Money Management

Earning more money doesn’t mean saving more money. Read on to learn more. [[{“value”:”

For many years, my friend Hannah worked on a part-time basis while her kids were young. That was actually a sound personal finance decision. The amount of money she would’ve spent on child care would’ve almost wiped out her earnings. So she decided not to return to full-time work until her kids were old enough to not only attend school, but stay home alone after school as needed.

A few years ago, Hannah started working full-time again. And her higher paycheck gave her a prime opportunity to save money, since it was income beyond what her family was used to.

But instead of making an effort to save some of that extra money, Hannah got into the habit of spending it all. She also took out a huge personal loan to finance a $75,000 kitchen renovation she’s still paying off. And because of that, she’s now in a worse financial position than she was before her income doubled.

When lifestyle creep sets in

Hannah’s major downfall was that she fell into the trap of lifestyle creep — upgrading your lifestyle as your income rises rather than making an effort to live below your means. Once Hannah’s income doubled, she bought a new car that was much nicer (and way more expensive) than her former car. She also started paying for more luxuries, like frequent restaurant meals and a housekeeper.

To be fair, working more hours left Hannah with less time to cook and clean. So some of that spending may have been justifiable — to a point.

Where Hannah really went wrong, though, was going all in on a major kitchen remodel. Her old kitchen was perfectly fine, but she wanted a high-end kitchen with expensive appliances and more space. That required a construction crew to come in, take down a wall in her home, and build out a brand-new space.

In the end, Hannah spent about $75,000 to renovate her kitchen. And her higher income no doubt made it easier to qualify to borrow that money.

But now, Hannah has expensive loan payments to keep up with for her vehicle and renovation. And those payments are wiping out her added earnings and then some.

Be very careful when your income rises

It can be tempting to take on bigger expenses when your income jumps substantially. But a better bet is to take on a few additional expenses rather than commit your entire raise to ongoing bills.

Hannah’s situation isn’t so unique. But at this point, she’s stressed out about her debt and is worried about paying it off.

Thankfully, all of her debt is in installment loan form, so her monthly payments are fixed. As of the third quarter of 2023, U.S. credit card debt sat at $995 billion, according to TransUnion. Hannah is fortunate to not have any of that. But still, she shared her story with me so that others could learn from her mistake.

Recently, Hannah had to raid her savings account to cover a home repair. Had she been socking away a portion of her raise all this time rather than taking on more debt, she’d still have a nice cushion. Instead, she’s left with very little, which is compounding her stress.

So if your pay goes up, take on new expenses carefully. And no matter what you do, always aim to reserve a portion of your income for savings purposes, even if it’s just a small amount. Hannah wishes that instead of jumping into a kitchen remodel and financing it, she would’ve spent a few years saving up for it instead. She regrets her car a bit less, but either way, it’s debt she’s now stuck with. And you don’t want to end up in the same boat.

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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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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U.S. credit scores just took a modest dive. Read on for tips on boosting your credit score. [[{“value”:”

Your credit score is a number you may not pay much attention to until you’re ready to apply for a credit card or sign a loan. But in reality, it’s always important to know what your credit score looks like.

The higher that number, the more likely you are to get approved to borrow money when you want or need to. A higher credit score could also lead to a more favorable interest rate when you’re signing a fixed-rate loan, like a mortgage.

FICO just released credit score data that found that as of October of 2023, the average U.S. credit score was 717. That’s notable because earlier in 2023, the average credit score was 718.

Now, since we’re only talking about a one-point drop, that 717 shouldn’t necessarily sound alarms about a looming consumer credit score crisis. But it is worth noting that October’s drop marks the first time in a decade the average consumer credit score fell from one reporting period to another. (The period ending October 2023 is the latest one from FICO).

If your credit score fell recently, it’s a good idea to get it back up to where it was before — or even beyond. And even if your credit score didn’t recently fall, it might benefit from a boost nonetheless. Here are some steps you can take to make that happen.

1. Pay all bills on time

Your payment history carries more weight than any other factor when calculating your credit score. Paying bills in a timely manner could lead to a nice credit score boost, or at least keep your score stable if you’re already making payments on-time regularly.

However, you have to give that time to happen. It can take many months of on-time payments to see that positive activity reflected in your credit score, so don’t be discouraged if it doesn’t happen right away.

2. Pay off credit card debt

Your credit utilization ratio is another important factor in calculating your credit score. It represents the amount of revolving credit you’re using at a single point in time.

A ratio of 30% or less will usually reflect favorably on a credit score, but exceeding that mark could result in credit score damage. In general, it’s best to keep that ratio as low as possible. So if you’re carrying a large balance on your credit cards, paying some of it off could result in a credit score boost.

For example, let’s say you’re at 40% utilization because you owe $4,000 on a total $10,000 spending limit on your various credit cards. If you’re able to pay off $1,000 of that sum, you’ll be down to 30% utilization, which is a better place to be from a credit score perspective.

3. Check your credit reports for errors

You’re entitled to a free copy of your credit report each week from each of the three major reporting bureaus — Experian, Equifax, and TransUnion. You don’t have to check your credit report every week — that’s overkill. But it is a good idea to check it once every couple of months, or once a quarter.

You never know when a credit report of yours might contain an error that works against you, like a delinquent debt you can actually prove you paid on time. That’s why it’s so important to give your credit report a look — and to do so across all three bureaus.

Correcting a mistake like the aforementioned one could result in a fairly quick credit score boost. And why should you allow your credit score to take a hit because of something you didn’t actually do?

It’s not all that disturbing to see the average consumer credit score fall by one point. Having a score of 717 versus 718 isn’t going to make much of a difference when it comes to qualifying for a loan or line of credit. But if your credit score has been going down instead of up, it’s a good idea to do what you can to break that pattern. The higher your score, the more financial benefit you stand to reap.

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The best CD rates are sky high, making CDs an appealing investment in 2024. But here are three times you should never put your money in a CD. [[{“value”:”

Certificates of deposits (CDs) can be a great choice when you want to maximize the interest you earn on your savings. With a CD, you agree to keep your money in the bank for a specific amount of time, known as a term. Because you’re agreeing not to touch your money during the CD term, you can often earn more interest than you’d get with a high-yield savings account.

Some of the best CD rates we’ve seen lately are as high as 5.50%. Plus, CDs are extremely low risk because they’re covered by the Federal Deposit Insurance Corporation (FDIC) for at least $250,000 per institution per depositor.

While CDs have a lot of benefits, there are certain times a CD isn’t the right place to keep your money. Let’s look at three situations where you shouldn’t even consider opening a CD.

1. You have high-interest credit card debt

A CD that pays northward of 5% is certainly generous. But if you have a credit card balance that’s accruing interest, pay it off or look into the top balance transfer cards, many of which offer a temporary 0% APY, before you open a CD.

A 5.50% APY pales in comparison to the average credit card APY. As of late 2023, the average credit card APY for accounts that accrued interest was nearly 23%, according to Federal Reserve data. You’ll save far more money tackling high-interest debt than you can earn through a CD.

2. You don’t have an emergency fund

You generally want to aim for an emergency fund that can cover three to six months’ worth of expenses in case things go wrong, i.e., you lose your job or you’re hit with a big home repair or medical bill.

A CD isn’t a great place for emergency savings because you’re agreeing not to withdraw your money for the duration of the term. If you need your money before the term is up, you’ll pay an early withdrawal penalty.

A better place for your emergency fund is a high-yield savings account, since you’ll have access to your money whenever you need it (though some banks may limit your monthly withdrawals). Only put money in a CD if you’re confident you won’t need it until the end of the term.

3. You’re investing retirement money

A low-risk return of 5% or more on your money certainly isn’t something to sniff at. But to build a nest egg for retirement, you typically need to take on more risk in exchange for higher returns by investing in the stock market. For example, investing in a top S&P 500 index fund produces average returns of about 10% per year.

Also note that CD rates are unusually high right now because the Fed is keeping the federal funds rate high for now. But these high rates are unlikely to last forever.

Typically, you get the highest interest rates on long-term CDs, such as those with a 5-year term. But currently, you’ll find the best rates for 1-year CDs. Why would that be? Banks won’t agree to pay elevated APYs for several years if they believe interest rates will drop before then. So they’re paying top dollar for shorter-term CDs, while offering lower rates for CDs with further out maturity dates.

The bottom line: If you have decades until retirement, you need returns above 5%. But even if you’re comfortable with a lower return, don’t expect to earn 5% on CDs in the long run.

When does a CD make sense?

A CD is a good choice for your money when you don’t have high-interest debt, you have an emergency fund, and you’re already investing for retirement in a tax-advantaged account like a 401(k) or individual retirement account (IRA). It can be an especially good choice for medium-term goals, like if you’ve set aside money for a down payment but don’t plan to buy a house for over a year.

Before you commit your money to a CD, though, make sure you understand what the early withdrawal penalty is and are comfortable letting your bank hold onto your money for the entire term.

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Want the lowest mortgage rate? Read on to learn how shopping around and boosting your credit score can help you get it. [[{“value”:”

In 2020, mortgage lenders were offering up some of the lowest interest rates in history in the wake of the COVID-19 pandemic and the economic crisis it fueled. My husband and I weren’t looking to move at the time, and we already had a decent interest rate on our existing mortgage. But as a general rule, refinancing a mortgage can make a lot of sense when you’re looking at shaving around 1% or more off your current rate.

Since we were in a position to lower our loan’s interest rate by over 1%, we pursued a refinance in the summer of 2020. And we wound up going with the first lender we talked to. But there was another step we took to be sure that we were truly getting the best deal.

Shopping around is key

I happen to have a good friend whose friend has a mortgage company. When we mentioned we were looking to refinance, they suggested we call him, which we did.

My husband and I had a 30-year loan at the time we started exploring refinances, but we were interested in swapping that for a 15-year loan. And the reason was that based on how low rates were, we were looking at almost the same monthly payment for a 15-year loan as a 30-year one. Our monthly payments did go up a little, but it was an uptick we could comfortably handle.

Also, my husband and I had already been paying our mortgage for a good 10 years as of 2020. We didn’t want to reset the clock on that loan and start over with a new 30-year term, so a 15-year loan was what we pursued.

My friend’s mortgage lender friend quoted us 2.625% on our refinance with minimal closing costs. The offer seemed really good, but we couldn’t be sure until we shopped around.

So we spent about 10 days gathering quotes from different lenders and seeing where we landed. We purposely wanted to do our rate shopping quickly, because here’s something you may not realize: Every time you apply for a mortgage, a hard inquiry is done on your credit report. And from there, your credit score has the potential to drop by a few points.

A single hard inquiry isn’t such a big deal. But as you might imagine, having eight or nine of those isn’t optimal.

However, when you have multiple hard inquiries on your credit report for the same purpose, such as a mortgage refinance, they all count as one inquiry as long as they’re done in short order — commonly, within 14 to 30 days. So we purposely did our rate shopping quickly to avoid credit score damage, and also, because we wanted to move quickly on our new loan while rates were low.

In the end, the 2.625% rate we got as our first offer wound up being the best one. There was another lender whose rate initially seemed the most competitive, but its closing costs were considerably higher, which negated that savings.

How you can get the lowest rate on your next mortgage

Whether your next mortgage is a purchase mortgage or a refinance, shopping around is truly important. It just so happened to work out that in the case of our refinance, the first offer we got was the best. But we couldn’t have known that without doing our research.

There’s another step you can take to snag a competitive interest rate on a mortgage, and it’s boosting your credit score. When my husband and I applied to refinance, our credit scores were above 800, which meant we were eligible for some of the best rates being offered for borrowers in our area. But if your score is, say, in the low 700s, getting it into the upper 700s — or better yet, above 800 — could help you snag a better rate.

Boosting your credit score can require ongoing work, like paying bills on time and whittling down credit card debt, which won’t happen overnight. But one move that may result in a pretty quick credit score boost is reviewing your credit report and correcting errors that may be working against you.

All told, for me, getting the lowest mortgage rate I could find boiled down to being patient and taking the time to make phone calls. It was a somewhat time-consuming process, but not an unreasonable one. And I’m glad I spent the time, because that way, I was able to sign my new mortgage feeling confident in the deal I was getting.

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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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Paying off credit card debt quickly isn’t always possible when your necessities eat up most of your take-home pay. Learn what strategies work. [[{“value”:”

When I realized I had $9,000 worth of credit card debt a few years ago, my first instinct was to cut expenses. I shaved a few hundred dollars off my monthly budget by canceling a few streaming services and subscriptions and cutting back on restaurant spending.

But overall, I wasn’t a big spender. I simply didn’t have heaps of money leftover in my paycheck after I covered my big expenses — like my rent, car payment, utilities, and healthcare costs.

I quickly grew frustrated because I wasn’t making fast progress on my debt. So I decided to double down, work as many freelance jobs and side hustles as humanly possible, and pay off my debt as quickly as possible. In all, I paid off $9,000 of credit card debt in about nine weeks. Then for good measure, I kept going and paid off my car in the next few weeks, bringing my debt payoff total to $12,000.

Here are the strategies I used to get out of credit card debt quickly — and keep myself motivated while working 70 to 80 hours a week.

1. I used the debt snowball method

I had about half of my credit card debt on one card with a temporary 0% interest rate, but the 0% APR window’s expiration was rapidly approaching. Still, I was going to take advantage of 0% interest for as long as possible, so I only made minimum payments on that card while focusing on my other three cards that were charging interest.

While paying off those three cards, I used the debt snowball method, which is where you focus all your efforts on paying off the card with the smallest balance while making minimum payments on the rest. Once that one’s paid off, you put all the money you were paying on that card toward the smallest remaining balance.

Maybe I could have saved a small amount had I used the debt avalanche instead, where you knock out the highest-interest balance first. But the cards had relatively similar interest rates. Knowing I had one fewer bill to pay when I paid off the first card was way more motivating than saving a few bucks on interest.

2. I redeemed my credit card rewards

I didn’t have a ton of credit card rewards points — 45,000 at most between four different cards. But I used those points to pay down my credit card balances by about $400 total, by either getting a statement credit or cash back for each card. Perhaps I could have squeezed more value out of those points had I saved them for travel later on.

But when you’re paying credit card interest, the interest amounts to far more money than your points are worth. So I used my points to lower my balances and save on interest.

3. I mostly used my debit card

Paying with a debit card instead of a credit card is often frowned upon in personal finance because you rarely earn rewards, plus you have fewer fraud and purchase protections than you’d get with a credit card. But keeping track of your progress on paying down credit card debt is extraordinarily difficult when you’re still making purchases on the card. So I stuck mostly with my debit card, knowing I could focus on credit card rewards later. When I didn’t feel comfortable using a debit card — for example, buying gas at the pump — I used a credit card but paid off the amount I’d charged that same day.

Note that I did keep one small bill, like Netflix or my gym membership, on each card to make sure I had activity every month. After prolonged inactivity, credit card issuers sometimes close your accounts, which can lower your credit score in the short term.

4. I spent money on things that bought me time

Spending extra money when you’re trying to get out of debt may seem counterintuitive. But when you’re working long hours to pay off debt fast, it sometimes makes sense to spend money if it buys you more time to work. For example, I paid extra to get my groceries delivered through Instacart. I hired someone to clean my house every few weeks. The money was well worth it because it gave me more time to work.

How to pay off debt faster

Working 70 or 80 hours a week isn’t going to be possible for everyone. For me, it was doable because I’m a writer and editor. My job isn’t physically taxing, and no one will get hurt if I fall asleep with my laptop on my couch. I’m also not a parent, which makes working long hours easier.

But no matter what your situation, be honest with yourself about whether you have a spending problem or, like me, an income problem. If you spend lots of money on purchases like takeout, clothes, or entertainment, it may be possible to get out of debt by cutting expenses. But if most of your paycheck is eaten up by necessities, you may need to look at your options for earning more money, like I did.

One thing that’s helpful when you’re trying to get out of debt quickly is remembering that what you’re doing is only temporary. Working long hours or making extreme budget cuts usually isn’t fun. But you’re making short-term sacrifices to buy yourself long-term financial security.

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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.Robin Hartill, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.

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Bitcoin surged above $69,000 to set a new record. Find out what this means for crypto investors and whether Bitcoin might be able to hold on to its gains this time. [[{“value”:”

Bitcoin continued its rally yesterday, breaking through the $69,000 barrier and setting a new all-time high. The leading cryptocurrency has gained almost 60% since the start of the year, per CoinMarketCap data. Its rise has been fueled by the SEC’s approval of a spot Bitcoin ETF and the upcoming Bitcoin halving.

Bitcoin’s last high came during the crypto frenzy in November 2021. That was before the industry was shaken by a series of calamities, including the failure of Terraform’s Luna, the collapse of FTX, and subsequent revelations about what both companies were doing with investor money.

If you got burned by previous crypto price crashes, or are nervous about buying Bitcoin, you may well be wondering if this rally is different and if Bitcoin might hold its gains. The short answer is that only time will tell.

What next for Bitcoin?

Crypto investors are likely used to the volatility of the crypto market. Unlike the stock market, it isn’t unusual to see huge price swings in a matter of days. Indeed, Bitcoin dropped around 10% immediately after hitting its new high before climbing slightly and finishing the day around $67,000.

Crypto enthusiasts such as Galaxy Digital’s Mike Novogratz say that this is just the start. But given that Novogratz was so excited about Terraform’s Luna, he got a Luna tattoo before the whole enterprise caved in, it’s hard to take his optimism seriously.

That said, Novogratz is not alone. A lot of insiders are confident this rally is different. That’s partly because the spot Bitcoin ETFs have attracted more institutional money, which tends to be stickier. Plus, there’s growing optimism that the Fed will soon start cutting rates and the U.S. might skirt a recession.

Bear in mind that neither the improved economic outlook nor the influx of institutional money say anything about Bitcoin’s fundamentals. That’s what matters, particularly if you are a long-term investor.

Cryptocurrency is still a risky asset

I hold Bitcoin (along with other cryptocurrencies) and am certainly relieved to see prices recover. Even so, price doesn’t reflect value. It can be arbitrary and move based on speculation and market sentiment. To put it another way, the fact that Bitcoin just erased the losses of recent years doesn’t automatically make it a safe investment.

If you’re considering buying Bitcoin, think about the fundamentals. Some Bitcoin believers think that cryptocurrency could become the digital currency of the internet. Others argue it is like digital gold, a store of value that cannot be controlled by governments. Others think it could take a portion of the international remittance market, as it makes it easy for people to move money internationally.

Bitcoin’s critics say it doesn’t have any intrinsic value. Despite all the hype, people are not using it as a currency — in part because of the huge price fluctuations. Some argue that Bitcoin is mostly used for illicit activities, such as money laundering and ransomware. Plus, Bitcoin mining consumes vast amounts of energy, with a carbon footprint the size of a small country.

Four questions every crypto investor needs to consider

Whether you buy into one of the new spot Bitcoin ETFs or open an account with a cryptocurrency exchange, crypto investing is not for everyone. As with any investment, you need to take time to research and learn about what you’re buying. Here are a few things to ask.

1. Do you understand the risk?

We’ve already touched on some of the risks involved in crypto, such as volatility and questions about its long-term potential. Another is that there are limited investor protections. Unlike money in a bank account which is covered by FDIC insurance against bank failure, if your crypto platform fails, you could lose everything.

One way you can mitigate this is to put your crypto into a crypto wallet that you control. Just be aware that if you lose your security information, you might lock yourself out of your wallet forever.

2. How will you cope if you lose your crypto investments?

Losing money is always difficult. But it is more manageable if you only invest money you can afford to lose. Some people lost their life savings when Terra’s Luna cryptocurrency collapsed.

If you want to buy crypto, make sure it is only a small part of a wider portfolio. That way, if the crypto market does crash again, it won’t derail your retirement plans or leave you unable to pay your rent or mortgage.

3. Are you comfortable with the regulatory environment?

Cryptocurrency is a relatively new and unregulated market. The SEC is pursuing cases against several top crypto exchanges because it believes many cryptocurrencies are trading as unregulated securities. The outcome of these cases — alongside broader moves to introduce stricter crypto regulation — could change the way people buy and sell crypto in the U.S.

4. Why are you buying cryptocurrency?

Many people bought cryptocurrency in 2021 because they were scared of missing out, only to get burned when prices crashed. Don’t buy Bitcoin because other people are or because you think you might get rich quickly. History has already shown us that crypto prices can rise and drop dramatically.

Consider how your crypto investments fit with your wider investment goals and be clear on your rationale for buying. Clarity on the “why” can often be what stops us from panic selling if prices start to fall.

Bottom line

Bitcoin has erased the losses of the past few years and many insiders are confident the price can rise further. Even so, it’s important to understand the risks involved and make your own decisions about cryptocurrency’s long-term potential.

Our picks for the best credit cards

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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.Emma Newbery has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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