Money Management

Your first credit card is a big step that can impact your finances in a big way. Keep reading for the most important parts of managing a credit card account. [[{“value”:”

Getting a first credit card is a major financial milestone. Your card can be a great tool that ultimately helps you to be more successful in managing your money. Or it can ruin your personal finances. It all depends on what you do with it.

To make sure you’re making the right moves, here are five things to know before you get your first card.

1. You don’t have to pay interest if you pay your balance in full

The first important thing that you need to know is that charging purchases on your credit card does not mean you’ll have to pay interest on them. You can charge items all month and get a statement at the end of that month. Your statement will then give you a designated payment date. For example, you might have to pay your card by the 18th or the 25th of the month when you receive your statement.

As long as you pay off your full balance by the date specified on your statement, you will not owe any interest on your purchases. This is hugely important, because this means you can get all of the benefits of a credit card without the big downside that comes from interest costs.

To make sure you pay your balance in full, keep track of what you’re spending and don’t charge more than you’ll have in your checking account when your payment is due. Set up an automatic payment of the full balance, so your card is always paid on time.

2. Credit card interest can be really expensive

There’s an important reason why you don’t want to pay interest. It can get really expensive.

The average credit card interest rate is 21.47%. You do not want to make your purchases 21.47% more expensive, so simply commit not to ever carry a balance before you get a card. If you can’t do that, you may want to wait to use that card until you are confident you can keep your spending to a level you can afford to pay back.

3. You need to make every payment on time

It’s also crucially important to make credit card payments on time. That’s because when you are 30 or more days late, the late payment is reported to the credit bureaus and this can do serious damage to your credit score. Even a single late payment could drop your score by more than 100 points in some cases.

Your credit score matters a lot, as it determines everything from your auto insurance rates to whether you can get a mortgage to how much you’ll pay for a car loan. You don’t want to screw up your credit by paying late. Again, automating your payments will help ensure that doesn’t happen.

4. Your credit card can help you build credit

You should also know that your credit card can help you earn a good score. As you pay on time, you’ll develop a positive payment history. And if you keep your credit usage to 30% or less of your available credit, this will help your score as well.

That’s because credit utilization ratio is the second most important factor in determining your credit score. If you have a $1,000 credit limit and have just a $100 balance, you’d have a 10% credit utilization ratio — which is well below the recommended 30% maximum and should help you to earn a score that opens up doors for you.

Be careful how much you charge on your cards, so you don’t hurt your credit score.

5. You can earn rewards for everyday spending

Finally, you should know you can earn rewards for the spending you do on your card. In fact, some cards offer 2% cash back on all purchases, or 1% cash back on most purchases and 5% back on groceries or another bonus category.

Research the best credit cards to find one that rewards you for your spending and start earning those rewards, so you can put your card to its best use.

By keeping these key facts in mind, you can make sure you’re ready to get your first credit card and that you use it wisely.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Opening a CD means locking your money in for a set term. Keep reading to learn how important it is to find the right rate for that account. [[{“value”:”

If you are investing in a certificate of deposit (CD), you should take the time to carefully research the best rates that are available to you. This is very important — much more so than when you’re deciding which high-yield savings account you should put money into.

Here’s why it’s worth putting in more time and effort to find the best CD rates than you might finding a new savings account.

You’ll be stuck with your CD but not your savings account

The biggest reason why your CD rate matters so much more than your savings account rate is because you can just pull your money out of your savings account whenever you want. That’s not the case with CDs.

Say, for example, you didn’t really do much due diligence when shopping around for a savings account — you just picked one. And a month or two later, you find out you could have been earning 5.00% APY (annual percentage yield, or how much money you’ll earn in a year) instead of the 4.00% your account is paying you. You can just close your current savings account and move your money to a new one without any issues — usually online, in a matter of minutes.

If you buy a CD, though, you have to commit to leaving your money invested for the duration of the CD term to avoid penalties. So if you commit to a 1-year CD and it turns out you’re being paid a much lower rate than you could have been earning if you’d shopped around more, you’ll lose out on the higher returns for a whole year.

The longer the CD term you’re invested in, the more important it is to put in the time to really look at all your options and get the best rate.

Your CD rate can’t change but your savings account rate can

There’s yet another important reason that your CD rate matters a lot more than your savings account rate. Your CD rate is guaranteed, but your savings account rate usually isn’t.

Typically, the rate you’re offered on a savings account is variable. The bank can change it at will. So, you may have a great rate right now, but it could potentially change next week or next month or next year. Since there are no guarantees, it doesn’t matter as much. An account offering the most competitive rate today won’t necessarily be offering that rate tomorrow.

With a CD, though, the rate you get is guaranteed for the duration of the CD term. So, it’s worth putting in the time to search for the highest possible yields because you can be confident you’ll be getting paid that competitive rate for quite a while. Again, this is especially true if you’re buying a CD with a long term like a year, three years, or five years.

For these reasons, you don’t want to open a CD until you’ve really taken the time to find the rate that’s the most competitive out there. Check out The Ascent’s guide to the best CD rates as a good place to get started in your search.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Should recession fears stop you from investing? It depends on your financial situation. Read on to learn more. [[{“value”:”

From an unemployment standpoint, the U.S. economy is in a pretty good place. February’s 3.9% jobless rate is not only low historically speaking, but it’s relatively low in the context of recent years.

Despite that, data from Empower shows that 42% of Americans are still bracing for a recession this year. And if you feel similarly, you may be wondering if you should hold off on investing your money. But the answer is, it depends on your financial situation.

Take care of your near-term needs first

Investing money is a great way to grow wealth over time. The sooner you start investing, the more wealth you have the potential to gain through the years. But if you have some near-term financial shortcomings to address, then you’re better off waiting to invest so you can work on those.

One of the best ways to get through an economic downturn unscathed is to have a fully loaded emergency fund. At a minimum, that means having enough money in savings to cover three full months of essential living expenses.

If your savings aren’t at that level, then you shouldn’t invest yet — regardless of whether you’re worried about a recession. Rather, your first financial priority should be to boost your cash reserves. That way, if a recession hits and you’re laid off, you’ll have money to pay your bills.

The next thing you should do is assess your debt. You don’t have to worry as much if you’re carrying a mortgage you might still be paying in 20 or 25 years. But if you have high-interest debt, like a credit card balance, that’s the sort of debt you’ll really want to shed ahead of a recession, as having to make those payments could be a huge financial burden. (And again, even if we take a recession out of the equation, the sooner you pay off a credit card, the less interest you end up accumulating.)

However, if you’re set with emergency savings and the only debt you have is a mortgage or a reasonably affordable car loan, then you shouldn’t let recession fears stop you from investing and putting your money to work. Over the past 50 years, the stock market has averaged an annual 10% return. If you have $5,000 to invest, in 30 years, it could be worth over $87,000 at that same return. Wait five years to invest it, though, and you’re looking at just $54,000.

Prepare for a recession, but don’t stress needlessly

Based on present economic conditions, a 2024 recession looks unlikely. However, we can’t definitively rule one out. At the start of 2020, recession fears weren’t particularly prevalent. But then a pandemic hit a couple of months later that knocked the economy on its tail.

As such, it’s always a good idea to be ready for a recession. And you can do so by maintaining a strong emergency fund and steering clear of high-interest debt. But you shouldn’t let recession-related worries stop you from investing your money and taking advantage of the opportunity to grow wealth over time.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Home equity shouldn’t take the place of retirement savings. Keep reading to find out why. [[{“value”:”

For many seniors, their home is their largest financial asset. If you’re a homeowner who’s still deep in the throes of their working years, there’s a decent chance that by the time you’re retired, you’ll either own your home outright or have a nice amount of equity in it. And home equity is something you can tap in different ways when a need for money arises.

U.S. homeowners today have large amounts of home equity, generally speaking, due to the hot housing market. As of 2023, the average homeowner was sitting on $274,000 in equity, up from $182,000 prior to the pandemic, says CoreLogic.

Your plan may be to take a low-key approach to retirement savings and fall back on your home equity instead. But that’s a decision you might sorely regret.

You can’t rely on home equity alone for retirement

There’s nothing wrong with looking at home equity as a backup plan of sorts — meaning, something you can tap in a pinch should that need arise. But home equity should not take the place of retirement savings.

First of all, getting access to your home equity isn’t a given. If you have poor credit during retirement, for example, that could stop you from accessing your equity via a home equity loan.

Also, while a reverse mortgage may be an option during your senior years, it’s not necessarily one you want to fall back on. There can be high costs associated with putting a reverse mortgage in place, and then you start to lose equity in your home as you receive those payments. You also have to commit to living in your home to be able to benefit from a reverse mortgage, and that’s something you may not want to do later in life.

For these reasons, it’s best to do what you can to save for retirement so you have access to steady income during your senior years. And thankfully, building a nest egg may be easier than expected.

It doesn’t take a ton of money to build a lot of wealth

If you wait until your 40s or 50s to start saving for retirement, then you may find that it’s a struggle and that you have to part with a lot of money every month to make a nice dent in your nest egg. But if you start earlier on, you may find that smaller monthly contributions to an individual retirement account (IRA) or 401(k) go a long way.

Over the past 50 years, the stock market has averaged an annual 10% return. If you’re saving and investing for retirement over a longer period, there’s a reasonable chance you’ll score a comparable return in your portfolio.

So let’s say you start funding a retirement plan with $200 a month at age 30. At that 10% return, by age 65, you’ll be looking at $650,000 if you make $200 monthly contributions that entire 35-year period. That could make for a very comfortable retirement — and one where you’re not reliant on tapping home equity to cover your expenses.

There’s nothing wrong with taking comfort in the equity you have in your home and using it as a backup plan for emergency retirement expenses. But your home equity should not take the place of actual retirement savings. Rather, make an effort to build a nest egg steadily over time so you can cover your senior living costs with relative ease.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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