Your Complete Guide to Using Your Credit Cards

Q: I’d love to improve my credit score, but I can’t get ahead of my monthly payments. I woman with credit card in hand surrounded by shopping bagsalso find that my spending gets out of control when I’m paying with plastic. How do I use my credit cards responsibly?

A: Using your credit cards responsibly is a great way to boost your credit score and your financial wellness. Unfortunately, though, credit card issuers make it challenging to stay ahead of monthly payments and easy to fall into debt with credit card purchases. No worries, though; Destinations CU is here to help!

Here’s all you need to know about responsible credit card usage.

Refresh your credit card knowledge

Understanding the way a credit card works can help the cardholder use it responsibly.

A credit card is a revolving line of credit allowing the cardholder to make charges at any time, up to a specific limit. Each time the cardholder swipes their card, the credit card issuer is lending them the money so they can make the purchase. Unlike a loan, though, the credit card account has no fixed term. Instead, the cardholder will need to make payments toward the balance each month until the balance is paid off in full. At the end of each billing cycle, the cardholder can choose to make just the minimum required payment, pay off the balance in full or make a payment of any size that falls between these two amounts.

Credit cards tend to have high interest rates relative to other kinds of loans. The most recent data  shows the average industry rate on new credit cards is 13.15% APR (annual percentage rate) and the average credit union rate on new credit cards is 11.54% APR (note: Destinations Credit Union has a lower rate!).

Pay bills in full, on time

The best way to keep a score high is to pay credit card bills in full each month — and on time. This has multiple benefits:

  • Build credit — Using credit responsibly builds up your credit history, which makes it easier and more affordable to secure a loan in the future.
  • Skip the interest — Paying credit card bills in full and on time each month lets the cardholder avoid the card’s interest charges completely.
  • Stay out of debt — Paying bills in full each month helps prevent the consumer from falling into the cycle of endless minimum payments, high interest accruals and a whirlpool of debt.
  • Avoid late fees — Late fees and other penalties for missed payments can get expensive quickly. Avoid them by paying bills on time each month.
  • Enjoy rewards — Healthy credit card habits are often generously rewarded through the credit card issuer with airline miles, reward points and other fun benefits.

Tip: Using a credit card primarily for purchases you can already afford makes it easier to pay off the entire bill each month.

Brush up on billing

There are several important terms to be familiar with for staying on top of credit card billing.

A credit card billing cycle is the period of time between subsequent credit card billings. It can vary from 20 to 45 days, depending on the credit card issuer. Within that timeframe, purchases, credits and any fees or finance charges will be added to and subtracted from the cardholder’s account.

When the billing cycle ends, the cardholder will be billed for the remaining balance, which will be reflected in their credit card statement. The current dates and span of a credit card’s billing cycle should be clearly visible on the bill.

Tip: It’s important to know when your billing cycle opens and closes each month to help you keep on top of your monthly payments.

Credit card bills will also show a payment due date, which tends to be approximately 20 days after the end of a billing cycle. The timeframe between when the billing cycle ends and its payment due date is known as the grace period. When the grace period is over and the payment due date passes, the payment is overdue and will be subject to penalties and interest charges.

Tip: To ensure a payment is never overdue, it’s best to schedule a time for making your credit card payments each month, ideally during the grace period and before the payment due date. This way, you’ll avoid interest charges and penalties and keep your score high. Allow a minimum of one week for the payment to process.

Spend smartly

Credit cards can easily turn into spending traps if the cardholder is not careful. Following these dos and don’ts of credit card spending can help you stick to your budget even when paying with plastic.

Do:

  •  When making a purchase, treat your credit card like cash.
  • Remember that credit card transactions are mini loans.
  • Pay for purchases within your regular budget.
  • Decrease your reliance on credit cards by building an emergency fund.

Don’t:

  •  Use your credit card as if it provides you with access to extra income.
  • Use credit to justify extravagant purchases.
  • Neglect to put money into savings because you have access to a credit card.

Using credit cards responsibly can help you build and maintain an excellent credit score, which will make it easier to secure affordable long-term loans in the future.

Destinations Credit Union offers a low rate Mastercard Credit Card.  We also have options to help you establish or repair your credit if you need that.  If you need help improving your credit score or budgeting, contact our HOPE Inside financial well-being counselor.

Your Turn: How do you use your credit cards responsibly while keeping your score high? Share your best tips with us in the comments.

Sources:
https://www.moneyunder30.com/how-to-use-a-credit-card-responsibly
https://www.npr.org/2020/02/13/805760560/u-s-credit-card-debt-hits-all-time-high-and-overdue-payments-rise-for-young-peop#:~:text=Americans%20owe%20nearly%20%241%20trillion,rising%2C%20especially%20among%20young%20people
https://www.debt.org/faqs/americans-in-debt/
https://www.creditcardinsider.com/learn/using-credit-cards-responsibly/

 

Snowball Method vs. Avalanche Method: What’s the Best Way to Tackle Debt?

Debt is the ultimate killjoy. It can destroy a budget, make long-term financial planning impossible, and shadow every purchase you make with guilt. No one wants to live with that debt burden. But how do you kiss your debt goodbye?

Woman sitting at table working on Phone and laptop.

Crawling out from under this mountain won’t be easy, but if you’re ready to realign your priorities and do what it takes, you can shake off debt no matter how large.

Let’s take a look at two popular approaches for paying down debt and explore the pros and cons of each.

The debt snowball method

The snowball approach to getting out of debt was popularized by financial guru Dave Ramsey. It involves focusing on paying off the smallest debt first, and then working on the next-smallest debt until they’re all paid off.

Let’s take a look at how this would work using an example scenario. Say you’ve squeezed an extra $500 out of your budget to channel toward paying down debt and you have the following debts:

  • $2,500 personal loan at 9.5% interest; minimum payment $50
  • $10,000 car loan at 3% interest; minimum payment $200
  • $13,000 credit card debt at 18.99% interest; minimum payment $225
  • $18,000 student loan at 4.5% interest; minimum payment $300

In this scenario, the snowball method would have you paying just the minimum payment on all debts except for the smallest. On that, you’d put the extra $500 you have toward quickly paying off the personal loan. Once that’s paid off, you’d take the $550 you were paying toward the personal loan and add it to the $200 you’re paying for the car loan. Now you’re paying $750 toward your car loan and you’ll be kicking it in approximately one year. Keep doing this until you’ve kissed all your debts goodbye!

Pros of the debt snowball method

The most significant draw of the debt snowball method is that it works with behavior modification and not with math. The small but quick wins are excellent motivators to keep you going until you’ve worked through all debts.

Like Ramsey says on his site, “Personal finance is 20% head knowledge and 80% behavior.”

It’s not just a nice theory. A study published by Harvard Business Review proved that starting a journey toward a debt-free life with the smallest debt actually does help keep the motivation going until the job is done.

Cons of the debt snowball method

The primary disadvantage of the debt snowball method is its indifference toward interest rates. Paying off the smallest debt first can mean holding onto the debt with the highest interest rate the longest. This translates into paying more in overall interest, sometimes to the tune of several thousands of dollars.

Debt avalanche method

The debt avalanche method takes the opposite approach of the snowball method and advocates for getting rid of the debt with the largest interest rate first and then moving on to the next-highest. This enables the debt-payer to shed heavy interest rates quicker and to put more of their money toward the principal of their loans.

In the scenario above, the debt avalanche method would involve paying down the credit card debt first, followed by the personal loan, student loan and finally the car loan.

Pros of the debt avalanche method

Paying off the debt with the highest interest rate first can save hundreds, and sometimes thousands, of dollars in interest. Some people also like the idea of kicking their most weighty debt sooner. Finally, in most cases, choosing the debt avalanche route will be shorter than the snowball method.

Cons of the debt avalanche method

The debt avalanche requires self-motivation to keep the debt-payer plugging away at the plan despite seeing little progress. It’s harder to feel like you’re getting somewhere when the numbers are barely moving, but for individuals who are sincerely motivated and believe they can stick with the plan until they see results, it can work.

Which method is right for you?

Factors like your personality and lifestyle play a role in determining which of these methods is the best choice for you. If you think you’d need early motivation to keep going, you may want to choose the debt snowball method. Is your chief concern finding an approach that will cost you less time and money? In that case, you might want to go with the avalanche approach.

Before you make your decision, you may want to run your numbers through a financial calculator to see how much interest you’d be paying by using each method and how long each approach will take.

There’s no reason to think you’ll be stuck with one method once you make your choice. You can always switch approaches down the line, or decide early on to get rid of your debt with the largest interest rate first, as per the debt avalanche method, and then work toward paying off the rest in order from smallest to largest, as per the debt snowball method.

Are you ready to tackle your debt? Choose your approach and get started today. A glorious debt-free life awaits! For information on how Destinations Credit Union can help you reach your short term and long term goals, visit us at our website. Destinations Credit Union

The HOPE Inside model created by financial dignity nonprofit Operation HOPE, provides no-cost one-on-one financial literacy coaching, workshops, and education programming to participants through the support of financial and corporate partners. Destinations is the first credit union in the country to offer this service. Credit and Money Management, a core program of the HOPE Inside adult offering, is provided at this location. The Credit and Money Management Program is designed to transform disabling financial mindsets—teaching people the language of money, how to navigate credit, and make better decisions with the money they have.

Your Turn: Have you paid off a large amount of debt? Tell us how you did it in the comments.

6 Ways To Spot A Payday Loan Scam 

Payday loan scams may seem like old news, but they’re more common than ever. In fact,payday loans sign in 2018, the FTC paid a total of $505 million to more than one million victims of payday loan scams.

In this scam, a caller claiming to represent a collection agency who is acting on behalf of a loan company tells victims they must pay their outstanding balance on a payday loan. They’ll ask victims to confirm identifying details, such as their date of birth or even their Social Security number. They claim they need it as proof that they’ve seen the victim’s loan application and actually do represent the company. Unfortunately, the caller is actually a scammer trying to rip off victims or steal their identity.

In many payday loan scams, victims may have applied for a payday loan but not yet completed the application, or they may have submitted the application but not yet received the funds. In these scenarios, the victim has unknowingly applied for a loan with an illegitimate company which proceeds to sell the victim’s information to a third party. This way, the caller can appear to be an authentic loan collector because they know lots of information about the victim.

If you’ve applied for a payday loan, be on the lookout for these six red flags, any of which should alert you to the fact that you’re being scammed:

You’ve never received a payday loan

While these scams usually target people who have filled out an application for a payday loan, fraudsters often go after victims who haven’t completed one or who have done so but have not yet been granted the loan. Obviously, you can’t be late paying back a loan you never received.

If you haven’t completed your application or you haven’t yet received an answer from the loan company you applied to, you’re talking to a scammer.

The caller demands you pay under threat of arrest

Scammers often dishonestly align themselves with law enforcement agencies to coerce victims into cooperating. A legitimate loan company will never threaten you with immediate arrest.

The caller refuses to divulge the name of his collection agency.

If the caller actually represents a collection agency, they should have no problem identifying this agency by name. If they refuse to do so, you may be looking at a scam.

You can’t find any information about the agency the caller allegedly represents.

The caller is sometimes willing to name the agency, but the company is completely bogus. If you’re suspicious about the call, do a quick Google search to see what the internet has to say about this company. If you can’t find any proof of the company’s existence, such as a web page, phone number or physical address; or the search turns up evidence of previous scams, hang up.

You have not received a validation notice in the mail.

By law, anyone representing a collection agency and attempting to collect on an outstanding debt must send a validation letter to the debtor. This letter will inform the borrower that they can dispute the debt within 30 days. It will also detail the amount of money owed and the party to whom it must be paid.

If you have not received any such letter in the mail before the alleged debt collector calls, you’re probably looking at a scam.

The caller only accepts immediate payment over the phone.

If the caller was reaching out to you on behalf of a legitimate collections agency, they’d be happy to work out a payment plan with you, and provide you with an address to which you can mail your payments. When a “collector” insists that you pay in full over the phone and refuses to furnish an address to which you can mail your payments, you’re likely talking to a scammer who is only interested in getting your financial information and your money.

If you find yourself struggling to survive financially between paychecks, call, click or stop by Destinations Credit Union today. We’ll be happy to help you learn how to keep your finances it optimum health.

Your Turn: Have you ever been targeted by a payday loan scam or a similar con? Share your experience with us in the comments.

SOURCES:
https://www.consumer.ftc.gov/blog/2018/09/505-million-refunds-sent-payday-loan-customers

https://lendedu.com/blog/watch-out-for-payday-loan-collection-scams/
https://www.scam-detector.com/article/payday-loans
https://www.avvo.com/legal-guides/ugc/how-to-spot-a-payday-loan-collection-scam

Can I Trust Credit Karma?

Q: I’m trying to increase my credit score ahead of applying for a large loan, so I’m Credit Karma Logoconsidering signing up for Credit Karma to track my score. How accurate are the credit scores it shares? Is there anything I need to be aware of before signing up for this service?

A: Credit Karma is a legitimate company; however, for a variety of reasons, its scores may vary greatly from the number your lender will share with you when it checks your credit.

We have answers to all your questions about Credit Karma.

What is Credit Karma?

Credit Karma is an online credit service that operates under the principle that everyone is entitled to a free and honest credit score. To that end, the site allows you to check your credit whenever you’d like without paying any fees-a privilege that can cost you about $20 a month from its competitors. You’ll need to sign up for the service and share some sensitive information, like your Social Security number and your financial goals, but you won’t be asked for any credit card numbers or account information.

Scores are updated once a week, and the company only performs a “soft inquiry” on your credit to get the necessary information.This means your score is never impacted by it checking your credit on your behalf. Credit Karma also offers lots of credit advice, customizable loan calculators and reviews on financial products of all kinds.

Credit Karma earns its profit through targeted ads. As you learn your way around the site and start to frequent it more often, you’ll see ads that are geared toward your specific financial situation. For example, if your credit is excellent and you’re looking for a home loan, you’ll probably find loads of ads from mortgage companies. While this may seem like a breach of privacy, it’s no different than the way much larger online platforms you likely use, including Google and Facebook, earn a profit.

How does Credit Karma calculate my score?

The online credit company uses information from two of the three major credit reporting agencies, TransUnion and Equifax, to give you a VantageScore 3.0. While this type of credit score is gaining popularity among lenders, you may not recognize it-and for good reason. The FICO scoring model is by far the most widely used credit score among financial institutions and lenders across the country, with 90% of lenders using this score to net potential borrowers.

The atypical scoring model used by Credit Karma, coupled with the absence of information from Experian, the third of the three major credit reporting agencies, tends to make Credit Karma scores differ from scores pulled by other companies and financial institutions. The credit service is usually within range and a good indicator of your overall credit wellness. You can also get a report with a thin credit history through this model, which is super-helpful for those seeking to build their credit from nothing.

How do other lenders calculate my score?

Most financial institutions use a FICO scoring model to measure consumers’ credit scores. As mentioned, this number will likely be lower than the score you see on Credit Karma, but will fall within the same general range.

It’s also important to note that, each time you apply for a specific kind of loan with an individualized lender, it will likely also use its own customized formula. For example, if you were applying for a mortgage with a home loan company, it would probably use a score that is specifically developed for mortgage loans. Similarly, if you were to apply for a car loan from an auto lender, it will use its own score designed to predict the likelihood of you defaulting on an auto loan. This can result in an even lower credit score from these lenders.

Is there any other way to get my credit score?

If you’re looking for a more relevant credit score, you have several options. You can ask a potential lender to pull your credit, though this might cost you both in fees and in a knock to your credit for the hard inquiry. You can order your free credit report with information from all three credit bureaus once a year, at AnnualCreditReport.com. Lastly, for more frequent monitoring, you can sign up for access to your FICO score and 3-bureau credit report on Experian.com, where packages start at $19.99 a month. There are other similar services out there, but most are not legitimate or are grossly overpriced.

How does Destinations Credit Union decide if I’m eligible for a loan?

We use the FICO model to calculate your credit score when you apply for a loan. While this number will likely differ from your Credit Karma score, it gives us a broader picture of your credit as it includes information pulled from all three credit bureaus. We’ll also review your full financial history and trajectory to determine if you are eligible for the loan.

Here at Destinations Credit Union, our goal is to help you achieve and maintain financial wellness. Consequently, we are far more likely to approve a loan for one of our members than a random lender who doesn’t know the first thing about you or your financial history.

If you’re trying to increase your credit score before applying for a large loan, we can help! Stop by Destinations Credit Union today to speak to our HOPE Inside Financial Wellbeing Coach about steps you can take to improve your credit.

If you’re ready to take out that loan, make Destinations Credit Union your first stop! Our stress-free application process, low interest rates and reasonable terms make us the best choice for your next large loan. We’ll help turn your dream home or car into a reality.

Your Turn: Have you used Credit Karma to monitor your score? Tell us about your experience in the comments.

SOURCES:
https://www.investopedia.com/articles/personal-finance/103015/are-credit-karma-scores-real-and-accurate.asp

https://www.moneyunder30.com/credit-karma
https://www.creditkarma.com/question/credit-karma-score-is-way-higher-than-experian-score-why-is-that/
https://www.thebalance.com/why-the-lender-s-credit-score-may-differ-from-yours-960525

Getting Through the Winter Blues

Winter brings cozy fires, happy holidays and fun sports like ice skating and skiing. It can Little girl huddled under a coatalso bring some things that are less welcome. With sunshine being scarce, many people get the winter blues. This depressed state is often made worse by the financial realities of winter, which include higher energy costs and money spent on holiday festivities.

Here are some ways to get proactive and beat the blues before they start.

Budget for Holiday Spending

It might be too late this year, but it is not too early to think about strategies for next year. Consider what you actually have in hand to spend without using credit. Then, make a list of all your holiday expenses. These expenses might include gifts, travel, special foods and entertaining.  Consider a holiday club account to meet those expenses next year.

If you have family or friends you usually exchange gifts with, speak to them about putting a dollar limit on spending. Think of some other ways to celebrate in addition to gift giving. Maybe a holiday potluck would work. Have a family game night. Plan an at-home New Year’s party.

Doing rather than buying can lift your spirits. Psychology professor Tom Gilovich of Cornell University says you’ll be happier and have longer-lasting happiness if you spend your money on experiences instead of things.

Also, consider making your own gifts, because a handmade gift can be more meaningful than something store-bought. Have the whole family participate in making fruitcake or jam. Even the youngest members of the family can help with decorating and wrapping the gifts.

This is a great time to talk with your children about financial realities and budgeting. Instead of making a long list of presents they want, have the kids pinpoint one or two items that are really important to them. Talk to them about the expenses you have and reassure them that there will be plenty of joy even without being overwhelmed with presents.

Keep Warm

Energy costs can be a source of worry. However, there are some things you can do to cut your energy costs.

For starters, check your house to make sure you have enough insulation. Look for places in the house where you may be losing heat, such as loose windows or cracks. You can fill these cracks yourself or hire someone to come in and do it. The money you spend will be recouped quickly in the form of lower heating bills.

Try to keep your thermostat at a lower temperature. Get your family in the habit of wearing sweaters and socks in the house. Small afghans on the couch are attractive and useful for cuddling and keeping warm. Buy some extra blankets for the beds and lower the temperature even more at night.

If it is in your budget, a new programmable thermostat can save you money. You will be able to adjust room temperature according to your schedules, keeping it low when no one is home. You can set the thermostat to kick in more heat before you get home from work, so the house will be warm when you arrive.

Do It Yourself

When the kids are home from school, it’s easy to fall into the trap of keeping them busy by going out for treats — pizza, hot chocolate or a warm meal. Start doing more of this at home. Make a large pot of chili or some cocoa for the family. It’s easy and more fun than bundling everyone up to go out. It will save you both money and time.

In general, you can save quite a bit of money if you have been buying expensive coffee on the way to work or throughout the day. Hone your skills as a barista, brew your own and save a bunch.

Consider Credit Counseling

If you are still feeling blue and think it may be related to your finances, start the new year off with free counseling for members offered by Destinations Credit Union’s partner, Greenpath Financial Wellness. A sure way to beat the winter blues is to get a confident feeling about being on top of your financial wellness. “The more you plan, the less you spend,” says Ellie Kay, a California financial planning expert.

And that can make a world of difference in many areas of your life.

Your turn: Are you feeling down about your financial situation? Does the cold weather have you feeling depressed? What are some strategies you’ve used to combat the winter blues?

SOURCES:
https://www.nhs.uk/Conditions/stress-anxiety-depression/Pages/dealing-with-winter-blues-sad.aspx 

https://globalnews.ca/news/2460320/5-ways-to-beat-the-winter-blues-and-stay-happy-beyond-blue-monday/ 
https://www.bankrate.com/finance/debt/7-tips-to-beat-the-post-holiday-debt-blues-1.aspx