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5 money-saving tips all millennials need to know about credit cards

July 28, 2015

By Dan Rafter | Money Rates Columnist

Don't shy away from taking out a credit card. That's the advice Rick Roque gives to millennials.

Roque, managing director of retail at Southfield, Michigan-based Michigan Mutual, says that the fastest way for millennials to build a credit history - a necessity today - is by making purchases with their credit cards. Then pay off these balances on time and in full at the end of every billing cycle.

Those millennials who don't think they need credit cards? They're making a big financial mistake, Roque says.

"There are some young people who think that credit cards aren't for them," Roque says. "That is a huge mistake. As a young consumer, you always need to be on the path of building the amount of credit available to you and of building a credit history. It is almost impossible to do that when you're just starting out as an adult without using credit cards."

The message is clear: Credit cards are important financial tools today. But they are also easy to misuse. Here are five tips for millennials who understand that they need credit cards but don't want to fall victim to late fees, soaring interest rates or massive debt.

1. Use cards as a tool to build a credit history

Here's why Roque says that credit cards are so important to millennials: Lenders today -- and even many employers, landlords and insurance providers -- study your three-digit credit score. If your score is low, you'll struggle to qualify for home or auto loans. You might even struggle to land a job, and you might have to pay higher interest rates for auto insurance. A score that is too low might even keep you from moving into your dream apartment unit.

The challenge many young consumers face is that they don't have enough of a credit history to even have a credit score. That's because many of the bills that young consumers regularly pay, such as utility bills, medical bills and cell phone payments, aren't reported to the three credit reporting bureaus: TransUnion, Equifax and Experian. As a result, these on-time payments have no positive impact on the credit reports of young consumers.

But credit card payments are reported to the bureaus. This fact makes it important for millennials to apply for credit cards, charge items on them each month and then pay off their bill in full and on time each month. Do this, and your credit history -- and credit score -- will steadily grow.

"Without a credit history, it is very difficult to get your life going after college," says Sean Quigley, author of the book "The Cash Play: Capitalizing on the Opportunity Value of Cash" and life and retirement specialist at Omaha-based insurance company Harold Diers & Company. "It is almost impossible to find an apartment that does not require a credit check in order to rent a unit. Responsible use of credit cards gives you a credit history that will enable the landlord to take you seriously as a tenant."

2. Can't get credit card approval? Apply for a secured credit card

Millennials might not have enough of a credit history to be approved for a traditional credit card. But they can apply for secured credit cards.

Secured credit cards operate much like traditional credit cards, but their spending limits are tied to your bank account, meaning that you can only borrow as much as you have in the bank account connected to the card. So if you have a checking account with $800 in it, you can't run up a balance on your secured card higher than that amount.

Bruce McClary, vice president of public relations and external affairs for the Washington D.C.-based National Foundation for Credit Counseling, said that millennials who charge purchases on secured cards and then pay them off on time each month will steadily build their credit histories.

But it's important for millennials to make sure that the banks issuing them secured cards do report their payments to the three credit bureaus.

"Otherwise, all that work of applying for a secured card, making purchases and paying them off each month is wasted," McClary says. "It will have no positive impact on your credit."

3. Late payments hurt ... but you have time to fix them

You should know that a late credit card payment will send your credit score tumbling. You'll also incur a late fee from your creditor, usually ranging from $15 to $35.

But the biggest financial hit of a late payment comes when your interest rate rises to what credit card companies call the penalty rate. Expect your interest rate to soar, often to as high as 29 percent, after you make late payments. This can be a devastating financial blow if you carry a balance on your card each month.

The key here, though, is to make your payment as soon as you can, even if you've already missed your payment deadline. Your credit card provider typically won't report your missed payment to the credit bureaus until you are at least 30 days late. And many won't levy a penalty interest rate until you're at least 60 days late. So make that payment as soon as you can, even if you are already a week or two late.

"You should always make sure to ask your credit card issuer when you'll actually be reported as being late to the credit bureaus," Roque says. "Your due date might be on the 27th of the month, but you should know when the true late date -- the date when your missed payment is reported to the bureaus -- is."

4. Don't charge too much ... even if you pay it off each month

It's important to use your credit card and pay your bill on time each month to build a credit history. But don't charge too much. Otherwise your credit score can suffer.

That's because your score falls when you consume too high of a percentage of your available credit. If you have a card with a credit limit of $1,000 and you have $800 worth of charges on it, your score will be lower than if you've only charged $300 on that same card.

Roque recommends that card holders never consume more than 40 percent of their available credit.

"That is a level of discipline that can be hard to maintain," Roque says. "But it's important to keep on top of these things."

5. Avoid making only the minimum payment each month

It's tempting to pay only your minimum required payment each month. After all, that amount could be as low as $30.

But paying only the minimum is a big financial mistake. Say you charge $1,500 on your credit card that comes with an interest rate of 19 percent. Your minimum required payment each month might be 4 percent of your outstanding balance. Even if you don't make any new purchases on this card -- unlikely -- by making only the minimum payment each month, you will spend seven years paying back your debt.

Even worse, you will have spent more than $800 in interest while doing so. So that $1,500 purchase will have cost you more than $2,300.

"Making your minimum payment is like hitting the gas pedal of your car when you're stuck in a rut," McClary says. "Your wheels are spinning but your car is going nowhere."

By avoiding these credit card mistakes, millennials can be on their way to building their credit for their financial future.

For more information on choosing the right card, visit the MoneyRates credit card section.

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5 huge red flags that your spouse is sabotaging your budget

July 27, 2015

By Dan Rafter | Money Rates Columnist

You and your spouse created a household budget that you thought worked for both of you. But there are troubling signs that your spouse is sabotaging this budget each month.

Your credit-card balance should be shrinking, but it's not, and your spouse doesn't want to talk about all those purchases from the local department store. Then there's the notice delivered to your mailbox that your utility bill hasn't been paid on time.

These are all warning signs that your spouse isn't sticking to your household budget and is -- consciously or subconsciously -- wrecking your finances. It's important to identify these signs and to speak with your spouse about the overspending or missed payments.

Those spouses who ignore the red flags? They risk not only the health of their finances but of their marriage, too.

"When one spouse spends more there can be resentment, distrust and anger," says financial attorney Leslie Tayne, author of "Life & Debt" and owner of Tayne Law Group in New York City. "Financial honesty is a key factor in happy marriages."

Worried that your spouse is sabotaging your monthly household budget? Here are five warning signs to look for:

1. Hidden credit card accounts

John Inhouse, managing director and market executive at the Atlanta office of Merrill Lynch, has worked with clients who discover that their spouses have a secret credit card account.

This is a huge red flag that your spouse isn't committed to your household budget, Inhouse said, and is using a hidden credit card to make secret purchases.

"Sometimes spouses have different mindsets," Inhouse says. "One might be more conservative when it comes to spending money, the other more aggressive. So one opens an account on the side without telling the other. They want to be able to spend money without getting a lecture from their spouse."

Often spouses don't discover this secret account until they are taking out a mortgage or auto loan together and notice their other half's credit report. And when they find out the hidden credit card account? It can be difficult for the shocked spouses to trust their partners again.

To avoid this kind of surprise, make sure that both you and your spouse each year order the free credit reports available to you from AnnualCreditReport.com. You and your partners can order one free credit report from each of the three national credit bureaus -- Equifax, TransUnion and Experian -- once every year. Spouses who don't want any unpleasant surprises should share their reports with each other. Reports will list any open credit accounts, including any secret credit card accounts.

If your spouse won't agree to this sharing? It's time to be wary.

2. Secret purchases

You and your spouse have agreed not to spend more than $400 a month on discretionary purchases and entertainment. Then when your monthly credit card bill arrives, you notice that your spouse spent $500 at the electronics store, purchasing a tablet that you've never even seen.

Such hidden purchases are another sure sign that your spouse is secretly sabotaging your household budget and draining your savings account.

If you're finding these purchases every month, it's time to schedule a meeting with your spouse. And be prepared to work out a solution during it. Maybe your household budget isn't realistic, and you need to set aside more money for discretionary purchases and entertainment.

"It comes down to the whole issue of communication," says Jim McCarthy, certified financial planner with Directional Wealth Management in Rockaway, New Jersey. "You need to understand why your spouse felt the need to make that secret purchase. You might have to adjust your budget. In any kind of relationship, there needs to be some form of compromise on both sides. The sooner you catch those things, the better."

3. Your spouse tells you about big purchases ... after making them

Some spouses don't hide big purchases. They just fail to tell their spouses about their big buys until after they've made them.

This is another red flag: Ideally, you and your spouse would discuss whether that flat-screen TV fits in your budget before purchasing it. A spouse who buys first and tells you later is one who doesn't care about your household budget.

4. No time to talk budget

Household budgets are not static. They need to evolve as your household expenses, savings accounts and incomes rise and fall. But what if your spouse is never willing to make time to talk about household spending and budgeting? That might be another warning sign that your spouse would rather spend freely than stick to any budget.

"It is very important that you and your spouse work together to make the household budget," Tayne says. "You need to agree on where they money is gong and what you are spending on. Working together will promote financial transparency and help to discourage any arguments about money."

5. They're overly defensive

You notice an unusual purchase on the credit card account you share with your spouse. But when you ask your spouse about it, an argument immediately erupts. This is yet another red flag.

Spouses are often overly defensive when they feel guilty about making purchases that they know fall outside your household budget. If you can never have a calm discussion with your spouse about overspending, it's time to make a change.

"It's not always easy for spouses to talk about budgets," Inhouse says. "It's not fun. It can be uncomfortable. It's why many couples spend more time planning vacations than they do their household budgets. There can be arguments and hurt feelings. The key is to have a plan upfront so that both spouses know why this budget is important and why they are trying to save money."

Is your budget in danger after recognizing the signs above? Let us know in the comments!

More from MoneyRates.com:

Help! My spouse won't stop spending

7 financial lies people tell their spouses

6 signs a couple should not say 'I do' to joint checking

6 signs a couple should not say 'I do' to joint checking

July 21, 2015

| MoneyRates.com Senior Financial Analyst, CFA

Marriage should be a union of hearts, minds and souls… but checking accounts? Perhaps that's one area where the relationship would be healthier if each spouse kept a little personal space.

You've moved in together, you've worked out how to share expenses, so why not a joint checking account? After all, now that banks with free checking have become increasingly scarce, combining accounts might be the best way to get your balance up to a level that qualifies for a fee waiver.

Still, there are reasons that a joint checking account can be a bad idea, bad for your finances and possibly bad for your relationship.

Here are six signs that you and your beloved should not say "I do" to joint checking:

1. She's digital, he's paper

Morgan does her banking via iPhone and her debit card. Alan writes paper checks and visits branches and ATMs. This is a bad combination because their finances are traveling at different speeds.

Morgan's digital banking habits mean that transactions get posted to the account more quickly, and money is drawn from the account at a rate that more accurately reflects when expenses occur. Having transactions posted on two different schedules can lead to overdrafts and budgeting problems.

Note also that Morgan may be saving money by banking online, since free online bank accounts are still relatively common while free checking at branch-based banks has become increasingly rare.

2. He travels, she stays put

Roger's business takes him out of town several times a year, while Christine likes to stick close to home. She's been happy with her local bank for years, but Roger needs a bank with ATM locations where he travels.

If not, he'll repeatedly get dinged by out-of-network ATM fees, which total more than $4 per occurrence, according to the most recent MoneyRates.com bank fee survey. In this case, Christine can stick with her hometown bank, but Roger needs one with more of a national footprint.

3. She gets paid every two weeks, he gets paid monthly

This is one of those little things that lead to confusion in real time. Not having a clear idea of when direct pay deposits will be posted to the account can lead to overdrafts. Additionally, two different pay schedules add to the potential for confusion.

4. He's a fastidious record keeper, she tracks purchases when she has time

Jose likes to record transactions as soon as they occur. Abby feels that slows her down too much, so she waits and catches up on her financial record keeping every few weeks.

This discrepancy can not only cause overdrafts, but it is also likely to result in tension as Jose gets frustrated with Abby's slackness and Abby feels nagged by Juan's up-to-the-minute record keeping.

5. She's fine without overdraft protection, but he wants in

Megan wants to avoid those nasty overdraft fees, which average over $30 per occurrence. Jamaal would rather pay the occasional fee rather than endure the embarrassment and inconvenience of having a transaction denied.

Opting out of overdraft protection is the default position for new accounts, but banks still make a great deal of money off of customers like Jamaal who opt in.

6. He's strict about budgeting, she's more spontaneous

Derek won't buy a soda if it's not in the budget. Carly is responsible about not spending too much over the course of the month, but she likes the flexibility to decide when to splurge and when to save. There needs to be a meeting of the minds when it comes to long-term financial planning, but a little freedom for each partner's personal style of short-term spending can avoid a lot of petty disputes.

So chalk it up to establishing personal boundaries, or perhaps to leaving a little mystery in the marriage. For many couples, keeping the checking accounts separate can make sharing the rest of your lives together go much more smoothly.

Do you have joint checking with your other half? How do you handle financial disagreements between the two of you? Tell us in the comments!

More from MoneyRates.com:

Should a husband and wife combine all their finances?

Separate or joint checking accounts?

How to choose a checking account: 5 questions to ask

Dos and don’ts for young workers planning an early retirement

July 17, 2015

By Dan Rafter | Money Rates Columnist

Retiring before you're 65 seems unlikely, but not impossible. Lawrence Pon's client got lucky and retired early and comfortably after the value of her employer's stock suddenly soared. Pon's client - a single 40-year-old - owned enough so that it provided her, even after taxes, with enough income for the rest of her life.

Pon, a certified public accountant and owner of Pon & Associates in Redwood City, California, says that his client paid off her mortgage and debts. She also invested her money, converted a traditional IRA to a Roth IRA to save taxes and moved to Australia, renting out her previous home for extra cash.

That's an unusual way to retire early. But you shouldn't expect this kind of luck. If you plan to retire early - say before your 60th birthday - you'll need to make the smartest of financial decisions and avoid the biggest potential money pitfalls.

"We have seen many clients retire early," Pon says. "Sometimes this is voluntary and sometimes not. We have to take into consideration health care, Social Security and where their assets are located."

In other words: If you want to retire early, you need to plan.

Here are the most important steps to take, and mistakes to avoid, if you want to leave the working world and enjoy your golden years sooner than many of your peers. 

Don't: Start too late

You might think you're too young to worry about saving for retirement. That's not true, and it's especially untrue if you want to retire early. Sarah Elliott, personal finance and credit expert with Salt Lake City's Lexington Law, says that there's a reason why retiring at age 80 is becoming more common: People aren't saving early enough to fund their retirements.

Elliott says that typical retirees need about 80 percent of their final year's pre-retirement income to live comfortably each year once they leave the workforce. If you retire at 65 and are earning $100,000 a year, you'll need at least $1.6 million to live comfortably until age 85.

That's an intimidating figure. But the sooner you begin saving, the easier it will be to attain.

"If you are thinking, 'But I'm only 27,' think again," Elliott says. "It's never too soon to start thinking about long-term financial security, especially when time is on your side."

Do: Take advantage of the magic of compound interest

Do you know how powerful compound interest can be? Joseph Jennings Jr., wealth director and senior vice president at Pittsburgh-based PNC Wealth Management, certainly does. As he says, $10,000 saved at age 25 has 40 years of growth potential if you plan to retire at 65 while the same amount saved at age 60 only has five.

That makes a big difference: $10,000 compounded at a conservative rate of return of 8 percent will grow to more than $217,000 when you reach 65 even if you never save another penny. But $10,000 saved at age 60 will only grow to just more than $14,600 by the time you reach 65.

"Due to the power of compounding, the first dollar saved is the most important," Jennings says. "It has the most growth potential over time."

Don't: Spend recklessly

Eric Sommer, wealth director for the central Florida region for PNC Bank, says that the best way to retire early is to "save 'till it hurts."

In other words, if you spend everything you make, you won't be able to stow away enough for a happy retirement, let alone an early one.

Sommer recommends that those who want to retire early maximize their allowable contributions to Individual Retirement Accounts and employer-offered 401(k) accounts. Those who spend too freely won't be able to take this important step.

Do: Look for opportunities for free money

Many employers match the contributions - or at least a percentage of them - that their workers make to 401(k) plans. Elliott says that this is basically free money, and you should always make sure to contribute the amount you need to earn your company's match. This is especially true if you want to retire early.

Don't: Forget to make frequent investments

Jennings recommends that you don't just start saving early. He says that you should invest your money in retirement accounts often, too.

"Rome wasn't built in a day," he says. "Your retirement porftolio won't be, either."

Don't put off setting up a monthly investment program into a mutual fund, Jennings says. By investing at regular intervals set according to your cash flow and other financial factors, you'll develop the habit of regularly saving money, whether you are depositing that money into a retirement account or a mutual fund.

Do: Take into account the life you want to lead

It's easier to retire early if your goal is to spend time with your grandchildren and catch up on your reading. But if you want to travel the globe or take up sailing? Then you'll need to be more aggressive in your savings.

If you don't plan for the life you want to lead, you might find that you haven't saved nearly enough to retire early.

"It's critically important to know how much you will need to maintain your desired lifestyle in retirement," Sommer says.

Don't: Rent too long

You might enjoy renting an apartment. But if you want to retire early, doing so might scuttle your plans. Rob Seltzer, vice president and wealth consultant with Womack Wealth Management in Beverly Hills, California, says that when you rent, you get nothing in return for your money. Rents are rising quickly today, especially in the center of urban areas. Renting an apartment is becoming an expensive move.

Do: Buy a home and build equity

But when you buy a home? You build equity. And the hope is that you'll make a profit when it's time to sell.

"The combination of building equity and having a fixed housing payment are critical," Seltzer says.

What are you doing in your plan for an early retirement? Let us know in the comments.

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Emergency fund broken? Here's how to fix it

July 16, 2015

By Dan Rafter | Money Rates Columnist

Don't have an emergency fund? Then you're asking for trouble.

What happens if your home's water heater bursts? What if your car needs a new transmission? Without an emergency fund, you might have to turn to credit cards to cover these surprises. And that's never a sound financial move.

It's why financial planners recommend that consumers build an emergency fund that allows them to cover between three and six months - ideally more - worth of regular living expenses.

"Most of our grandparents never owned a credit card," says Marie Vanerian, managing director of wealth management with the Troy, Michigan, office of Merrill Lynch. "They paid cash and tracked all of the money they spent. Our grandparents always took a percentage of their income and saved it for a rainy day. They always had an emergency fund."

Is your emergency fund today gathering more dust than dollars? Here's some good news: You can repair your ailing emergency fund. And it doesn't even take that much effort.

Start small

Staring at an empty emergency fund? Start small to rebuild it by cutting out excessive expenses.

Kimberly Foss, president and founder of Empyrion Wealth Management in Sacramento, recently worked with her daughter on this. The two calculated that Foss' 23-year-old daughter spent a whopping $1,814 per year on Starbucks coffee. Foss' daughter agreed to make her own coffee at home. And the money that she was spending on Starbucks? She's now depositing it into an emergency fund.

"Anybody can do that," Foss says. "Apply it to whatever you are buying too much of. Cut that down. Kick the eating-out habit, or at least eat out less often. You need to be aware of what you are spending too much on, and then you need to put that money into an account where you won't touch it."

Pay yourself first

Too often, people wait until the end of the month to contribute to their emergency funds, said Carolyn Dunlavy, owner of Jade Tree Retirement Planning in West Hollywood, California. But when they reach the last day of the month, they find that they don't have anything left to deposit.

"The key is a strategy called 'pay yourself first,'" Dunlavy says. "If you wait until the end of the month when the bills are paid and all the shopping is done, you find that you don't have much, if anything, to contribute to yourself because it's very easy to spend your paycheck down quickly."

Dunlavy recommends that you set up an automatic withdrawal from your paycheck that is deposited immediately into your emergency fund. Then you won't spend that money on anything else.

The numbers back this up. NACHA, an electronic payments association based in Herndon, Virginia, says that consumers who use direct deposit and automatic withdrawals tend to save $90 more every month than those who try to save their dollars manually.

Additionally, you could grow your savings by finding the best savings account rates for your deposits. 

"When it comes out the same day as your paycheck is deposited, you don't have a chance to see it, never mind to spend it," Dunlavy says.

Don't strive for a big tax refund

You might think that receiving a big tax refund from the IRS each year is a good thing. It's not: It means that you're sending too much money to the IRS each year. It's better to keep that money yourself. You might even invest that extra money into an emergency fund.

Michelle Dosher, managing editor of the Home & Family Finance Resource Center at the Credit Union National Association, says that if you are receiving a tax refund each year, it's time to submit a new withholding form to your payroll department. This will send fewer of your dollars each paycheck to the federal government. It will also leave you with a larger paycheck and a chance to put those dollars to better use.

"Put the extra cash into paying off bills and building your emergency fund," Dosher says.

A refinance can help

If you're paying off a mortgage or car loan, you might be able to save money each month by refinancing these loans to ones with lower interest rates, Dosher said.

Say you refinance your mortgage loan so that your payment drops from $1,500 per month to $1,200 per month. You can deposit the $300 extra that you've been sending to your lender into an emergency fund - a move that will allow you to refill an empty fund quickly.

"Unless you have credit card debt," Dosher says. "If you have credit card debt, put some of that extra money toward credit card bills."

Don't spend (all) of that bonus

Getting a bonus or a raise at work is certainly something to celebrate. It might also be an opportunity to repair your broken emergency fund.

Foss says that whenever you get a bonus, you should deposit at least half of it in an emergency fund. And if it's a raise? You should deposit at least half of the extra money you are now receiving with each paycheck into your fund.

"You've been living without that raise or bonus already," Foss says. "So you should be just fine with depositing some of it in an emergency fund. Take half and do whatever you want with it. Buy yourself whatever you want. Take the other half and put it into your emergency fund."

Keep at it

The biggest key to building an emergency fund? You need to be persistent. Even if you can't deposit much, deposit something. Financial planners say that depositing $50 at the end of the month is better than depositing nothing.

Don't let a big number - say your goal is to save enough to cover nine months of expenses - intimidate you.

"Don't get hung up on how big this number is," Dosher says. "Just steadily keep adding to your fund. By being persistent about adding to your fund, your savings will grow faster than you think."

Visit the savings section for more information the best savings accounts for your emergency fund.

Are you achieving your own emergency savings goals or have a long way to go? Share your progress in the comments.

More from MoneyRates.com:

Building an emergency fund

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