Category Archives: Finance

Introductory Interest Terms

Credit card issuers are in such fierce competition these days to attract new customers that most have started offering sweetheart deals to win you over, like ultra-long 0% introductory interest periods. While these types of offers can be great (switching from paying something like 15% interest to 0% is obviously a smart move), so many cards are offering so many varying offers that sifting through them to find the better ones can become a little confusing.

Like most things, there’s no single answer for everyone, yet in our research, we found that four cards in particular each offered appealing features that beat out other similar cards. One offers a solid 15-month 0% term, yet charges no balance transfer fee. Two more offer nice 0% intro terms together with attractive cash back rewards programs.

15 Months of 0% Intro APR. No balance transfer fee. No annual fee.

The Chase Slate® is tied as our highest-rated balance transfer card, and for good reason. It charges no fee for transferring your balance to it in the first two months, no annual fee, and no interest on balances transferred for a full 15-month 0% intro APR period. This makes it a phenomenal tool to gain control of your credit card debt, as you can make a costless balance transfer, then use the 15-month interest grace period to pay down your balance.

The Verdict: If you don’t need the entire 18 months offered by the BankAmericard, this can be efficient since it doesn’t have a balance transfer fee. No transfer fee and no annual fee, combined with the 0% intro APR means that this is really free money for the 15 month term, no catches.

Most Appropriate For: Those who want a no-fee way to stop paying interest, and possibly pay off the cards during that breather. Those with good rather than excellent credit.

Least Appropriate For: Those who pay off their balances every month would be better served getting a card paying high rewards.

Recommended credit:  Just Good. The Chase card has the most lenient credit requirements of our top balance transfer cards.

More Details >

The Ultra-Long 0% Card

18 billing cycles (months) of 0% Intro APR on balance transfers. No annual fees.

BankAmericard® Credit Card

The BankAmericard® Credit Card is tied as our highest rated balance transfer card, featuring an unbelievable 18 billing cycles (months) 0% APR intro period. This means that if you were to roll your balance over onto the card today, you wouldn’t have to pay interest until well into 2018. The card does charge a 3% balance transfer fee (or $10, whichever is greater), but if you’re looking to avoid paying any interest on your credit card balances for as long as possible, the BankAmericard could be your card.

The Verdict: Getting a loan this cheaply for this long is pretty amazing. If you’re carrying a balance, and realistically you know you will have to carry that balance for a while, this card becomes a no-brainer. As an example, assume you have a $10,000 balance on your current cards at a 18% rate. Over the 18 billing cycle (month) term, you would have paid $3,098 in interest.* Switching to this card would cost $300 in fees, but then nothing the rest of the way, for a net savings of $2,798. Not bad, you could do a lot with that extra cash.

Most Appropriate For: Those who have large balances and want as much interest-free time as possible to pay the principle down.

Least Appropriate For: Those who pay off their balances every month or every few months.

Credit Required: Good to Excellent

Picks It Every Month

You see, renowned investors David and Tom Gardner (whose investing newsletter was reported in The Wall Street Journal as one of the best performing in the world*) just revealed their next great stock ideas.

And I don’t know about you, but I always pay attention when some of the best growth investors in the world give me a stock tip.

But please note: As of right now, you could miss out because you may not be on the list to receive the stock ideas.

You see, David and Tom Gardner only released these new recommendations to members of their service, Motley Fool Stock Advisor.

Lucky for you, it’s not too late to join, so I’m going to show you the simple steps to get on the list today.

But first, consider this:

If you read this note on June 7, 2002… when David recommended Marvel (years before it was acquired by Disney), you’d be up 4835% today.

Or on May 21, 2004, when David first recommended Priceline, You’d be up 6121% today.

Or – more recently – on January 22, 2016… when Tom announced his recommendation of Criteo? In just a few months, you’d be up 22%.

Now if you had invested just $1,000 in each of those stocks, you’d be sitting on close to $156,514 today.

And loyal followers of David and Tom who invested more did even better – a $5,000 investment in each of those ideas would be worth about $782,570 today.

But there’s no need for me to cherry-pick returns here. It’s as simple as this…

David and Tom’s average pick in Motley Fool Stock Advisor (their stock recommendation service) is up 193%, while the S&P 500 during the same period is up just 57%.

In other words, David and Tom’s average pick has tripled the stock market’s return for more than a decade. That track record is remarkable in a world where most fund managers actually lose to the market.

And that’s the reason Stock Advisor has been reported in The Wall Street Journal as one of the top 3 investing newsletters in the world.

Now, you can’t go back in time and invest in those stocks I mentioned earlier.

But you can join today and be among the first people to hear about David and Tom’s newest picks.

For details on how you can join Stock Advisor and put yourself on the list today, simply click here.

In case you’re strapped for time, I just tested it myself and joining took less than two minutes.

Excellent Credit Card

download-3Do you have excellent credit? If so, banks are actively looking to win you as a new credit card customer by offering some unprecedented deals. Although banks have been more careful about acquiring customers with questionable credit since the 2008 Financial Crisis, they are now fighting harder than ever to win coveted customers with great credit. If you are in the excellent credit sweet spot, they are effectively giving you money (and a lot of it) to use their credit cards. These are the top 7 deals you can take advantage of today:

Chase Sapphire Preferred: This is our No. 1 travel rewards card because it offers a lot of value and flexibility. It starts off by earning you 2 points for each dollar spent on travel and dining out, and 1 point per dollar on all other purchases. That’s followed up by an industry-leading 50,000 point intro bonus after spending $4,000 in the first 3 months – equal to a whopping $500 cash back. Redeeming your earned points via Chase’s Ultimate Rewards saves 20% off travel costs, enabling you to stretch that 50,000 point intro bonus into $625 in travel. You can also redeem your points for cash back, gift cards and merchandise.

The best part is that you can transfer your points 1:1 to many frequent travel programs with no transfer fees, including United MileagePlus, Southwest Rapid Rewards, Hyatt Gold Passport and Marriott Rewards. That means 1,000 points are equal to 1,000 partner miles/points, straightforward and simple. This feature is likely to appeal to road warriors who are members of various partner programs, as users aren’t limited to spending their points via Chase’s rewards program. In fact, according to our travel rewards card analysis, your 50,000 point intro bonus is worth more than $1,000 when transferred to Hyatt’s reward program. There is a $95 annual fee, but it is waived the first year.

Blue Cash Preferred Card from American Express: The Blue Cash Preferred Card from American Express (a NextAdvisor advertiser) is such a great cash back card that I have one. You’ll earn a spectacular 6% cash back at supermarkets (on up to $6K in purchases annually), 3% on gas and at department stores like JCP, Kohl’s and Macy’s, and 1% on everything else. And if you apply by 1/11/2017, you’ll earn a very generous 10% back on Amazon.com purchases made in the first 6 months, up to $200 cash back. Plus you’ll get a $150 intro bonus after spending $1,000 on purchases with your new card in the first three months – that’s a 15% cash back bonus on the first $1,000 you spend! In addition you’ll enjoy a 0% 12-month intro APR on purchases and balance transfers. There is a $95 annual fee, but depending upon your spending patterns this card should easily pay for itself and then some. For example, if you max out your spending at supermarkets up to the $6,000 limit, you’ll get $360 cash back on groceries alone (plus 1% back after that), which still gives you a total of $265 cash back for the year after subtracting the $95 annual fee! That doesn’t even include the $150 intro bonus, which would get you up to $415 cash back just on groceries and the intro bonus. If you want a similar card that has no annual fee, check out Blue Cash Everyday Card from American Express, which has the same 12-month 0% APR but lower cash back rates and a slightly lesser intro bonus. The lower cash back rate on groceries for this card (3%) means it will only earn you a max of $180 in cash back on groceries each year as opposed to the $360 Blue Cash Preferred from American Express will earn, but it’s still a worthy card to have in your wallet, particularly if you don’t want to pay an annual fee.

Chase Slate: This card was designed with credit card balance consolidation in mind. It’s the only card we’ve found with both a lengthy 0% introductory APR and no balance transfer fee. Its 15-month, 0% introductory APR on both balance transfers and purchases translates to interest-free payments until 2017. Plus, there are no balance transfer fees during the first 60 days of card membership. This is a big deal, as depending upon how much you plan to transfer, balance transfer fees can really add up. In fact, a $0 intro balance transfer fee can save you hundreds of dollars in fees, and the $0 annual fee is also a money-saver. So if you have excellent credit, you absolutely should not be paying any credit card interest. Get this card and transfer your balances.

Discover it Cashback Match: If you’re in the market for a great cash back rewards cards that also has a 12-billing-cycle 0% APR, this is a smart pick. Not only can you transfer over balances from your high-interest cards to the Discover it Cashback Match card and pay zero interest for a full year (note that there is a 3% balance transfer fee), but you’ll get the same 0% intro APR on new card purchases. Plus you’ll earn 5% cash back on categories that rotate quarterly (on up to $1,500 in purchases, then 1% back), and 1% back on all other purchases. Amazon.com, Sam’s Club and department stores are the 5% back categories from now through the end of 2016, which means you can rake in the cash back rewards while shopping for the holidays. Plus Discover will double the cash back you earn at the end of your first year as a card member, making that 5% back effectively 10% back. So if you earn $300 in cash back, Discover will match that $300 for a total of $600 cash back! This is a really great bonus with endless potential, but remember it’s only available the first year so make sure to take advantage of it. Discover it Cashback Match really does have it all – cash back, an extra cash back bonus (2x cashback your first year!), a lengthy 0% intro APR on purchases and balance transfers AND no annual fee.

Interest Pay With This

Stop wasting money on interest fees! If you’re carrying a balance on one (or several) credit cards, you’re probably paying interest fees each month. Or if you need to make a large purchase that you can’t pay off for a while, you’ll likely start racking up substantial interest on your card. The fees might not seem like that big of a deal, but over time they can add up to a lot of dough and make it much more difficult and expensive to pay down your balance. Did you know there’s a way to avoid paying interest on your credit card balances? By taking advantage of a card with a long 0% intro APR, you can essentially get a free loan and pay down your balance without spending a dime in interest.

The question is, which cards offer the most competitive features and longest 0% intro APRs? We’ve done the research and found the best. In fact, with some of these cards the 0% intro APR is so outrageously long you’ll pay absolutely no interest until 2018!!! Our list of the top 0% intro APR cards is below.

Citi Simplicity Card

With an amazing 21-month 0% intro APR on balance transfers and purchases, the Citi Simplicity Card (a NextAdvisor advertiser) will take you all the way into 2018 without paying a dime in interest. It sounds crazy, but it’s true. There is a 3% balance transfer fee, but given the lengthy 0% intro APR period, it still might be worth transferring a balance to this card (to find out, use our free Balance Transfer Calculator). Additionally, there are no late fees, no annual fee and no penalty rates imposed. This means if you happen to be late with a payment, you won’t be penalized with a higher ongoing interest rate after the 0% intro APR period is over. It does require excellent credit, so if you’re in more of the good credit range consider Chase Slate, which is discussed below. We really like Citi Simplicity because of its super-long 21-month 0% intro APR, lack of late fees and $0 annual fee.

Citi Diamond Preferred Card

Similar to Citi Simplicity, the Citi Diamond Preferred Card (a NextAdvisor advertiser) features a spectacular 21-month 0% intro APR on balance transfers and purchases. It also has a very reasonable ongoing interest rate after the 0% intro period is up. If you’re transferring a balance, you will need to pay a 3% balance transfer fee, but paying no interest until 2018 could make it worthwhile. Take a look at our free Balance Transfer Calculator to see whether this card will work best for your needs. Additionally, the Citi Diamond Preferred Card has absolutely no annual fee and provides a free monthly Equifax FICO Score. You do need excellent credit to qualify for the card, so if you’re not necessarily in that range check out one of the cards listed below that only require good credit.

Chase Slate

If you’re worried about paying a fee to move your balance from your current card(s) to a new card, worry no more. Chase Slate has absolutely no balance transfer fees for transfers completed within the first 60 days your account is open, which means you can transfer your balances from cards with high ongoing APRs to Slate without paying a cent in fees. Plus, you’ll enjoy a 15-month 0% intro APR on both balance transfers and purchases. And if you happen to have a ding or two on your credit reports, Chase Slate is available to those with good credit (rather than “excellent” credit), which is typically a credit score above 670. All this, and there is no annual fee.

Citi Double Cash Card – 18 month BT offer

With a nice balance of cash back rewards and an 18-month 0% intro APR on balance transfers, the Citi Double Cash Card – 18 month BT offer (a NextAdvisor advertiser) hits the spot. There is no annual fee, and the card is available to those with good credit (670+ credit score), but there is a 3% balance transfer fee. Citi Double Cash’s cash back potential is substantial, with an effective 2% back on every single purchase. You’ll get 1% back when you make the purchase and the other 1% when you pay for it, making this an ideal card for making a big purchase you may not be able to pay off for a while. You’ll also receive a free monthly Equifax FICO score, helping you to track your credit over time. Altogether this is a winner of a card, mixing generous cash back with a lengthy 0% intro APR and no annual fee.

Discover it — 18 month Balance Transfer Offer

Combining cash back rewards with a 18-month 0% intro APR on balance transfers and a low ongoing APR, Discover it packs a big punch. Transfers incur a 3% balance transfer fee, but this is pretty standard. Discover it also offers a 6-month 0% intro APR on purchases. Plus, you’ll earn 5% cash back in categories that rotate each quarter (on up to $1,500 in purchases) and 1% back on everything else. Some of the past 5% categories include Amazon.com, gas and restaurants. There is no annual fee and you’ll get a free TransUnion FICO Score each month. As an added bonus, Discover it is available to those with average credit which is usually considered to be a credit score of 670 and up.

 

Intro APR Card

Do you need to make a large purchase, but are worried about being able to pay it off in a timely manner? Or are you already paying interest on credit card balances that you can’t pay off right away? Consider the Citi Simplicity card (a NextAdvisor advertiser). While there are many other cards with 0% intro APRs, Simplicity’s 21-month 0% intro APR is the longest of any card we’ve reviewed, and it offers a terrific no-fee policy to boot.  Although we don’t recommend spending more than you can afford, Citi Simplicity can help with the purchases you need to make now but may not be able to pay for right away, allowing you to avoid any interest fees for 21 months. You can also transfer balances from other high interest rate cards onto Simplicity to eliminate interest you’re already paying for 21 months.

Below we take a closer look at Citi Simplicity to help you decide if it’s the right card for you. In short, this is a great 0% intro APR card that could save you some serious money in interest and fees as well as give you the time to pay down your purchases and balance transfers. Our full analysis is below.

The Highlights

Right out of the gate, Citi Simplicity‘s biggest attraction is its incredibly long 21-month 0% intro APR for both purchases and balances transfers. Twenty-one months is the longest 0% intro APR period we’ve seen on a major credit card. In fact, with Citi Simplicity you can literally pay no interest until 2018, which is pretty incredible. This is a great perk if you want to make any big or small purchases, as you’ll have until 2018 to pay them off without paying a dime in interest fees. It’s almost like a free (or 0%) loan on purchases you make now, as you won’t have to pay anything for 21 months and if you pay them down completely you won’t pay anything except the actual cost of the purchase.

More strong features include the no late fees and no penalty rates. That means if you happen to be late on a monthly payment or two Citi Simplicity won’t charge you a late fee, and they won’t penalize you with a higher interest rate (of course, you’ll be paying 0% interest for the first 21 months, but after that time period you won’t be penalized with an increased interest rate). Plus there is no annual fee to worry about. Both these perks together, along with the 21-month 0% APR make this a standout card.

Citi Simplicity also provides a 0% intro APR for 21 months on balance transfers. You can transfer you balance(s) from other high-interest credit cards and save a ton of money on interest fees as you won’t be paying any until 2018. And because the 0% intro APR is 21 months long, you’ll have a generous amount of time to gradually pay down your balance.

As an added bonus, Citi Simplicity only requires good credit, which is generally considered to be a credit score above 670. So if have some dings in your credit history, you may still qualify for all the great 0% intro APR perks this card offers.

World travelers can relax, as Citi Simplicity’s chip-enabled card means it will be accepted outside the U.S. Embedded EMT technology is typically mandatory in international countries, and the fact that Citi Simplicity provides it means you can make purchases knowing your card will be accepted.

Your Social Security statements

download-5Social Security can be a big part of your retirement income, so it helps to know if the federal government calculated your benefits correctly.

A Social Security statement details your earnings history and estimated monthly retirement benefit. The Social Security Administration (SSA) mailed 47.9 million paper statements in the 2016 fiscal year, which ended September 2016. And more than 26 million people have a My Social Security account that allows them to check their statements

“Most clients don’t realize the statements are not mailed each year and can’t remember the last time they looked,” said certified financial planner Jan Valecka, owner of Valecka Wealth Management.

How big will your social security check be?  

Not everyone receives a paper Social Security statement each year.

The SSA mails paper statements to workers at ages 25, 30, 35, 40, 45, 50, 55 and 60 who aren’t receiving retirement benefits and do not yet have a My Social Security account. After age 60, people will receive a statement every year. The statements are mailed three months prior to your birthday.

The paper statements differ slightly depending on your age. Here are examples of statements for young workers, people in the middle of their careers and those 55 and older.

The SSA has been mailing paper statements this way since 2014. In 2011, the agency stopped sending everyone paper statements to save $70 million annually on printing and postage costs, but had to backtrack after beneficiaries and lawmakers complained.

People who have an online Social Security account receive an annual email reminder to review their statements.

 

Focus on the earning record

The Social Security statements are far from perfect.

Last year, Valecka double-checked her statement and noticed that her 2014 earnings were not reported. She is still waiting for her earnings history to be corrected. She reviews her clients’ Social Security statements annually.

Your monthly Social Security retirement benefit is based on your highest 35 years of earnings, so make sure your income is correctly reported on the statement.

If you worked for 45 years, your 10 lowest-earning years will not count in the benefits calculation. If you worked 30 years, your benefit would be reduced because of the five years you did not work. You must work a total of 10 years to qualify for retirement benefits from Social Security.

“Typically the statement does not reflect accurate earnings, which is a big deal.”-Andy Tate, a CFP and financial advisor at North Star Resource Group

The SSA processed 92,000 complaints about statements in the 2016 fiscal year. That official figure may vastly understate the problem.

“Typically the statement does not reflect accurate earnings, which is a big deal,” said Andy Tate, a CFP and financial advisor at North Star Resource Group. “I have seen errors on about 25 percent of them [for his clients].”

The Government Accountability Office recently found that the SSA often fails to give out key details to people in face-to-face meetings and online that could cost them tens of thousands of dollars in benefits.

How to fix an error

The clock is running if you spot an error on your earning record with Social Security.

Officially, you have to correct errors within 3 years, 3 months and 15 days following the year of the mistake.

“As a result, it’s quite possible that mistakes aren’t found until after the deadline to fix them has passed,” said Randy Bruns, a CFP and private wealth advisor at HighPoint Planning Partners.

Even if the time limit has expired, Bruns recommends people still attempt to fix errors on their earnings record because the “SSA has been known to correct mistakes beyond the deadline.”

“The easiness of correction is directly tied to how recent the error was committed.”-Matthew Boersen, a CFP with Straight Path Wealth Management

You’ll need to prove what you’ve earned to have the SSA correct your record. A W-2 form, a tax return or a pay stub will suffice as evidence.

If you don’t have those documents, at least have the name of your employer, the dates you worked and how much you’ve earned when you contact the SSA for a correction.

Need to know about the money

download-4Dinner, getting gas, at the salon … saying thank you in the form of cash is rife with uncertainty. It’s that age old question: Who do you tip and how much?

Fortunately, there are general rules for the Do’s and Don’ts of leaving a tip.

For example, when you order out, tip 10 percent for delivery. At a restaurant, always tip the server between 15 percent and 20 percent on the pre-tax amount. If you are out for drinks with friends, make sure you bring cash for the bartender — usually $1 or $2 per drink is acceptable.

If there’s a restroom attendant, even if you don’t need or want their help handing you a towel, tip 50 cents to $3. A coat roam attendant should get $1 per coat and a valet should receive between $2 and $5.

At a hotel, leave between $2 and $5 per day with a note. Even just a simple “Thank you, housekeeping” goes a long way. For all salons and barbershops, 15 percent to 20 percent of the bill is the norm.

If you have a doorman, make sure to tip $1 to $4 for carrying any luggage and $1 or $2 if they hail a cab for you. And then tip 15 percent to 20 percent to your taxi driver.

Of course, it’s always a good way to show your appreciation throughout the year by giving a little extra cash at the end of the year. The same goes for your everyday coffee shop barista or dry cleaners. (Check out the chart below from The Emily Post Institute for a selection of some often-tipped people.)

It’s also acceptable not to tip when you’re getting gas, using a handyman or plumber, or for furniture delivery. Postal Service regulations only permit carriers to accept small tokens worth $20 or less, and many schools, health-care providers and other companies prohibit cash tips.

Whatever you give, be sure to include a handwritten card thanking that provider for their service. And then make a note for yourself on who you tipped and how much. That way, you won’t face the same anxiety next year.

Put finances on the back burner

Here’s a piece of counterintuitive advice for widowers and divorcees: You can put financial decisions on hold, at least for a little while.

That’s according to Amy Florian, a thanatologist and chief executive of Corgenius, a Hoffman Estates, Illinois-based consultancy that specializes in educating advisors on understanding the grieving process. (Thanatology is the scientific study of death.)

Florian spoke at the Schwab IMPACT conference in San Diego on Oct. 25. Her focus: guiding women investors through life’s transitions, including divorce and death.

Financial advisors are well versed in helping their clients understand their finances — sometimes to a fault. To an extent, the hard numbers can wait.

“Advisors don’t know how to communicate during times of grief,” Florian said in an interview. She attributes this to two factors: First, financial professionals tend to concentrate on clients’ portfolios and hard numbers. Second, people are generally terrible at addressing others who are hurting.

 

Hit the brakes

Grief is triggered by a break in attachment, said Florian.

“There is a grief process for divorce: What do you call yourself? Where do you fit in? Do you feel safe?” she said. The loss of a spouse, be it through divorce or death, upsets the survivor’s identity and social circle.

Amid those times, a widower or divorcee isn’t in the best shape to make pressing decisions about their finances.

“Your brain gets flooded with cortisol,” Florian said. “You’ll think you’re making rational decisions, but you’re not.”

“Advisors don’t know how to communicate during times of grief.”-Amy Florian, thanatologist and chief executive of Corgenius

Key questions

Rather than responding to news of a death or a divorce with the obligatory and awkward “I’m sorry,” advisors should give the survivor or the divorcee an opportunity to express their feelings.

“What would I say to ‘I’m sorry?'” asked Florian. “‘Thank you’ or ‘It’s not your fault.'”

Instead, advisors should also use open-ended questions to learn more about the relationship and give the grieving client a chance to vent: What happened? What kind of day is this for you?

More from the IMPACT Conference:
Schwab CEO talks robo-advisors
What’s the Fed thinking about a rise in rates?

In the event of a death: What are ways to honor this person’s memory? If it’s a divorce, be sure to recognize the loss of the dream: “This isn’t what you had in mind when you walked down the aisle. Would you like to talk about it?”

“Become aware of what triggers grief, and follow the client’s lead,” said Florian.

Don’t feel pressured to “get over” your loss.

 

If this is your transition

Put off any decisions that don’t need to be made right away, and give yourself — and other loved ones affected by the loss — time to grieve. “Have patience for yourself and for others around you,” said Florian. “They won’t be at the same place at the same time.”

Rely on friends, family members or professionals who can help you work through the process.

“You will never forget [the person you’ve lost], and the point is to never forget,” said Florian. “Honor them.”

Financial Success

Christian:  Hi Laurie, I’m so glad we’re continuing our conversation. I really appreciate your taking the time to share your perspectives. Our prior chat addressed saving, so I guess on the flip side…I’ve been wondering, how will I know when it is appropriate to take on debt?

Laurie:  In short, Christian, some forms of debt are more beneficial than others. An affordable mortgage or a student loan can be considered “good” debt, whereas credit card debt is usually “bad” debt. It’s important to understand the difference between good and bad debt because at some point in your life, most likely while you’re young, you may find that borrowing is your only option to fund a major purchase or investment. (For more, see: Paying Down Debt vs. Investing.)

Debt can be useful for financing large investments like a home or a college education. Although one is a physical property and the other an intangible idea, I think of both as investments because you will extract value from them in the future. Since both of these investments are high cost, it makes sense for individuals with a low net worth to finance these purchases through debt.

In addition, the interest paid on student loans and a mortgage can both be tax deductible, whereas the interest on credit card debt is not. Mortgage interest can almost always be entirely deducted, while student loan interest can be deducted up to $2,500 a year.

Debt taken on to purchase a vehicle falls somewhere in the middle ground. While financing a car purchase is sensible for some, the decision should ultimately depend on the specifics of the deal you are interested as well as your credit score. Although it may be easiest to go through the car manufacturer’s financing department, that’s not always the best solution. With auto loans – and really in any borrowing situation – it’s best to shop around and check out local banks or credit unions to fully exploring your loan options. Be smart, but be sure you don’t shop around too long because prolonged periods of credit inquiries can lower your credit score. (For related reading, see: Student Loan Debt: What Every Borrower Should Know.)

Christian: If credit card debt isn’t “good” debt, why do so many people use credit cards? Is the interest that accrues really that high?

Laurie: Well, many people use credit cards because they are convenient. However, many credit card users are unaware of the hidden dangers such a convenience poses. If you don’t have the funds to back up the purchases you’ve made, you might find yourself in trouble. But there is still a responsible way to use a credit card. If you use it to buy your groceries, maybe gas and sometimes fund a night out, but ensure that you pay off your full balance as soon as you receive your monthly bill, you will avoid potentially high interest payments on your credit card debt.

Unfortunately, it’s easy for less responsible people to view credit cards as a type of personal lender. Say you want to buy a new smart TV, but don’t have the cash on hand so you charge it to your credit card and plan to pay it off over the next few paychecks. Your paycheck comes the next week, but on payday you accidentally rear-end someone. Now you have to pay for the car repair or an insurance deductible, so the balance on the card for the TV carries over to the next month. Credit cards profit the most when you use your card this way, since they use your previous month’s unpaid balance and your current month’s purchases to calculate your interest. (For more, see: How to Use Your Credit and Debit Card Safely.)

So now not only do you have to pay back the balance and interest from the original balance, you will now also have to pay interest on the interest from last period. This wouldn’t be much of an issue if the rate were 1%, but usually interest rates on credit cards are much higher – often 20-30%.

We recommend that you use your credit card to make affordable purchases and then pay off your balance each month to avoid the exorbitant cost of carrying an unpaid balance. The steep interest charges can quickly make your debt unaffordable. (For more, see: How to Budget and Spend to Maximize Your Happiness.)

Christian: That’s shocking, I didn’t know that could be the case. This is something I will definitely keep in mind. I’m also wondering, do you have any thoughts on how to obtain the best possible mortgage?

Laurie: Your ability to obtain the best possible mortgage and lowest interest rate in general is heavily affected by your FICO or credit score. There are many ways to either build good credit or improve upon your current credit score. It’s important to know however that building or improving a credit score will take time. The easiest way to start building good credit is to always pay your bills on time, pay off credit card balances monthly and avoid carrying over balances into the next period. Keeping a low balance on your cards (somewhere around 25% or less of your credit limit) can also help to build good credit.

It is also important to avoid opening extraneous credit card accounts. The last big component of your FICO score is your credit history. Older adults are more likely to have had major credit events take place, such as a possible mortgage foreclosure during the 2008-09 global financial crisis. For young individuals like yourself, there isn’t much history to even look at, so you may instead want to look towards building your credit history. If you use your credit card responsibly, refrain from opening too many credit cards and pay your bills and balances promptly, you will be well on your way to establishing excellent credit that will help you qualify for the best rates on future loans.

How They Differ

If you’re in the market for a major purchase like a new car, or need some extra cash to fund a personal project, taking out a loan could be your best bet.

Personal loans and car loans represent two of the most common financing options. Assuming you meet their respective lending requirements, they can be relatively easy to obtain. These days, most lenders accept online applications for personal loans, and car loans are generally approved on the spot at the car dealership.

So what’s the difference between the two? A personal loan can be used for many different purposes, whereas a car loan (as the name implies) is strictly for the purpose of purchasing a vehicle. If you want to borrow money for a car, you could simply take out a car loan, but if you require funding for a purpose that’s less specific or falls outside the typical lending box (such as a vacation, wedding or home improvement), a personal loan provides more flexibility.

Each loan type bears its own pros and cons, so it’s important to weigh and compare them before signing on the dotted line.

The Personal Loan (Unsecured)

A personal loan provides the borrower with funds from a lending institution (generally a bank), whereby the full loan amount is paid in a lump sum that can be used at the borrower’s discretion. Personal loan amounts typically range anywhere from $1,000 to $50,000.

A personal loan can be secured against something of value, such as a vehicle or home, allowing the lender can seize your asset to recover its losses in the event that you don’t repay the loan. However, most people opt for an “unsecured” personal loan, which means the loan is free from collateral.

Interest Rates

Generally, unsecured loans have higher interest rates than comparable secured loans with collateral attached. Unsecured personal loans also come with much more stringent approval requirements, so you’ll want excellent credit on your side. If yours is in poor shape, a personal loan might not be an option – that is, until you can strengthen it (see 3 Easy Ways To Improve Your Credit Score). Both the loan amount and the interest rate (which can be fixed or variable) will be largely influenced by your credit rating. The better your credit rating, the higher your borrowing capacity and the lower your interest rate. Conversely, the poorer your credit rating, the lower your borrowing capacity and the higher the rate.

The Terms

Personal loans have a set repayment period, stated in months (e.g. 12, 34, 36). Longer loan terms will lower your monthly repayment, but you’ll be paying more interest over the term of the loan. Conversely, shorter loan terms mean higher monthly repayments, but incur less interest overall, since you are paying off the principal faster.