This year, I’m doing something a little unorthodox. I didn’t set any personal goals for the new year — and that includes financial goals. Instead of setting goals for this year, I’m calling this my “year of exploration.”

You don’t have to spend a whole year trying to figure out who you are and what you want, but before you set another money goal, take the time to figure out what you hope to make of your life. Too often, we set financial goals because they are the “right” financial goals, not because they actually help us achieve anything meaningful in our lives.

Do I really need to put more money toward retirement, just because that’s a common goal and I haven’t maxed out every possible account yet?

Are Your Financial Goals Helping You Reach Your Life Goals?

One of the issues with finances is that, too often, we disconnect money from what’s happening in our lives. We know we have to pay bills and get rid of debt, and save for retirement and a rainy day, but we don’t think about why we do these things, or how money can be a means to an end for living a more fulfilling life.

A lot of the things we do with our money are “automatic” and follow a prescription for what we “should” be doing, even if we don’t really care for that the prescription. Over time, I’ve decided that I have no problem financing my cars, and I don’t want to buy a house again. And I’m not paying off my student loans early. These decisions go against the accepted rhetoric about how I should manage my money.

But none of these choices will keep me from reaching my own life goals. This year, with my divorce less than a few months final, I’m taking a look at what I want out of life. I’m simply maintaining the current status quo with my money, and exploring what I want my life to look like going forward.

How can my money choices help me reach those goals? Well, I won’t know until I figure out what I want. For now, I know that I want to be able to do the following things, in addition to paying my bills and living costs:

• Prepare for retirement
• Contribute to charity
• Provide worthwhile experiences for my son
• Travel

I already have mechanisms in place to help me accomplish these goals. Setting aside more for retirement isn’t a goal that makes sense for me. I already set aside slightly more than what an online calculator tells me I need. What might make more sense for me, though, is putting more money into my travel fund, or even changing the way I run my business so that I have more time for community service. I don’t know. I’m exploring what I want to do with my life moving forward, and once I know that, I can make financial goals that will help me accomplish that.

Before you make your next financial goal (and you can make financial goals anytime you want — not just at the start of a new year!), take a step back and figure out what kind of life you hope to create. Then, acknowledge how your finances can impact the outcome. What can you do with your money to help you reach your definition of success?

Wherever you are in your life, and whatever your finances look like right now, don’t just make goals to make goals. Honestly evaluate what you want, and figure out which financial habits are holding you back. Decide how you can change those habits to change your life. Then set financial goals that will move you a little closer to your long-term goals.

The post Before You Set Another Financial Goal, Figure Out What YOU Want appeared first on ReadyForZero Blog.

About a few months ago, my condo building had a leak that damaged several units including mine. The total damage came out to be over $11,000. Although I had homeowners insurance, the process to file a claim would’ve taken over two months. If you’ve ever experienced anything like this, I’m sure you understand the dire need to get contractors out to fix the damage ASAP.

This is when I looked into getting a personal loan to cover these expenses until the insurance company finalized the claim. I started my research on LendingTree and Credit Karma by looking at customer reviews, and started to apply for personal loans through their sites.

The good thing about these two sites is that you can check your rates without impacting your credit score. They’ll automatically find the best interest rate and terms for you by matching you with several lenders, but I soon realized one thing that most people overlook: getting the lowest interest rate is not necessarily the best option for you.

My Initial Findings: Origination Fees

I was pre-approved by most lenders, including: Prosper, LendingClub, and Upstart. Each offered a fair interest rate and monthly payment that I could afford. As I started to complete the application for LendingClub, it wasn’t until the very last page that caught my eyes.

The exact loan amount for $11,000 that I requested wasn’t the amount I’d be receiving. Their origination fee of 6% is taken right out of the loan. So let’s do some simple math:

$11,000 x 6% = $660. My final loan amount: is $11,000-$660 = $10,340.

See the dilemma here? In order to get the full $11,000 that I needed for the home repair, I’ll have to take approximately $12,000. To make matters worse, I’ll have to pay interest on the $12,000 that I “borrow”, not the actual amount that I receive.

But here’s the Bigger Issue…

Since the insurance company is expecting to finish the claim in a few months, what happens if I want to payoff the loan? Although almost every single lender out there claims that they don’t charge a prepayment penalty, aren’t these origination fees basically the same thing?

According to the Examiner, “Experts argue that high loan origination fees act as prepayment penalties in disguise”.

I couldn’t agree more. If I paid back the loan within 4-6 months, my APR would skyrocket.  If you want to take a closer look at how loan origination fees impact your loan, you can view a chart that compares your loan with and without origination fees.

Your Loan Should Be Tailored Towards Your Needs

If you’re taking out a loan and expect to pay it back earlier, you might be better off taking out a higher interest rate loan. The origination fees may seem small at first, but you’ll end up paying more if you decide to pay it back faster.

If you’re thinking that you’ll need the entire length of the loan to pay it off, getting a lower interest rate loan will be more beneficial for you.

Origination fees can seem like a small fee especially if you’re in dire need of cash, but in reality, these fees can end up costing you a lot more in the short term. Always figure out a game plan to see when you can pay off your loan. This will help you make the best decision to make sure you’re getting the best deal.

The post I Took Out a Higher Interest Rate Loan and I’m So Glad I did appeared first on ReadyForZero Blog.

Americans love credit cards. We love to use them to earn rewards, to transfer balances and much more. In fact, there were over 550 million credit cards in circulation, as of 2014, and that’s just the three major card providers.

Have you ever stopped and asked if your credit card company loves you? I’m not asking if you’re a “good” customer, but whether or not they love you. You may not realize it, but your credit card company shows their love, generally speaking, in one specific way.

When More is Given, We Borrow More

A recent study reveals a not too surprising statistic – when credit card issuers extend us more credit, we generally use as much of it as possible – nearly to the point of maxing out the additional credit offered. It would be one thing if we were to pay that off as soon as possible, but we’re not. We’re a society of revolvers who don’t pay off their credit cards but carry a balance from month to month.

I too used to be a revolver. I had significant credit card debt and was kicking the can down the road each month. The interesting thing is that over that time, most of the cards I carried extended me more credit the more I spent. It makes sense, on one level, as they knew they’d make more money from me thanks to not paying the cards off each month.

Does This Mean Credit Cards Are Evil?

It would be easy to look at studies like the one cited above and believe credit cards are evil. There are many who believe that and I can understand the argument to a certain degree. It’s certainly possible that issuing banks will extend additional credit only because they know the borrower will spend the money.

That aside, credit cards aren’t truly evil. They’re used in the wrong way. Like any tool used the wrong way, misused credit cards rack up additional debt. However, if you use credit cards the right way, they can be a great way to maximize your finances to put yourself in a better situation. The key point is you need to know what you’re doing.

How to Not Be Loved By Credit Card Companies

It should be obvious, but the best way to not be loved by your credit card company is to pay off your balance in full each month. It’s that simple. You can even take it a step farther and earn rewards from your normal spending – so long as you pay the card off each month.

What if you’re currently paying off debt and you no longer want to be loved by your credit card company? There are many things you can do, such as:

• Take out a lower rate personal loan and pay off the debt
• Start living by a relatively strict budget
• Transfer your balance to a lower-rate card and pay off the debt
• Stop using the credit card

There are many other things you can do to stop getting your credit card company to love you though it all goes back to the same basic idea – attacking the debt and becoming financially free. It may not be simple though it’s certainly possible.

Being a good credit card customer requires one thing – paying off your cards each month and not accruing debt. With a little discipline, you can be a client your card company doesn’t love.

The post Does Your Credit Card Company Love You? appeared first on ReadyForZero Blog.

I love the summer and getting extra time off, but there always seems to be something that gets overlooked. We all know Summer is coming but we allow procrastination to get the better of us. While not bad, per se, it can hinder us in the long run.

The Summer time is when your expenses can skyrocket out of nowhere. Vacations, BBQs, and outdoor activities can consumer a lot of your disposable income. Getting ahead of your finances and taking pro-active steps can help you prepare for what’s ahead. Here are some last minute things to tackle before the start of summer.

Make A Debt Payoff Plan

Do you have any consumer debt you’re currently paying off? More than half of Americans feel insecure about their finances, most often about their debt. If you have debt, you don’t have to feel ashamed or uncertain about your efforts to pay it off. You can take control of your debt with a payoff plan.

Write down all of your debts and figure out what’s needed to pay off each one. That may mean getting a personal loan to consolidate the debt, or it could mean finding a way to make extra money to throw at the debt. Form a plan and take action on it. You’ll be that much closer to becoming debt free as a result.

Start Working on an Emergency Fund

Would you be able to handle an emergency if one happened tomorrow? The Federal Reserve reports that 48% of people would have to sell something to cover an emergency of $400. That’s not really that much money when you think of it.

I know it seems silly to build an emergency fund when interest rates are so low, or if you’re paying off debt. That’s not the point. You never know what will happen in life, so you want to be prepared. Start small, even if it’s $50 per month. Begin there and build on that to amass a respectable emergency fund.

Use Your FSA Money

A FSA, or Flexible Spending Account, provides a way to save money on healthcare costs. There is one catch with FSAs though, it’s a use it or lose it system. In most instances, you lose any money you have in your account if left unused at the end of the year.

If you have a FSA through your employer, there are many ways to use those funds. Visit the doctor, make that trip to the dentist you’ve been avoiding or see the optometrist. Just make sure to verify the expense qualifies before using the money.

Invest Your Money

Investing may be the last thing you’re thinking of as you celebrate the holidays. Don’t let the hustle and bustle of the holiday season hold you back. Instead, look for ways to start investing if you’re not already doing so. If you’re looking for the best online brokerage account to begin your investing journey, always take into consideration the number of trades you’ll be making as well as the commission amount.

Will you receive the full match in your company’s 401(k)? If not, adjust your withholdings to receive it all. Have you opened an IRA account? It’s not too late. Don’t listen to the excuses not to invest, instead find a way to get started in the last few weeks of the year.

Prepare Your Taxes

Like it or not, tax season will be here soon. Now is the time to start planning for it, not April. There are many things you can do to start planning for tax time, such as:

• Getting all your financial records in order
• Making charitable donations
• Taking advantage of business expense reimbursements

Not only will getting everything together save you time in the spring, but it can potentially save you some money.

Think Back over the Past Year

I don’t know about you, but this year has been a busy one for me. While I’ve accomplished some of the goals I had in mind at the beginning of the year, other things have fallen by the wayside.

I like to take some time before the year is over to review my progress toward my goals. You want to be honest with yourself here so as to truly see where you did well and where you fell short. Use those findings to take action and complete the next step.

Start Planning for the Next Three Months

The takeaway from these last minute things is to take action. We will greet summer in a few months.  Don’t let debt and a lack of financial preparation set you back for the last half of the year. If you start planning ahead, you’ll be able to enjoy life without overstretching yourself.

The post 7 Last Minute Things to Get Done Before The Start of Summer appeared first on ReadyForZero Blog.

Identity thieves will do whatever it takes to swindle you out of your hard earned cash. But it doesn’t always stop there as credit cards are also a viable option.

In the past few years, we’ve watched as several big-box retailers, including Target and Home Depot, scrambled to make amends with customers who were affected by breaches to their payment processing systems.

Those stories were plastered all over the news, but we don’t see nearly as much coverage of the isolated incidents that cost consumers millions of dollars and sabotage their credit each day. 

Let’s take a closer look at some common credit card scams:

1. Fraud Alerts

Many credit card issues have fraud departments intact to monitor activity. So when you receive a call alerting you of an issue with your card, chances are you’ll be more than willing to do whatever it takes, including confirming personal information, to get the problem resolved. But proceed with caution as you may be at the hands of a fraudster.

A better option: call your card issuer directly to confirm an issue even exists and resolve it from there.

2. Skimming

This scam is the reason why I always try to use cash when dining out. It’s as simple as pie for perpetrators since all they have to do is swindle you out of your credit card and swipe it through a skimming machine to obtain all your account information. Once they’ve done so, new cards with your data can be created and used to fund a lavish dining experience, shopping spree, or whatever they choose to spend the money on.

3. Jury Duty

Have you been summoned to jury duty in the past? If so, you’ve received a court notice with instructions on the date, time and location to report. But what happens if you receive a call stating that you’ve missed an assignment and must confirm identifying information to avoid a trip to the slammer? If you’re wise, you’ll hang up the phone and give the court a call. Reasoning: fraudsters use this tactic to con you out of your social security number, address, date of birth, and other account information, creating the perfect opportunity to hijack your identity.

4. Chip Cards

Select credit card issuers recently welcomed the EMV credit cards to their arsenal. The deadline to switch was October 1, and fraudsters found a way to capitalize on the transition. How so? By contacting account holders via email and requesting that they confirm personal information in order for a new card to be issued.

5. Debt Consolidation

“For a low monthly fee, you can take care of all your credit card obligations and be debt-free in just a few short years. All you have to do is confirm your account information, make a one-time payment, and you’re all set.”

Wishful thinking. But unfortunately, scores of individuals succumb to this tactic out of sheer desperation and once they realize the alleged company is a scam, their deposit is already gone along with all their personal and account information.

The post Careful: 5 Credit Card Scams to Be Aware Of appeared first on ReadyForZero Blog.

Money is a complicated matter. There are best practices for handling it, earning it, and for making it grow. The amount of information available on the subject is staggering and certainly overwhelming for most.

With countless resources and money experts, why do so many of us have so much trouble soaking in this knowledge and applying it to our lives? Why do we know all the “shoulds” but we rarely translate them into what we actually do?

When boiled down to the simplest terms, money is simply a form of currency. But if that’s all it was – a physical means of paying for goods and services – we likely wouldn’t have so much trouble with it. Instead, it has come to represent our worth, our level of success and how we’re perceived as others.

Seeing money through this context might make it appear more overwhelming but it actually helps put the control back in our hands.

How emotions show up in our spending habits

We’ve become acutely more aware in recent years of emotional eating as an issue many people deal with. When life gets particularly challenging and our emotions get out of control, we seek comfort in food. If it’s a consistent problem, weight and other health issues arise.

Spending is simply another form of emotional pacification.

Several studies spanning the past ten years have found this emotional trigger in a variety of settings. One such study found participants were willing to pay significantly more for a water bottle (and average of $2.11) if they watched a sadness-inducing video clip versus those who watched an emotionally neutral video clip (an average of $.56).

‘“This is a phenomenon that occurs without awareness,” Jennifer Lerner a Harvard professor who studies emotion and decision making, said in a phone interview. “This is really different from the idea of retail therapy, where people are feeling negative and want to cheer themselves up by shopping. People have no idea this is going on.”’

These studies suggest sad situations push us to lessen the attachment we have to money – there are bigger things going on, so material possessions and how much we spend on them mean less.

Emotions also exacerbate the feeling of being out of control, something we feel can be addressed through what we can control – our spending.

External chaos breeds money chaos

If our internal, emotional world impacts how we manage our money, it should also be noted how much our external world can do the same.

In the last six months I’ve purchased four full containers of corn starch. Corn starch is something I’ve used in only four recipes during that time frame. Yes, I’ve purchased a brand new box every single time because my kitchen is anything but organized.

This is a minor form of external chaos – when we end up with things we don’t need because we don’t know what’s already there or because it goes bad before we remember we had it in the first place.

According to the Natural Resources Defense Council, 25% of the food and drinks American families purchase each year go to waste. The cost of that waste amounts to $1,365 to $2,275 annually.

The impacts can extend far beyond our pantries, however.

Think about the cost of late bill payments because the bills are lost in a pile of paperwork not yet sorted through. If this is a consistent problem, you are not only paying for the late fee, but years worth of payments with higher interest rates tacked on because your credit score is lower than it should be.

Chaos or simple lack of organization in our physical world is time consuming. According to studies, the average person will spend over 3,000 hours looking for lost items in their lifetime. This added strain on our time, when our lives are already filled to the brim with busyness, makes handling other tasks — like money management — a frazzled process.

Just think about what this means for how well we actually handle these tasks.

The Takeaway

Money goes far beyond the dollars and cents we have in our accounts or the amount we take home in pay. It can be a direct reflection of how we are feeling and how our external world is operating. With that in mind, what could you do to address your internal and external world in order to improve your overall money management?

The post Your Current Emotions May Be Affecting Your Money More Than You Think appeared first on ReadyForZero Blog.

Most of us know that some sort of career is necessary. I’m a freelance writer, so my “job” isn’t traditional, but I still have to think about my career overall and make strategic decisions if I want to maintain the earning power that provides me with a place to live and my son food to eat.

If you aren’t entirely satisfied with your career, and you hope to take it to the next level, whether that’s getting a raise, a promotion, or switching to a new job altogether, you need to take the steps that will get you where you want to be.

1. Identify Where You Want to Go

Your first step is to figure out what you want your career to look like. What’s the end goal? Where do you expect to be next year, in five years, in 10 years? You can make all the career goals you want, but most of them are useless unless you have a clear idea of where you are going. Even if you decide to tweak your course later, it’s much easier to make those changes if you have an idea of the ending point.

Be specific about what you hope to accomplish, and realistic about the time frame involved. Whether you want to be made a senior partner in your firm, or whether you want to increase your salary by half, figure out what a realistic and reasonable time frame.

2. List What You Need to Do

Now that you know where you want to go with your career, you need to list out the things that need to happen for you to get there. Do you need to obtain a particular credential or license to make it to the next level? Could you receive a pay bump with the help of an advanced degree? Does getting a promotion depend on completing certain projects or reaching particular benchmarks? Research what it will take to reach your career goals, and list out the steps required.

Research what it will take to reach your career goals, and list out the steps required. If you need to follow these steps in order, do your best to list them in that way. You want to be able to move forward in a logical manner, and have a roadmap of where you’re headed.

3. Break Bigger Steps Down Into Something Manageable

As you’re listing the things you need to reach your career goals, you might discover that some steps are large, especially if you need to pay money to attend a training or get a degree. Break these larger steps down into smaller steps. This might include creating a plan to set aside money each month to help you pay for a needed course, applying for student loans, putting together a plan to help you increase sales you make, or attending more networking events.

4. Take That First Step

Once you know what you need to do, and what order you should do it in, it’s time to take the first step. Start with something small, that you can begin working on today. It might be reading an inspirational book with tips to help you get motivated. Your first step might be setting aside that first $50 into an account designed to help you save for a licensure exam. Whatever it is, make the first move. You’ll feel empowered, and know that you are on the path to reaching your career goals.

Keep moving down your checklist, working on the actions that will help you take your career to the next level. As you continue to make strides, you’ll find those around you notice, and that can help you

The post 4 Simple Steps to Take Your Career to the Next Level appeared first on ReadyForZero Blog.

This past weekend I attended my niece’s 7^th birthday party at a local skating rink. Aside from the overflow of kids from at least four other birthday parties, I noticed something else that wasn’t in short supply: gifts. By the end of the frenzied throwing of tissue paper and ripping of wrapping paper, it was clear there were too many gifts for one child to give the proper amount of attention to.

Already knowing how long my niece’s attention span is when it comes to toys and other easy-to-grow-out-of playthings, I opted to buy her something she couldn’t just toss aside: stocks and a lesson in investing.

How the gift will work

The idea, spurred by a conversation I once had with a coworker, is relatively simple: for every birthday I will give my niece a pre-determined amount of money to invest in the stocks of her choosing. The stocks she chooses will likely be steered by the latest toy, fashion, or food trend, but the decision will be up to her.

While the concept of investing will be entirely foreign and too complicated for a seven-year-old to fully grasp, it can be simplified to fit what she would find interesting at this stage in her life: instead of owning that one specific toy, you can own a portion of the company that makes the toy. If it does well, you could potentially earn money in the process. If it doesn’t do well, you will lose money in the process.

The message is this: instead of simply owning a physical object for the short amount of time it keeps you entertained, you can have the ability to grow a nest egg – something to be used for much bigger purchases (like a college education) down the road.

Even for a seven-year-old that can sound intriguing.

What does this actually do for her?

Given the small amounts of money I will be giving (I’m certainly not known as the rich aunt), my niece won’t be paying for four years worth of college expenses or traveling around the world with her earnings. But she certainly wouldn’t be doing that with the gift of a Barbie doll or pack of lip gloss either.

Instead, she’ll walk away with something that is far more valuable: the gift of financial literacy.

It’s no secret money management doesn’t have space in many classroom curriculums. While she will learn how many dimes are in a dollar, she probably won’t learn much about how to grow her savings or how our economy works.

By giving her this gift, she will learn:

The importance of being a mindful consumer.
Instead of simply purchasing that toy, we are taking that money and putting it towards something that will be much more useful to her now and into the future.

How to move beyond just saving in a piggybank.
My niece loves her piggybank and the concept of having money to her name. This takes the concept of saving a step further and allows her to see how to grow that savings beyond the initial investment.

How to look at the bigger picture and create money goals.
A conversation about saving will always spark one important question: what are we saving for? This exercise will allow me to talk to my niece about all of the big picture goals we can set for our money – if we purposely take control of it.

How the stock market works and the value in investing.
Adopting an investing strategy as an adult when you have very little experience can be extremely intimidating. At least by simplifying the concept and starting young, my niece will be able to understand the basics and graduate to a more comprehensive strategy later on.

Math has a real-world application.
Unfortunately, there is often a significant lag time between when we learn mathematical concepts and when we actually apply them to our lives. By allowing my niece the chance to invest money now, she can see how essential math actually is outside the classroom.

Of course, she could just want the toy instead…

Knowing how tough it would be to grasp my niece’s attention at a birthday party with ten screaming girls and a whole hoard of new toys, I opted to introduce this concept to her in a much calmer setting. Best-case scenario she’s excited and can’t wait to get started. Worst-case scenario the concept flies over her head and she loses interest before she’s even begun.

Either way, I’m going to keep at it. Chances are, at some undesignated point down the road, she’ll thank me for teaching her a thing or two about money and investing. At least I can hope, can’t I?

The post No More Toys: The Unconventional Birthday Gift I Plan to Give to My Niece appeared first on ReadyForZero Blog.

Planning to move in with your significant other or tie the knot in the near future? There are many exciting discussions to be had, but money matters may not be one of them. In fact, it’s the dreaded topic many couples prefer to stay away from. But doing so can have serious implications for your finances and your credit.

Let’s take a closer look at how your significant other can send your credit to the trenches:

Careless Money Management

In some households, there is an appointed financial manager and the other relies on him or her to handle business. Unfortunately, they may not exercise sound financial management habits, leaving you to pick up the pieces and repair your credit after the damage is done.

Minimal Credit History

Kudos to your partner for avoiding debt, but it can become an issue when you’re ready to open a joint account, activate utilities or make a major purchase. Reasoning: minimal credit history equates to elevated risk in the eyes of lenders and increases interest rates and deposits or even worse, disqualification.

Excessive Spending

No cash on hand? No problem. Paying with a credit card will do the trick.

If this your partner’s mentality, beware of the damage that can be done to your credit score if it’s a joint credit card and the spending gets out of control. Not only will your credit utilization ratio take a hit, but you could fall behind on payments if the minimum payment becomes too much to handle. (Another thought: only paying the minimum will quickly land you in a mountain of debt).

Impulse Purchases

This goes hand in hand with the last point. Whipping out the plastic each time you see a “must have” item is a recipe for disaster, especially if it’s a joint account and your partner is unaware of your actions.

Untimely Purchases

Late payment fees aren’t the only thing you have to worry about when you miss due dates. Your credit score could also take a hit if the delinquency spans beyond 30 days and the creditor or service provider reports the delinquency to the credit bureaus. So if you share any accounts and the party responsible for remitting payment drops the ball, down goes your credit score.

A Suggestion

Before taking the next step in your relationship, share money perspectives and credit reports with one another. Schedule an hour or so of your day for a meeting and cover the following:

• Who will pay the bills
• Debt-management practices
• Joint checking and savings accounts, and if they will help thwart irresponsible spending habits
• How to improve your credit score. (Visit AnnualCreditReport.com to retrieve a free copy of your credit report. Also, take a look at this article to learn more about the types of credit scoring models).

If there are major discrepancies and credit issues, devise a realistic plan of action to get over the hump. This may be painful, but will mitigate the problem before it gets out of hand and costs you your relationship. 

The post 5 Little-Known Ways Your Partner Can Ruin Your Credit appeared first on ReadyForZero Blog.

Paying off debt impacts you in many ways – both positive and negative emotions arise during your debt payoff journey. I remember when I was paying off debt I felt both shame and pride, frustration and gratitude, and a host of other emotions, including a lack of freedom. Those all tied back to seeing who was responsible for the situation. It was my actions that led to the debt and it would be my actions that got me out of it.

The credit cards didn’t forcibly remove themselves from my wallet to spend money. I willingly took out the student loans. However, I worked hard and clawed my way out of debt. After becoming debt free, I found myself at a crossroads. I knew I needed to rebuild my credit, as it was in shambles though I had few options. In the end, I turned to a secured credit card to help rebuild my credit.

When You Have Few Options

Getting a new credit card is not always the easiest after paying off a significant amount of consumer debt. This is especially the case if you worked with a debt- counseling agency. Depending on how the credit bureaus report your payoff, your score can take a significant hit. That’s also not to mention the fact that your score might already be too low in the first place. As a result, you will be left with few options.

This is when a secured credit card comes into the picture. Most credit cards are unsecured, which means the issuing bank takes a risk you will be able to repay your charges. With a secured credit card you “secure” the card with a cash deposit at the bank. This protects the bank and provides you access to a card.

You Want to Rebuild Your Credit

A key point behind a secured credit card is to provide the ability to rebuild your credit. If you have a below average credit score, you will face a challenge getting a typical credit card. The best secured credit cards alleviate that problem by providing the opportunity to show you’ve changed your ways.

This is when to utilize the new practices you picked up during debt repayment. You want to use the card each month for already budgeted for purchases. You then want to pay off the card each and every month. Over the course of time, this will begin to improve your credit. This, however, should be viewed as a short-term solution – for a variety of reasons.

Things to Keep in Mind with A Secured Credit Card

A secured credit card serves one main purpose – rebuilding your credit when you have no other options. You may feel conflicted getting a credit card after paying off debt, though if you plan on needing access to credit in the future you want to take that into consideration.

Beyond your personal situation, there are a variety of things to keep in mind when getting a secured credit card. Some of those things are:

• Making sure the issuer reports to all three bureaus (Equifax, Experian and TransUnion) monthly. Some issuers report to only one bureau or irregularly. This will not help your efforts.
• You provide the funds to back or “secure” the card. The issuing bank will hold those funds on deposit.
• You can be turned down for a secured credit card. Each bank has different requirements. Make sure to do your homework before applying to ensure you have what they want.
• You need to make timely payments. If you’re unable to, wait until you can and then get a card. It’s also important to remember not to max the card out, but keep your utilization rate low to optimize your efforts.
• Watch the fees. Some secured credit cards are notorious for their fees. You likely won’t be able to get around all of the fees out there, but you don’t want to pay too many.

Other Types of Secured Financing Options

Credit cards aren’t the only type of financial instruments that extends credit with a collateral. Since secured loans are always protected by a collateral of some sort, you may find that the interest rate on these types of loan tend to be lower.

For example, mortgage rates have historically always been on the lower end. That’s because the banks own your home in case you default. However, secured loans aren’t always just for new financing options. You can take out a secured loan from Avant for an auto loan, HELOC, or even a boat loan.

Final Thoughts

I know it seems like a secured credit card is something to avoid. That’s not the case; there are good ones available. You want to make an informed decision to put yourself in the best possible position.

A credit card may be the last thing on your mind after paying off debt. That’s understandable. If you need to rebuild your credit, a secured credit card can be a good tool to get you back on track.

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