Money Management

Most Americans have at least one credit card. Find out why credit cards are worth using and how to get the most out of them. [[{“value”:”

Credit cards may have their detractors, but they’re still extremely popular. A whopping 82% of American adults had a credit card in 2022, according to credit card data gathered by The Motley Fool Ascent. That same year, credit cards accounted for $5.6 trillion in purchases.

If you normally stick to a debit card or cash, you might figure there’s no need to use credit cards. But those 82% of Americans have the right idea, as there are several benefits to paying this way.

A safe way to pay for purchases

Credit cards are a safer way to pay than debit cards or cash. Your debit card is connected to your bank account, which is a big risk if it’s lost or stolen. Someone could use it and drain funds from your bank account. To be fair, you could report the charges as fraud and get your money back. But it may take time for your bank to investigate and refund you.

With credit cards, you don’t have that worry. A credit card is a line of credit that you pay back. If there are fraudulent charges, you can dispute them. Your card issuer will issue a temporary credit for that amount. Once it confirms those charges are fraud, your temporary credit becomes permanent. You never lose any of your own money during the entire process.

Many credit cards also offer complimentary protections on eligible purchases. Here are a few examples of the kinds of protections you can get with a credit card:

Purchase protection that covers new purchases that are damaged or stolenExtended warranty coverage that automatically extends the manufacturer’s original warrantyRental car insurance for theft and collisionsTravel protections, such as lost luggage reimbursement, baggage delay insurance, and trip delay insurance

Building credit

Your credit score is important, for many reasons. It affects the interest rate you pay on loans. If you plan to buy a house, a high credit score could save you hundreds of thousands in interest. In most states, your credit score can even affect your car insurance rates. Drivers with poor credit pay over twice as much as drivers with excellent credit, on average.

A credit card is one of the best ways to build credit. To improve your credit, you need to show that you can borrow money and pay it back on time. If you use a credit card every month and pay the bill by the due date, your credit score will go up. It doesn’t help your credit score to pay with a debit card or cash.

Earning rewards

There’s also a financial incentive for using credit cards: rewards. Many credit cards earn rewards on the purchases you make. There are two popular types of rewards credit cards:

Cash back credit cardsTravel rewards credit cards

Cash back cards work just like the name suggests; you earn a percentage back on each purchase. If your card earns 2% back on purchases, and you spend $500, then you get $10 in cash back. You can redeem that as a statement credit on your credit card bill or transfer it to your bank account. Over time, this can add up. If you spend $30,000 a year with a card that earns 2%, that’s $600 in cash back.

Travel rewards cards earn points or miles that you can use for travel. These are more complicated, and the way you can use travel rewards depends on the card you have. But for frequent travelers, travel credit cards can be extremely valuable.

Making sure you benefit from credit cards

Credit cards have lots of benefits, but there’s also the risk of going into debt. Unfortunately, many Americans get into trouble with credit cards. The average credit card balance is $6,365, and average interest rates were above 22% last year.

To ensure that credit cards are working for you and not against you, always pay your credit card bill in full. When you pay in full, the card issuer doesn’t charge you interest on your purchases. You can get all the benefits of using credit cards without the expensive interest charges.

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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.Lyle Daly 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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Remodeling can get expensive. Take a look at the tricks that are helping me avoid overspending and ending up with regrets. [[{“value”:”

I’m currently knee deep in an extensive remodeling project in a home that I purchased. I got a mortgage to buy the house, but I am funding the remodeling costs out of pocket. I wanted to keep my borrowing costs down, as I got the home loan at a time when mortgage lenders were charging higher rates than we’ve seen in several years. This means it’s really important that I don’t go over budget, because I don’t want to spend more than I have in my savings account.

Unfortunately, it’s really easy to spend more than you plan when you’re redoing a home. In fact, according to a survey by Houzz, 31% of people who did a remodel project reported going over budget, while another 29% didn’t even have a budget when they got started. To make sure I don’t get into financial trouble out of a desire to make my house perfect, there are a few simple things I’m doing.

I got detailed quotes before I started

One of the first things I did to make sure I didn’t overspend was get detailed price estimates. When I built a house years ago, there were a lot of “allowances” where the builder allotted a certain amount of money for things like light fixtures or countertops. In some cases, I couldn’t afford even the basics within those allowances, so I didn’t want that this time.

I sent my contractor tons of pictures and made sure to get detailed quotes that included the features I actually want, so there won’t be these surprises down the line. If you’re remodeling, you may want to do the same. Look over your quote carefully, and anywhere where you see an “allowance,” you can pretty much just assume you’re going to be spending more on that item and increasing your total costs.

I’m staying off Pinterest

Another big thing I’m doing is staying off Pinterest and other websites where you can see magazine-worthy homes. Spend too much time looking at these sites, and you may end up getting inspired right into dropping millions on perfect custom drawer inserts and pantries that are nicer than most people’s kitchens and closets that are fit for a Kardashian.

I do want my house to be nice. But I don’t need to constantly flood my brain with new and expensive ideas that I’ll end up feeling like I just have to incorporate. Once I set up my initial designs and plans, I’ve steered clear of looking at house photos so I’m not tempted to make changes. You may also want to do the same.

I’m using my credit cards wisely

Using my credit cards has actually been a great way for me to stay on budget during the remodel, too. Not only is it easier to track what I’m spending, but I’m also able to get cash back on anything I purchase for the remodel. I charged all of my new appliances, the new flooring and tile for the house, and even a few invoices from my contractor (until he told me I had to stop or I’d get hit with added fees).

If you’re doing a remodeling project of your own, try to find a credit card offering generous rewards and charge just about everything possible. You can claim the cash back as statement credits to reduce your total costs.

I’m being smart about saves versus splurges

Since I want my house to be nice but I don’t want to go overboard, I’m also making careful decisions about where I can get the most bang for my buck. I’m willing to splurge on the stuff that’s more likely to get noticed and really make an impact — like beautiful custom quartzite countertops — while saving on other things, like using the economy brand off-the-shelf cabinets in my laundry room.

You can’t get the best of everything when you’re doing a big remodeling project, so think carefully about what matters the most in terms of how you’ll use your house.

I’m keeping careful track on a spreadsheet

Finally, I’m tracking all of the money I’m spending on every single thing for the house in a spreadsheet so I don’t forget about little expenses along the way. As soon as something’s purchased, onto the sheet it goes.

This is a really simple thing you can do, too. Not only will it help you add up your expenses, but it can also make you think twice about whether something is really worth it — since you know you’ll have to add it to your sheet later.

These steps have worked for me, and they may work for you, too, if you’re remodeling and don’t have unlimited money to spend. And if you do have unlimited money, can you send some my way? I saw a really neat dog shower on Pinterest before I signed off that I just have to have!

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.The Motley Fool has a disclosure policy.

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I once saw my car insurance rates double, and it wasn’t even the result of an auto accident. Find out why it happened to me — and how it could happen to you. [[{“value”:”

I have always maintained a good amount of auto insurance because I believe it’s important to have the right coverage in place to protect my assets. I don’t just buy the required minimum amount of insurance coverage — I also include optional add-ons such as collision coverage to pay for my damages after an accident and comprehensive coverages to pay for losses not caused by a crash.

Since I buy full coverage, I don’t mind that I have to pay a good amount out of my checking account for it. I was, however, quite upset a few years ago when my auto insurance costs doubled — especially because I had not been in an auto accident or made any claims.

Here’s what happened — and how it could happen to others, as well.

This was the simple reason my auto insurance costs went through the roof

My car insurance costs skyrocketed not because I’d made any driving mistakes, but instead because I had made a life change. I moved. I relocated from the state of Pennsylvania, which has pretty affordable auto insurance coverage, to the state of Florida which…doesn’t.

In 2023, average annual car insurance premiums in Pennsylvania came in at $2,532, while the average premium in Florida was $3,766. Of course, these are just averages, and my move happened years ago. So at the time, I saw my rates go up even more. They doubled, which was a huge expense to have to absorb after incurring the costs of a move.

Unfortunately, since I’ve remained a Florida resident since then, my rates have continued to be higher than they would be if I lived in many other places, as Florida’s average rate is well above the national average of $3,017.

Why does moving cause such a big change to insurance costs?

I’m not the only person who has experienced, or who will experience, a big change in auto insurance premiums that’s prompted by a move.

The reality is, costs do vary widely by state, as this research into state-by-state car insurance premiums shows. There are huge differences in costs from one place to another as a result of many factors, including:

How risky the state’s roadways are: In places where accident claims are more likely to be made, insurers charge more. Florida has a high number of accidents due to factors like poor road designs and an older population and, in my unscientific opinion, due to a large number of tourists who don’t know where they’re going.How many insurers operate in the market: If there are fewer insurers and less competition, this can result in higher premiums.The number of uninsured drivers: More people without coverage means it is more likely an accident will happen that the at-fault motorist won’t have the money to pay for.The kinds of insurance required: In states where more coverage is mandatory, getting the essential coverage can be more expensive.

Unfortunately, there’s little that can be done about this, as very few people are choosing where they live based on how much car insurance costs there. The best and only option for those, like me, who see premiums jump dramatically due to a move is to shop around and try to find the best local deals possible.

Getting quotes from several insurers after a move can help reduce additional unnecessary spending, and it’s well worth getting prices from at least three or four different insurers to avoid overpaying for a policy in your new state of residence.

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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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Money sitting in the average savings account cannot keep pace with inflation. Take a look at how you can help that money grow instead. [[{“value”:”

If you’re fortunate enough to have cash sitting in a savings account, we have good news and bad news. First, the bad news: Chances are, the interest rate on your traditional savings account is not enough to keep up with inflation. What that means is that your money is becoming less valuable. It may be safe, but it’s losing value with each day it lingers in savings. The good news is that rates on high-yield savings accounts are beating the rate of inflation, giving you somewhere to stash your funds that is safe, secure, and sure to grow.

What is a high-yield savings account?

As the name suggests, a high-yield savings account has features in common with a traditional savings account. The big difference is that a high-yield account offers a higher interest rate. The advantage of a high-yield account is that it allows your money to grow at a faster clip.

The rate at which your money grows is expressed as APY, or annual percentage yield. To put it into perspective, the average savings account offers an APY of less than 0.50%. On the other hand, some of the best high-yield savings accounts offer an APY of 5.00% or more.

Let’s say you deposit $2,500 into a savings account with an APY of 0.50%. A year later, your deposit will have earned $12.53 in interest. If you deposit the same $2,500 into a high-yield account with an APY of 5.00% instead, it will earn $127.90 in 12 months. The more you deposit, the more your money will earn.

Role of the Federal Reserve

You’ve likely heard much about the Federal Reserve, or “Fed,” over the last 18 months. That’s because the Fed plays a role in what happens to interest rates. The Federal Reserve is the central banking system of the United States. When the Fed is worried that inflation is getting too hot, it cools it down by raising the federal funds rate (the interest rate at which banks loan money to each other). Once the federal funds rate goes up, banks begin charging their customers higher interest rates.

When the Fed feels comfortable that inflation has fallen sufficiently, it lowers the federal funds rate. In turn, banks lower the rates they charge for loans.

In 2022, inflation led the Fed to raise its rates and banks to raise their rates. While taking out a mortgage loan or using a credit card became more expensive, the Fed’s move indirectly raised the rates financial institutions paid on deposit accounts, like high-yield savings accounts. The goal is to take advantage of those higher rates while they’re available.

But is your money safe?

As long as your bank is a Federal Deposit Insurance Corporation (FDIC) member or your credit union is a member of the National Credit Union Administration (NCUA), your deposits are insured for up to $250,000, per depositor, per ownership category.

That security makes it tough to find a downside to growing your money at a faster pace by moving it from a traditional savings account to a high-yield account.

These savings accounts are FDIC insured and could earn you 11x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you 11x the national average savings account rate. Click here to uncover the best-in-class accounts that landed a spot on our short list of the best savings accounts for 2024.

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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