Money Management

A career change could hurt your income, but that’s not always the case. Read on to learn more. 

There may come a point when you decide you want to embark on a new career. Maybe you’re eager to do work that’s more creative. Or maybe you’d prefer to work in an industry that’s less demanding.

Often, switching careers will mean taking a pay cut. Even if you’re going from a lower-paying industry to a higher-paying industry, when you change careers, you commonly have to start at the bottom. And that commonly means seeing your salary take a dive (although there are, of course, exceptions to this rule).

That’s why it’s so important to prepare for a career change rather than making one on a whim. Some key financial moves could set you up to absorb the temporary financial hit a career change might result in.

A strategic approach is key

In 2021, the median U.S. income was $69,717. Your salary may be higher or lower, depending on your industry and specific role. But either way, if you’re changing careers, you may have to accept an entry-level position, or a more basic role, given your lack of experience. That could result in a substantial pay cut.

In some cases, that cut may not be so extreme. Perhaps you have skills that translate well from one industry to another, resulting in a higher-paying job in your new field from the start. But for the most part, it’s wise to plan for a pay cut when you’re leaving your industry behind and are beginning to explore a new one.

The first thing to do in that regard is boost your savings account balance. Having extra money in the bank could reduce your financial stress if your new paycheck doesn’t suffice in covering all of your bills.

Next, aim to get rid of any high-interest debt you have before changing careers. Shedding a monthly credit card payment could make it much easier to cope with a lower paycheck, because that’s one less bill you’re on the hook for.

Additionally, comb through your expenses and slash some of them ahead of your career move. Canceling cable TV service and a monthly subscription box might make it easier to absorb the hit of a lower paycheck. Better yet, if you can unload larger bills, do so. If you’re at the point where having a car is a luxury, selling it could save you thousands of dollars in the course of your first year in your new career by not having to pay for maintenance and auto insurance.

The more you prepare, the better

It’s often the case that a career change results in a lower salary. But if you prepare for that ahead of time, you can embark on your career switch with a lot less stress.

And remember, the salary hit you take in the course of changing careers might be temporary in nature. So any sacrifices you make to allow that new salary to work might be sacrifices you’re only making for a year or two until you get up to speed and work your way up in the ranks.

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A credit card with more benefits could help you save money. Check out the signs it’s time to upgrade your credit card. 

If you’ve been using the same credit card for a long time, it could be a good idea to think about an upgrade. When you upgrade your credit card, you switch to a card with more benefits, and often (but not always) a larger annual fee.

You might not be sure about spending more money for a credit card, especially if you’ve only used no annual fee cards until now. But you could end up saving more money this way. If you’re on the fence, here are the biggest signs you need to upgrade your credit card.

1. You’ve improved your credit score

If your credit score has taken a leap forward since you got your card, you could probably qualify for a better one.

This is especially true if you’re now in the good credit range (a FICO® Score of 670 or higher). Credit cards for consumers with lower credit scores tend to have limited benefits. But once you have good credit, you can normally qualify for some of the very best credit cards.

You’ve done the work to improve your credit score. You should definitely take advantage of the benefits that come with it. Even if you want to stick to no annual fee credit cards, there are much better options available for consumers with good credit.

2. You’re spending more

One of the advantages of more expensive credit cards is that they have higher rewards rates. Credit cards with larger annual fees typically earn more in cash back or travel points.

That can make a big difference. And the more you spend, the more of a difference it makes. That doesn’t mean you should spend more just to earn rewards, but if your bills have gone up, then it’s worth looking for a credit card that will help you maximize your rewards.

3. You’re traveling more often

Most travel credit cards charge annual fees, but they also have perks that can help you save money on your trips. As you’d expect, the travel cards with the highest fees also usually have the longest lists of benefits. Here are some examples of perks available with travel credit cards:

Complimentary access to airport loungesFree checked baggageSpending credits for travel purchasesElite status in airline and/or hotel loyalty programs

If you’re traveling more than you used to, consider upgrading to a travel credit card. Or, if you already have one, you may want to see if there’s one with even more perks.

4. You want more benefits

Upgrading your credit card doesn’t need to be a complicated decision. If you just want more features than your current card offers, then it makes sense to look for upgrade options.

There are lots of credit card perks out there. Start by figuring out what you’re interested in, such as a higher rewards rate or luxury travel benefits. After that, you can start narrowing down the list of cards that fit your needs.

How to upgrade your credit card

There are two ways to upgrade your credit card. The traditional option is to call your card issuer and ask to switch to another card in its lineup. There are a few drawbacks to this method:

You’re limited to the credit cards that your card issuer has available.You most likely won’t be eligible for any welcome offer available with your new card.

For example, let’s say you choose a card that offers 75,000 bonus points for spending $4,000 in the first three months. Welcome offers like these are normally only available to new cardholders. In that case, if you upgrade to that card, you won’t be eligible.

The other option is to pick the new card you want and apply for it as a new cardholder. You can keep your old card, or, if it has an annual fee, you can downgrade it to a no annual fee card.

I almost always go with the latter method. By applying for the card you want, you’re eligible for the welcome offer. That’s important, since these often give you the opportunity to earn a large amount of points or cash back. You’re also not limited in terms of which cards you apply for. It’s up to you how you upgrade your credit card, but make sure to compare your options so you can choose the one that benefits you the most.

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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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U.S. consumers remain reliant on debt. Read on to see what that looks like. 

U.S. consumers generally aren’t strangers to debt. People borrow money all the time, whether to finance a car or cover essential bills that are too much for their paychecks.

But recent data from Northwestern Mutual shows that American consumers carry an average debt load of $21,800. Now that sum doesn’t include mortgage debt. And it’s also lower than it was a year ago, when the average personal debt pile totaled $22,354.

But still, $21,800 in non-mortgage debt isn’t a small amount. In fact, Northwestern Mutual says that this year, credit card balances account for 28% of consumer debt. And borrowing via a credit card balance can be extremely expensive.

If you’re struggling to keep up with your debt, you should know that falling behind could damage your credit and make it very hard to borrow money affordably in the future. But there are steps you can take to make your debt more manageable.

1. Consider a balance transfer

The problem with credit card debt in particular is that the interest rate on it can climb over time, making it more expensive. Not to mention, the interest rate you’re paying may be exorbitant to begin with.

If you have good credit and owe money on various cards, you may want to look at doing a balance transfer, where you move your existing balances over to a new credit card with a lower interest rate. Many balance transfer offers, in fact, allow you to snag a 0% introductory rate on your debt. So you might get a reprieve from racking up interest for 12 months, 15 months, or sometimes even longer.

If you manage to score a 0% introductory rate on a balance transfer, one thing worth doing is picking up a side job so you can boost your earnings and free up more cash for debt payoff purposes. You’ll want to knock out as much of your debt as possible before that introductory period comes to an end and your remaining balance begins accruing interest.

2. Consolidate your debt via a personal loan

A personal loan can be a more affordable option for borrowing money than credit cards because you’ll likely be looking at a lower interest rate if your credit is in decent shape. And also, personal loans offer the benefit of fixed interest rates, so your monthly payments are predictable. That alone could make your debt easier to manage.

3. Consolidate via a home equity loan

It’s a big myth that you can only take out a home equity loan to fix or improve your property. Like personal loans, home equity loans allow you to borrow money for any purpose. But if you have a lot of equity in your home, you may find that you’re able to borrow at a lower interest rate than what a personal loan will give you.

While it’s encouraging to see that Americans have less debt in 2023 than in 2022, personal debt levels are still high. If your debt has reached the point where it’s no longer manageable, then it pays to explore these options for making it easier and more affordable to keep up with.

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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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Leverage compounds losses. Here’s what my failed leverage experiment taught me. 

Mistakes happen. That’s what I told myself as I stared miserably at the red line skewering my Robinhood account. My lovely, once-a-year vacation had been irrevocably damaged by my decision to invest with leverage. In days, I lost thousands of dollars to Mr. Market.

Months after repaying the loan in full (and then some), I’ve come to a shocking realization: I lost thousands of dollars to leveraged investment, and I’m not totally mad about it.

The experience taught me three valuable lessons, and it did so for relatively cheap. Here’s why I’m glad to have lost a hefty chunk of my portfolio when I did.

Lesson No. 1: Leverage hesitation

I did the thing, but don’t get me wrong — I passed a half-dozen warning signs along the way. My stock advisor. Skeptical family members. Concerned friends. Folks looked at me sideways when I confessed to leveraging investments. This is when you buy stocks with borrowed money to potentially boost returns.

I believed them. But it wasn’t until my portfolio plummeted, margin calls happened, and the heartburn set in that I really understood what it meant to lose borrowed money.

On leverage, rising stocks soar — and falling stocks plummet. You can lose a lot more than what you initially invested. When it happened to me, I learned that folks have good reasons to avoid investing on leverage, especially when you’re investing large sums.

Lesson No. 2: Margin calls

I leveraged my investments through a margin account, which lets investors borrow from a broker to purchase stock. Back then, I had no idea that margin calls were a thing.

Margin calls happen when you lose too much borrowed money. Your broker makes the call, and you must sell invested stocks to repay your debt. This happens when your stocks are at rock bottom, the worst possible time to sell.

Because I didn’t understand the risks, I over-invested and lost thousands. Now, I know better.

Lesson No. 3: Don’t catch the falling knife

The stock market crashed. Excited by the prospect of low prices and fearful the market would zoom to previous highs, I invested mid-crash. The result? The market continued its slow, rolling tumble, taking my investments down, down, down.

Lesson learned: Don’t attempt to time the market short term. I’m no trader. Ideally, I leave my money in the market for five years or longer — preferably until retirement. Though valuations matter, getting emotionally invested in stock market volatility was a mistake.

In the pursuit of short-term gains, I lost quite a bit. You can bet that next time, I’ll think twice.

But the stakes were low

I’m not mad about any of this — not anymore. I’m just happy that I learned these lessons at a discount when the stakes were low. Had I been heavily invested in the market, I could have taken out way more leverage, possibly damaging years’ worth of savings in a single move.

Generally, beginner investors should steer clear of investing with leverage. But to those who can’t resist the siren call, I understand. Some things you’ve got to experience firsthand. Ideally, margin investors start small, with a tiny percentage of their total portfolio.

Young investors with long investment horizons have the freedom to take risks. Don’t feel pressured to try margin, but if you must dabble, it’s best to learn when the stakes are low.

Is leverage terrible?

No. Leverage is a financial tool, neither good nor bad. But it’s an advanced one. Like options trading, it can quickly demolish your hard-earned savings if you play your cards wrong. And with Fed rates climbing to recent highs, monthly interest payments are nothing to scoff at.

Folks new to investing may consider beginner-friendly stock brokers to start. There’s plenty of money to make in the un-leveraged market. Long-term investors can maximize their chance of earning returns by following expert stock investing advice.

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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.Cole Tretheway 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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