Money Management

American credit card debt is up 28% from two years ago. Read on to learn more about how to get out of credit card debt. 

Over the past few years, I’ve gotten into the habit of using my credit card for nearly all my monthly expenses. I have a Prime Visa that earns me 5% cash back on my Amazon purchases and varying levels of cash back on other purchases.

At the end of the year, I usually have a substantial sum of money from the cash back rewards I usually put toward Christmas presents or to help cover vacation costs.

Using a credit card almost daily breaks one of the cardinal rules of Dave Ramsey’s debt-free living strategy. He recommends not having a credit card at all, and while that may seem extreme, I get it. I recently lost track of how much I put on my credit card and was surprised to see the amount.

Credit card balances balloon quickly

While I’ve begun to pay the balance back down on my credit card, it reminded me of how quickly credit card balances can grow if you’re not paying attention.

The latest TransUnion data shows that Americans have an average of $5,733 in credit card debt, up 14% from the same period in 2022. And the Federal Reserve Bank’s latest data shows that total credit card debt for all Americans has reached a near record high of $986 billion, up 28% from two years ago.

The surge in inflation over the past few years may be one of the reasons why Americans are reaching for their credit cards more often. That’s not great news considering that the average interest rate on credit cards is around 20% right now, which means that using credit cards to cover everyday expenses is more expensive than ever.

Looking at my card balance has caused me to consider changing my credit card usage so that my balance doesn’t tick up any higher. And if you’re in the same boat, there are some straightforward steps you can take to help get your card balance under control.

How to pay off credit card debt

If your credit card debt is uncomfortably high, the first thing you should do is stop using your card. Adding to your balance will only make it more difficult to pay off.

You may also want to look at your current expenses with a budgeting app so you know exactly where your money is going. I’ve been looking closely at my monthly expenses lately and cutting back on some expenses that don’t need to be there.

Once you have a good idea of how much you spend on necessities each month, figure out what expenses you can cut out. For example, if you bring in $4,000 per month after taxes, and have $3,800 in expenses, then put $200 toward your credit card balance. Even if you’re not able to put a lot of money toward your card every month, make sure you’re paying something toward the balance.

If you need some extra help, you may want to consider a debt consolidation loan. This type of personal loan can help by creating a set monthly payment each month that may have a lower interest rate than your credit card.

Once you’ve paid off your credit card debt, one of the best ways to keep it from building back — aside from not using a credit card — is to build up your emergency fund in a high-yield savings account. Doing so will allow you to pay for unexpected expenses with cash instead of credit.

If you’re like most Americans, it may be time to take an honest look at your credit card balance right now. I did recently, and it’s helped me get back on track. It may be painful at first, but I promise you’ll be glad you did.

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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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon.com and Visa. The Motley Fool has a disclosure policy.

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When you’re saving money for a wedding, you could save it in a high-yield savings account or a CD. Take a look at how to decide between the two. 

In 2022, the average cost of a wedding came in at around $30,000, according to research from The Knot. Chances are good you aren’t going to be able to pay that much out of your bank account. That means, unless you want to go into credit card debt or otherwise borrow to pay for your big day, you may need to take some time to save up money for the wedding.

If you’re working on saving for a big wedding celebration, you’ll want to be smart about where you keep the cash you’re setting aside. There are two great options for you, with the right one dependent on your timeline and other financial factors.

A high-yield savings account

A high-yield savings account is a great place to keep your wedding money. These accounts are really easy to open, with many online-only banks offering very competitive rates on money saved. And as long as you make sure your savings account is FDIC-insured, you cannot lose money in it.

The money you put into a high-yield savings account can be withdrawn whenever you want, so if you have to make deposits with specific wedding vendors or need to take out a big withdrawal to pay a vendor or cover other costs before the big day, you have the flexibility to do it.

Just be sure to shop around among different savings account providers to find one offering a great rate and no fees. And pay attention to whether you get the bank’s highest APR on all or part of your balance and whether you have to meet any special requirements to qualify for it.

A certificate of deposit

A certificate of deposit (CD) is another great place where you could potentially put your wedding money. CD rates tend to be a little higher than the rates on high-yield savings accounts, so you could potentially earn a little more interest with this option. That could help your wedding account balance grow faster. These accounts are also FDIC-insured, so you don’t need to worry about losing any of your invested funds.

The downside, though, is that when you open a CD, you must commit to keeping your money invested for a period. Typically, this will be at least three to six months, and sometimes much longer. There may also be a minimum deposit requirement you have to meet in order to invest in a CD.

If you have enough money and you have a long enough timeline before your big day, then a CD could be a good place to park at least part of your wedding money. Just be aware of the fact that you could face fees if the cash needs to come out earlier than planned for some reason.

Ultimately, both of these options provide a safe place for wedding funds, but the right one is going to depend on whether you want to prioritize flexibility or higher interest rates. That choice is up to you and depends on your needs when it comes to your nuptials.

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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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On paper, mortgage payments look like they could cost the same as rent. Learn why you can’t trust this metric to decide if you can afford homeownership. 

If you’re dreaming of owning a house, it stands to reason that you’ve thought at least a little about how much a mortgage loan might cost you. But unfortunately, it can be easy to think that the costs of homeownership begin with a down payment and end with your monthly mortgage payments.

This was me the last time I bought a home (spoiler alert: It ended badly for me). I looked at what my monthly payments were going to be, saw that they weren’t much higher (maybe $100 more) than the rent I was paying on an apartment, and assumed I could afford a house. Even if buying a home will leave you paying a lot more per month for a mortgage versus rent, you might forget about the other costs you’ll need to cover. Let’s take a closer look at those costs and consider how you might actually determine whether you can afford to buy a home.

What costs are homeowners responsible for?

In my life as a renter, I’ve found that there are degrees of landlord. Some will neglect their duties so egregiously that you must find a new place to live just 10 weeks after moving in. Others are super responsive and cover maintenance costs at the drop of a hat.

This variance also extends to how much money you’ll need to spend as a renter. In most cases, however, as a renter, your financial obligations are most often just your monthly rent payments, along with a deposit when you move in (often amounting to a month or two of rent). You might need to pay a pet or cleaning deposit, which may or may not be refundable when you move out. And as a renter, it’s also a stellar idea to get a renters insurance policy. They are not expensive, and will protect your belongings in the event of damage to your rental home — remember that your landlord’s homeowners policy won’t cover your items.

If you’re the homeowner, on the other hand, your costs are vast and wide. In addition to that down payment and your monthly mortgage costs, you’ll generally have to cough up money for closing costs when you get your mortgage loan. You’ll pay property taxes, and depending on where you live, they could be hefty.

You’ll also be responsible for homeowners insurance and repairs/maintenance on your home, and if you’re buying an older home (as I likely will be), those costs could be unpredictable and more expensive than you expect. The Ascent’s research team found that in 2019, homeowners paid an average of $8,609 more than renters on housing costs just like these.

How can you tell if you can actually afford a home?

In the interest of going into homeownership with eyes wide open, I recently ran my own numbers through The Ascent’s mortgage calculator. Based on educated guesses (as there’s no way to tell for sure exactly where my costs will fall when I buy a home next year), I expect my monthly costs to double when I go from renter to homeowner.

I recommend that you do this same exercise and put the figures you come up with into a mortgage calculator to get an estimate of your costs:

Check your credit score, as it will inform what mortgage rate you get — rates are up right now, but the better your credit, the less you’ll pay.See what homes are going for in the area you want to buy. Remember to consider your needs in a home, such as neighborhood, number of bedrooms, and beyond.It might be harder to estimate homeowners insurance rates, but do your best. Some states cost more than others. I recommend asking homeowner friends in your area.You might be able to estimate property taxes by checking for-sale properties, as they are sometimes included in the listing details for a particular house.Don’t forget about budgeting for repairs and maintenance. It’s safe to plan for at least 1% of your home’s cost per year — on a $200,000 home, that’s $2,000. But if you can put aside more than this, all the better.

I hope I haven’t burst your bubble about affording a home, but it’s far better to consider all your potential costs before you sign on the dotted line. Do your own math, and make the most informed decision you can — buying a house is a big, expensive deal.

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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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Having kids changes everything. Read on to see what important financial move you must make once they come into your life. 

My life was very different before having kids compared to what it looks like now. Back then, my husband and I could pick up and travel whenever we wanted, provided we had the money. Nowadays, any trip we take has to be scheduled meticulously so as to avoid conflicts with school, sports, and other activities.

Having kids has also eaten into my downtime significantly. These days, when I’m not working, I’m typically shuttling a child to an extracurricular activity, carpooling to a birthday party, or generally hanging out with my kids and tending to their needs.

I wouldn’t trade any of this for the world. But there are times when I can’t help but bemoan how expensive life has gotten since having kids.

Between the cost of camp, healthcare, food, and clothing, my husband and I spend a small fortune to raise our gang of little humans. And we’ve also made a point to boost our emergency fund since having kids, because you never know when a large expense might arise from one of them (like the whopping medical bill we recently received after treating my daughter’s broken finger).

Not surprisingly, a recent survey by Policygenius found that 26% of parents said they’d have less debt if it weren’t for their children. But 16% have also made one important move since bringing kids into their world.

A smart move to make

Having kids prompted 16% of parents to build themselves an emergency fund. And that’s a smart thing to do when you have children.

Granted, it’s important to have money in a savings account whether you’re a parent or not. But if you have kids, it opens the door to a host of bills, some of which may be unavoidable.

Take medical bills, for example. If your child is sick, you pretty much have to take them to the pediatrician or urgent care. Now, if that only happens once during the month, your earnings might cover the cost. But if you have multiple children and each one ends up having to see the doctor within the same four-week span, you might end up having to dip into your cash reserves to cover your costs.

And let’s not forget child care expenses. Those could eat up a huge chunk of your income, so having money in the bank to tap is a helpful thing.

Plus, you just never know when you might end up losing your job or seeing your income decline. That’s a stressful enough situation when it’s just your needs you have to cover. But if you also have to cover your kids’ needs, a situation like that becomes even harder. So you need an emergency fund to bail you out.

How much emergency savings do you need?

As a general rule, it’s best to keep enough money in your savings account to cover a full three months of essential bills at a minimum. But when kids are involved, going above that point certainly isn’t a bad idea.

Of course, having kids might make it difficult to build emergency savings seeing as how you’re probably spending tons of money on them. So if you’re still kid-free but expect to have kids in the coming years, take the opportunity now to bank some cash reserves while you can. That way, you can focus more on raising your kids and spend less energy worrying about money when your bills inevitably start to rise.

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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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