflation is in the U.S., as measured by the year-over-year Consumer Price Index (CPI)?

0.9%

2.4%

6.3%

7.9%

As of February 2022, the CPI was 7.9% year-over-year, the highest rate of inflation since 1982.

2/12

The Financial Literacy Quiz

 

If you put $100 into a savings account that earns 2% compound annual interest, how much could you have in your account in six years?

Less than $102

Between $102 and $105

Between $105 and $110

More than $110

After six years, you’d have about $112.62. When you earn compound interest, the interest gets added to the principal amount invested or borrowed, and then the interest rate applies to the new (larger) principal.

3/12

The Financial Literacy Quiz

 

Say you have a savings account that earns a yearly interest rate of 2%, and the inflation rate is 3%. Would your money be able to buy more, less, or the same after one year?

More

Less

The same

 If the inflation rate is higher than your interest rate, your money will lose value in that account.

4/12

The Financial Literacy Quiz

 

You’re buying a house for $400,000. How much should you put down, according to the standard percentage down payment?

$20,000

$80,000

$100,000

$120,000

It’s standard to put down 20% on the total price of a house. Twenty percent of $400,000 is $80,000.

5/12

The Financial Literacy Quiz

 

You’re choosing between a 15-year and 30-year mortgage. A 15-year mortgage has higher monthly payments than a 30-year one. Which one will you typically end up paying more interest on over the term of the loan?

15-year mortgage.

30-year mortgage.

With a 15-year mortgage, your monthly payments will likely be higher than those of a 30-year mortgage. Overall, however, you’d spend less in interest on a 15-year mortgage, and get paid off more quickly. 

6/12

The Financial Literacy Quiz

 

What is considered a perfect credit score?

300

450

850

900

 A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850.

7/12

The Financial Literacy Quiz

 

In March, the Federal Reserve (the Fed) raised the federal funds rate for the first time since 2018. What did it raise the rate to?

Between 0.10% and 0.25%

Between 0.25% and 0.50%

Between 0.50% and 0.75%

Between 0.75% and 1.00%

 The Fed has kept the benchmark rate near 0% since the beginning of the pandemic. In March, the Fed raised the rate to between 0.25% and 0.50% to combat inflation.

8/12

The Financial Literacy Quiz

 

Increasing the federal funds rate tends to result in:

Higher inflation

Lower credit card interest rates

Lower mortgage rates

Higher mortgage rates

The benchmark rate tends to dictate interest rates for people borrowing money. So when the benchmark rate goes up, mortgage rates also tend to increase.

9/12

The Financial Literacy Quiz

 

What’s one thing you can do with your money to combat inflation?

Invest

Keep your money in a checking account

Put it under your mattress

Spend as much of it as possible

 Investing some of your money in a diversified portfolio gives your money a chance to grow more than it might in a traditional savings account, potentially outpacing inflation over time.

10/12

The Financial Literacy Quiz

 

You purchase 1,000 in shares of a company. For the most recent quarter, that company is paying shareholders $0.25 per share in dividends to shareholders. How much will you receive in dividends?

$30

$250

$400

$1,000

Dividends are shares of a company’s profits, which are paid to its shareholders in proportion to the number of shares they own. To find the dividend amount, take the dividend per share amount and multiply by the number of shares. 

11/12

The Financial Literacy Quiz

 

You have an employer-sponsored 401(k) plan. Your employer has said it will match up to 3% of your pay in 401(k) contributions per year. What amount would that be the max employer match if you earn $75,000 annually?

$100

$550

$1,725

$2,250

 If you earn $75,000, and your employer matches up to 3% of your 401(k) contributions, your employer will contribute up to $2,250 per year.

12/12

The Financial Literacy Quiz

 

Investing in a single company’s stock generally provides a lower risk return than investing in an equity exchange-traded fund (ETF).

True

False

The value of any single stock can increase or decrease suddenly, depending on what’s going on in the markets or the broader economy. An ETF is a basket of stocks that might not all move in the same direction, allowing you to spread your risk more.

 

The Financial Literacy Quiz

 

You scored 

Share this quiz with others!

Next Question

The post The Financial Literacy Quiz appeared first on Stash Learn.

The original loan payment freeze was part of the $2.3 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which among other things, originally suspended most federal student loan payments through September 30, 2020. That postponement period was then extended six more times. 

Here’s a quick update on where things stand.

What happened to loans during the forbearance period?

As of December 2021, about 43 million Americans had federal student loan debt totaling over $1.6 trillion.

During the federal loan grace period, qualifying student loan borrowers have been able to skip making monthly payments, and their loans have not accrued interest. If you have federal student loans, you may be included in the zero-interest period.  Good to know: Some federal loans, such as those that are part of the Federal Family Education Loan Program, a program that ended in 2010, are actually held by private banks, and are therefore not included. 

What happens on August 31, 2022?

Although the Biden Administration could once more extend the student loan pause beyond the end of August, 2022, it has not yet committed to doing so. 

However, a group of Senators, led by Senate Majority Leader Chuck Schumer (D-NY), Elizabeth Warren (D-MA), and Representative Ayanna Pressley (D-Mass) have long urged the president to cancel up to $50,000 in debt per student. 

In 2021, the decision to continue the student loan zero-interest period got a boost from an unexpected change at the federal level. The Pennsylvania Higher Education Assistance Authority (PHEAA),  which operates one of the largest loan servicers for the U.S. Department of Education, terminated its contract with the government in December 2021. That decision required the movement of 8.5 million accounts to other loan servicers, which gave the federal government an additional reason to keep repayments on pause.

Making a repayment plan

For now, borrowers should plan on making payments again in the fall. If you have managed to save money during the pandemic, consider paying off a portion of your loans before the zero-interest period ends. When you make payments on your debt during the zero-interest grace period, you’ll be paying down principal directly. Typically payments include interest. Making payments now could help you get paid off more quickly. If you have multiple student loans, you may also want to take advantage of the zero-interest period by paying off the loans that have the highest interest rate. 

Either way, consider revisiting your budget. Maybe you’ve been putting the money that you would be spending on your student debt into savings, or maybe you’ve been spending it. Now’s the time to make sure your budget has room for your monthly student loan payments.

If you don’t think you’ll be able to make your payments due to unemployment or some other life circumstance, you should still consider making a plan to pay off your student debt. The Department of Education recommends reaching out to your loan servicer quickly to see if you can change your repayment plan, potentially lowering your monthly payments. You might also look into forbearance, consolidation, or deferment.

Check out the U.S. Department of Education and the Consumer Financial Protection Bureau, a federal agency devoted to consumer financial help, for up-to-date information about student loans during the pandemic.

The post Making a Plan for Repaying Federal Student Loans appeared first on Stash Learn.

Financial literacy means having the ability to assess your financial situation so you can make the right decisions about money on a daily basis. But one in six students in the U.S. don’t meet the baseline level of proficiency in financial literacy, according to the Council for Economic Education. A survey conducted by the council found that on average, people estimate that they’ve lost $1,389  due to a lack of financial knowledge. 

Having a degree of financial literacy can help you manage your current life, while preparing you for unforeseen expenses and emergencies. It will also help you develop a financial plan for the future. That way you won’t be wasting your cash, or getting yourself into debt, or taking unnecessary financial risks. Acquiring financial literacy can also allow you to understand and participate in the economy. 

Achieving financial literacy is especially important in today’s world, where people face the highest inflation rate in decades, and the ongoing pandemic, which has affected everything from the job market to housing prices. 

Stash has assembled four things that financially literate people do  to maintain a solid financial foundation in 2022. 

Learn how to budget with inflation in mind

Building a budget is important no matter what the financial landscape looks like, but it’s particularly important now that inflation has pushed up the price of gas, groceries, and more. As of February 2022, the inflation rate, which is measured by the Consumer Price Index (CPI), was 7.9% for the year ending February 2022, the largest spike since 1982. Gas prices have surged 38% over that same period, while food prices have increased 7.9%. The cost of new vehicles went up 12.4%, and used cars and trucks jumped 41.2%.

Your budget should take your total income into account, and you should make sure there is ample room for your essential expenses such as food and gas, non-essential expenses like going to the movies, and saving and investing. “While you can’t stop prices from going up at the grocery store or when filling your tank, you can still make sure you’re hitting your goals by paying attention to your habits and adjusting where possible,” says Lauren Anastasio, a certified financial planner (CFP), and director of financial advice at Stash. 

Budgeting for inflation can help you make sure you’re not neglecting financial priorities, like saving for a house or retirement. Also, continue to stay informed on what the inflation rate is, and the Federal Reserve (the Fed) is doing to combat inflation. 

Make a plan to pay down your debt

Debt is also an obstacle many consumers deal with. In the last quarter of 2021, credit card debt increased by $52 billion, to $860 billion, the most significant quarterly jump in history. 

Smart use of credit can be an important part of becoming financially literate since it helps you build a credit history, and get a credit score. Your credit score is what banks and other institutions will reference when deciding whether or not to lend you money, rent you an apartment, and more. It’s important to pay down your debt so that you can build strong credit, which can help you reach your financial goals like taking out a loan for a business or getting a mortgage for a house. 

Try to pay off your credit card bill and other debt payments in full each month, since maintaining a balance can hurt your credit score. If you have a chunk of debt you need to tackle, make a plan to do so. You might want to start with the biggest debts, or those with the highest interest rates, which is known as the avalanche method. Or you might want to use the snowball method by starting with smaller payments and working your way up.

Save for emergencies and the future

Being financially literate also means knowing how much money you need to save for what you want, emergencies, and retirement, and building those savings. With the uncertainty brought on by the pandemic, having money in an emergency fund to fall back on is crucial. “The pandemic exposed just how little people were prepared for a loss of income or even their job,” says Brannon Lambert, a certified financial planner at Raleigh, North Carolina-based Canvasback Wealth Management.

Lambert recommends setting up an emergency fund in a savings or money market account. Stash suggests that an emergency fund should have three to six months worth of expenses in it. It should also be liquid, so that you can take it out at a moment’s notice if you need to. You should also start socking away money for future purchases, and for retirement with a 401(k) or an individual retirement account (IRA). You can open an IRA through Stash.

Invest to stay ahead of inflation and stay informed

If you’re able to, one way to stay ahead of inflation and to build your financial literacy (and hopefully savings) is by investing. While you’re not guaranteed a return on any investment, investing your money is a way to try and stay ahead of inflation. Hopefully, your return will outpace the rate of inflation. If the inflation rate is currently 2%, for a simple example, and your portfolio had a return of 5%, your real return would be 3%.

In order to invest wisely, you should also stay up-to-made on market and economic news. Learning about the economy and markets is also a way to increase your financial literacy. Sign up for Stash’s weekly newsletter, The Wallet, to stay informed. 

The post How Financially Literate People Stay on Top of Their Money appeared first on Stash Learn.

Since the beginning of the pandemic, the three biggest credit reporting bureaus—Equifax, TransUnion, and Experian—have offered free weekly credit reports to help consumers stay on top of their credit scores, as many people have experienced layoffs and other difficult financial situations. But on April 20, 2022, that perk will come to an end. Going forward, you’ll be able to request one free credit report from each agency every year. 

Here’s what you should know about checking your credit report. 

What is a credit report?

A credit report is a record of how you’ve handled loans and payments over the course of your financial life. In the report, a credit bureau will consolidate all of your credit information, such as how many credit cards and loans you have, and how you’ve paid down that debt. If you’ve been sued, arrested, or if you’ve filed for bankruptcy, that may appear in your report.  Your credit report will also give you a credit score, which is a points-based rating system that assesses how responsible you are with loans and debt over time. 

Your credit score is determined by a company called Fair, Isaac Co. It’s sometimes referred to as a FICO score. It uses credit history data compiled by credit bureaus Experian, Transunion, and Equifax. Your credit usage information is regularly transmitted to these three agencies. A credit score can range from 300 to 850. The better your credit, the higher your score. Perfect credit is 850.

How to check your credit report

In order to get a copy of your credit report, you submit a request to Annual Free Credit Report Request Service via phone or mail. You can also request one online at AnnualCreditReport.com, which is the only website authorized by the federal government to give you annual access to a free credit report. 

You’ll need to input information, including your full name, your social security number, your date of birth, your phone number, your current address, and any previous addresses from the last two years. Once you do that, you can choose which credit bureau(s) you want to receive a report from. 

You can ask for a report from all three, if you choose, but remember that you only get a weekly free report until April 20, 2022. After that, you may want to space out your requests to the bureaus, depending on how frequently you check your credit report. You can also pay to check your credit report more than once, and the bureaus can’t legally charge you more than $13.50 for the report. 

Why it’s important to check your credit report

Financial institutions use your credit report and your credit score to determine whether or not to lend you money. Additionally, rental property owners, insurers, or employers may look at your credit report. So you want to check your credit report to know where you stand should you want to apply for a loan or get a new job. 

You should also regularly check your credit report for errors, such as incorrect personal information, or accounts that you never opened, or that you already closed, as those things might be indicators of identity theft, which can affect your credit score. Reports of credit card fraud have increased in recent years, surging 44% between 2019 and 2020. With that in mind, you may also want to sign up for a credit monitoring, or identity theft protection service, to keep close tabs on your credit file. 

Your credit score is determined mostly by how timely you are with your credit card payments, and your credit card utilization, which is the percentage of the entire amount of credit that you have available to you, that you’re using at any given time.

In order to achieve and maintain a good credit score, make sure to pay your bills on time and in full, and that you’re not maxing out your credit cards. While common wisdom says you shouldn’t use more than 30% of your credit limit, you probably want to use far less than that percentage to get a good credit score.

The post How to Get a Free Credit Report and Why You Should appeared first on Stash Learn.