Money Management

The debt ceiling issue could affect food benefits in both the short and long term. Find out how what’s happening in Washington could impact SNAP. 

Raising the debt ceiling used to happen as a matter of course. But it’s become a political hot potato in recent years, particularly as the level of debt creeps upwards. Right now, the Republicans want to negotiate ways to cut spending before they’ll agree to increase the amount the U.S. will borrow.

It looks increasingly likely that a solution will be reached, but it isn’t clear what compromises will be made on the way. Read on to find out more about the debt ceiling and how it could impact your food benefits.

What is the debt ceiling?

The debt ceiling is the total amount that the U.S. can borrow. Because the U.S. spends more than it brings in, it relies on debt to meet many of its obligations. However there’s a cap on how much it can borrow (a bit like the limit on a credit card), and it has already reached that limit. The Treasury is shuffling money around to stay afloat, but it can’t do this forever.

Without getting into the politics, lawmakers in Washington need to approve any increases in the debt ceiling. It doesn’t matter that we’re talking about spending that has already been approved, there’s still a limit to how much debt the country can take on. Various people have warned that a debt default could be catastrophic for the country, and the hope is that cooler heads prevail.

The debt ceiling and SNAP benefits

There are two ways the debt ceiling debate could impact SNAP recipients. Firstly, if politicians can’t reach an agreement in time and the U.S. breaches its debt limit, food and other benefit payments could be delayed.

Secondly, one of the sticking points in the debt ceiling debate is that some politicians want to put tighter restrictions on the work requirements attached to benefits such as Supplemental Nutrition Assistance Program (SNAP).

1. Hitting the debt ceiling could mean delayed payments

Since January, when the U.S. reached the debt ceiling, the Treasury has been moving money around so it can continue to meet its obligations. Unfortunately, there’s only so long it can do this — Treasury Secretary Janet Yellen warns the U.S. could default on its debt as early as June.

This has never happened before. In the extremely unlikely event that it does, the government would have to prioritize certain payments. It’s a bit like having to choose whether you pay your utility bill or your rent because you don’t have enough in your bank account for both. In terms of your household finances, it might mean your SNAP payments don’t arrive when you expect them. Social Security, Medicaid, and other federal payments could also be impacted.

It’s important not to panic. Not only is it almost certain that lawmakers will reach an agreement, we also don’t know what payments the Treasury would prioritize in the event that disaster struck. Even so, if you are able to squirrel away any extra cash in the coming weeks, it could help in case payments get delayed in June or July.

2. Lawmakers may agree to change SNAP work requirements

Kevin McCarthy, the Speaker of the House, wrote to President Joe Biden in March to suggest several ways the government might save money. These include reclaiming unspent COVID-19 funds and “strengthening work requirements for those without dependents who can work.”

This could involve changing the age at which people need to meet work requirements. Right now, people aged 18 to 50 can only receive SNAP benefits for three months in a three-year period if they can’t show they’re working or training for at least 20 hours a week. McCarthy’s proposal would increase this age to 56.

In response, Biden tweeted, “The House Republican wish list would put a million older adults at risk of losing their food assistance and going hungry.” That figure is backed up by the Center on Budget and Policy Priorities, which says around a million individuals meet those criteria.

Bottom line

No politician wants to crash the U.S. economy and there is every likelihood that the debt ceiling will be increased. Even today, lawmakers announced that more progress has been made in their negotiations.

However, if you rely on SNAP benefits to keep food on the table, you’d be forgiven for feeling as if you’re between a rock and a hard place. The consequences of not reaching a deal could be dire. But if negotiators compromise and change the benefit requirements so they can make a deal, that could have longer-term impacts for SNAP recipients.

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The updated Clean Vehicle tax credit has made many electric vehicles ineligible. Read on to discover which 22 EVs do qualify. 

It’s been a little over a month since the IRS’s new requirements took effect for its $7,500 Clean Vehicle tax credit. And, as with most things involving our tax agency, the new rules still have some would-be EV purchasers scratching their heads in confusion.

Eligible EV purchasers can receive a $3,750 or $7,500 tax credit and up to $4,000 for a pre-owned EV. That’s simple enough. But in order for an EV to qualify it has to meet numerous requirements, such as where its critical metals are sourced, where the vehicle is assembled, and even how much it weighs.

The rules get even more complicated than that. But if you’re on the market for an EV, here’s how you can determine if it meets the Clean Vehicle tax credit requirements.

Which EVs qualify for the Clean Vehicle tax credit?

For an EV to qualify for part or all of the Clean Vehicle tax credit, it has to meet two very important criteria:

At least 40% of the vehicle’s critical metals were extracted in the United States or one of 20 countries with a free trade agreement with the U.S.At least 50% of the vehicle’s battery components must be manufactured or assembled in North America.

In addition to these, the vehicle has to meet certain price restrictions. For vans, SUVs, and pickup trucks, the manufacturer’s suggested price cannot exceed $80,000, while other vehicles have a price cap of $55,000. For pre-owned EVs to qualify, the price cannot exceed $25,000 and the model year must be at least two years prior to the date of your purchase.

As far as individual models go, The Ascent’s research team has identified 14 EVs that qualify for the full $7,500:

And the following eight models qualify for a $3,750 tax credit:

Even if your preferred EV model isn’t on this list, you might be able to use a tax credit loophole to persuade your EV dealership to reduce your lease payments by $7,500.

Keep in mind these vehicles qualify for a tax credit, meaning you can shave $3,750 or $7,500 off federal taxes that you owe. For instance, if you owe $5,000 on your federal tax bill, you can apply the entire $7,500 tax credit. Unfortunately, the tax credit is nonrefundable, meaning you wouldn’t receive any portion of your $7,500 as a tax refund. In this case, your $7,500 would reduce your $5,000 tax bill to $0, but you wouldn’t get $2,500 as a refund.

In addition to these, your state may offer a rebate for eligible EV purchases. To find out if your state is one of the 41 that offers a rebate (spoiler: the District of Columbia does), look for your state in The Ascent’s guide on electric vehicle tax credits and rebates.

Does every taxpayer qualify?

The IRS has placed income restrictions on the Clean Vehicle tax credit. For those purchasing new EVs, you can qualify for the tax credit if your income is below the following thresholds:

Given the high sticker prices on most electric vehicles, many of us need this tax credit to truly afford an EV. But understanding which EVs qualify is only part of the battle. You could also save money by shopping around for auto loans at the best rates. Even cutting your APR by a few dozen basis points could translate into thousands saved over a long period, which is almost as much as you’ll save with the tax credit.

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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 positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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Don’t let your current financial situation get you down — it isn’t forever. Learn about some habit changes that may help you improve your finances. 

When you’re in the midst of a difficult financial situation, it may feel like there is no way out. The good news is that what you’re experiencing now doesn’t have to be forever. While you may feel discouraged about the current state of your finances, you can take small steps to improve your situation. Small habit changes can make a big difference in improving your financial future. Consider these changes if you want to improve your relationship with money.

1. Learn to budget

If you’re not following a budget or monitoring your spending, you likely don’t realize how much money you’re spending. Budgeting can help you be more aware of where your money is going. You can minimize overspending and find ways to reduce your spending to free up extra cash for other financial goals. Budgeting apps are an excellent tool, especially if you’re new to budgeting.

2. Open a high-yield savings account

Saving up for future expenses is an excellent way to be financially prepared. But it’s essential to stash your extra cash in the right place. If you’re keeping your savings in a checking account, you’re missing out on interest. By opening a high-yield savings account, you can earn interest and get rewarded for savings. Don’t miss out on free money.

3. Automate your savings

Many people want to save more but struggle to remember to do so before they spend their entire paycheck. If you struggle with saving, this technique may be for you. Automating your savings can take the manual work out of saving. You can set up automatic transfers to regularly send money from your checking account to your savings account. This habit change can save time and help you stay on top of your savings goals.

4. Pay more than the minimum amount due on your credit card

Credit card debt is an expensive problem to have. You’ll be charged interest if you don’t pay your entire balance off each month. Many people accumulate credit card debt because they pay only the minimum amount due on their credit card bills and the debt and interest continue to grow. If you can afford to do so, paying your entire balance off every month is best. By getting in the habit of paying off your credit card balance in full, you can avoid credit card interest charges.

5. Build an emergency fund

You never know when an unexpected expense will come your way. Paying a costly unplanned bill can be challenging if you live paycheck to paycheck and have minimal savings. An emergency fund can help you prepare for such situations. Having extra money available when you need it most can ease your stress. If it feels impossible to build your fund, start small. If you save $100 a month, you’ll have $1,200 saved in a year. That’s much better than $0 saved.

6. Regularly review your finances

Many people struggle to stay on top of their personal finance affairs because they ignore their situation. But ignoring your financial struggles won’t help you. It’s essential to check in on your financial accounts and bills regularly so you can make a plan and take action. Consider setting aside 20 to 30 minutes monthly to review your finances so you’re in the know.

7. Wait 24 hours before checking out online

Online shopping is convenient but can lead to overspending if you’re not careful. Here’s what to do to reduce your online shopping trips. The next time you fill up your online shopping cart, step away from your computer or phone and wait 24 hours before checking out. Doing this gives you extra time to think through the decision and may help you reduce impulse purchases.

It’s never too late to make changes

Don’t give up if your current financial situation is less than ideal. You can set yourself up for success and improve your situation by committing to making small changes in your daily life. Over time, these changes will add up and improve your finances in a big way.

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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.Natasha Gabrielle 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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Should you renew that CD you have coming due? Read on to find out how to decide. 

Putting your money into a CD is a good way to snag a higher interest rate than what a savings account might be paying. CD rates tend to be higher than savings accounts rates because they’re less flexible. With a CD, you’re required to tie your money up for a certain period of time. And you’ll generally face penalties for cashing out a CD before it matures.

If you have a CD coming due this month, you may be inclined to renew it. But before you do, run through these key questions.

1. Have I dipped into my emergency fund recently?

You may have needed to take an emergency fund withdrawal to cover a home or vehicle repair over the past few months. Before renewing your CD, see how much money you’re left with in emergency savings. You may want to take some of the funds from your CD and put them into a regular savings account to replenish the emergency fund money you had to remove.

2. What interest rate is my bank offering?

Don’t assume that the interest rate you locked in on your CD is the rate that’s available right now. Chances are, if anything, the rate you can get today is higher, but it’s still important to check and see what your bank is actually paying before renewing your CD.

3. Can I get a better rate at another bank?

There’s nothing wrong with spreading your money across different banks. If you have a CD coming due at one bank, and it’s also where you have your savings and checking account, but another institution is offering a higher interest rate for the CD term you’re looking at, put your money elsewhere.

4. Does it make more sense to invest the money?

You might snag an interest rate of 4% or higher on a CD today. And that’s a nice return given that you’re not really risking the loss of any principal (assuming you don’t have more than $250,000 in deposits and your bank is FDIC-insured). But you might score an even better return by investing your money in a brokerage account.

Now, going this route does mean taking on some risk. But whereas CDs today might be paying somewhere in the ballpark of 4% to 4.5%, the stock market has delivered an average annual 10% return (before inflation) over the past 50 years, as measured by the S&P 500 index’s performance. When you compare a 10% return to what CDs are paying, investing can be tempting.

Renewing your CD when it comes due might seem like it makes the most sense. But make sure to answer these important questions before making that call. You may decide that it’s best to move that money into a regular savings account so you can access it whenever you need to for emergency expenses. And you may decide to move it into another bank with better rates, or start investing so you can grow your money into an even larger sum 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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Carrying a balance on your credit card is a costly financial habit. Here’s how many credit card users do this and how to break the cycle. 

A golden rule of using credit cards is that you should always do your best to pay the full balance. You’re only charged interest on your purchases if you carry a balance from month to month. By paying in full, you can use your credit card interest-free while taking advantage of any benefits it offers, such as rewards and purchase protections.

Not everyone follows that golden rule. In fact, a large portion of credit card users carry a balance from month to month, and the average debt is a considerable amount.

Nearly half of credit card users carry a balance

Among Americans with a credit card, 47% have revolving debt, meaning they carry a balance. That’s according to data from the Consumer Financial Protection Bureau (CFPB) gathered in The Ascent’s audit of America’s financial health.

Another troubling sign is the amount of debt that many people have. Among that 47% who carry a balance, the average credit card debt is $4,773.

Because of how high most credit card interest rates are, it’s expensive to carry a balance on them. As rates have gone up, the average credit card interest rate is nearing 21%. To give you an example of how much this can cost you, let’s say you have a card with a rate of 21% and a $4,773 balance. In one year, you’d pay just over $1,000 in credit card interest.

What to do if you have credit card debt

If you have credit card debt, prioritize paying it off as quickly as possible. The faster you can do this, the less interest you’ll pay. There are a few steps you can take to get out of credit card debt:

Cut back on expenses. Separate your needs from your wants, and reduce how much you’re spending on nonessentials. If you have a large amount of debt, your best bet may be to stop spending on nonessentials entirely for the time being.Put as much money as you can toward your credit cards. If you only make minimum payments, that significantly extends how long it takes to pay off your credit cards. Figure out how much you can afford to pay per month and commit to it. Setting up autopay is a good way to save time and ensure you always follow through on paying that amount.Look into debt consolidation if you have good credit. Debt consolidation is when you use a new loan or line of credit to pay off all your existing debt, allowing you to reduce your monthly payments and get a lower interest rate. Balance transfer credit cards are a popular option for this, because they offer a 0% intro APR on balance transfers. Debt consolidation loans are another option.

How to avoid carrying a balance on your credit cards

There are a couple of typical reasons why people carry a balance on their credit cards. Some don’t realize how much they’re paying in interest. That’s why it’s important to be aware of your credit card’s interest rate.

For others, it’s because of poor spending habits. They fall into the trap of spending more than they can afford under the assumption that they’ll pay it back later. The best way to avoid doing this is by setting up a budget and tracking your spending. Budgeting apps can help you do this.

One more common cause of credit card debt is needing to borrow money for financial emergencies. Unfortunately, a recent report by SecureSave found that 2 in 3 Americans can’t cover a $400 surprise expense. If you have an unexpected bill to pay, and you don’t have enough money for it in your bank account, putting it on your credit card may be the easiest option.

Those surprise expenses are why you need an emergency fund. The standard recommendation is to have enough in your emergency savings to cover at least three months of living expenses. If you don’t have an emergency fund yet, make that a goal of yours and start setting aside money every month in a savings account for it.

Even though carrying a credit card balance is common, it’s something you should try to avoid whenever possible. Paying in full every month is a good habit that will keep you out of debt and keep you from incurring costly 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.The Motley Fool has a disclosure policy.

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Should you open a CD? Read on to find out how safe a move that is. 

Ideally, you have a decent chunk of money sitting in your savings account that you can tap in an emergency. But you might have money to put in the bank beyond your emergency fund. And you may be inclined to open a CD to earn a higher return on your cash.

CD rates tend to be higher than savings account rates because CDs are more restrictive. They require you to commit to locking your money away for a preset period of time. That could be six months, 12 months, or longer.

With a savings account, you’re not really committing to anything. You can take a savings account withdrawal when you need to, or when the mood strikes you.

You may be wondering how risky it is to put money into a CD. In the context of losing out on principal, CDs aren’t risky at all. But there are other risks you take on when you tie your money up in a CD.

Your principal is safe

If you open a CD at a bank that’s FDIC insured, you won’t have to worry about losing out on principal provided your total deposits at that bank do not exceed $250,000. So, let’s say you have $5,000 in your checking account at a given bank and $20,000 in a savings account. If you come into an extra $3,000 — say, from a tax refund — and you open a CD at that same bank, you’re well below that $250,000 limit. That means every last dollar of your money is protected.

You could risk a penalty

There’s really no such thing as taking money out of a CD. If you open a $3,000 CD and later need to take a $200 withdrawal, you’re generally forced to just cash out your CD entirely. And that could result in a costly penalty.

Now the amount of that penalty is something your bank has the right to determine, and penalties can differ from one bank to another. But at one well-known national bank, cashing out a 12-month CD before it comes due means losing out on three months of interest, as an example. So that’s one risk you’ll need to consider before putting money into a CD.

You might get stuck with a lower return

Another risk associated with opening a CD? Getting stuck with a given interest rate only to see rates rise as soon as you’ve officially tied your money up.

Let’s say you put $3,000 into a 12-month CD paying 4.2%. What if, a couple of weeks later, that same CD becomes available at an interest rate of 4.5%? In that case, you’ve limited yourself to $126 of interest instead of $135.

Is that $9 difference a life-changing sum of money worth crying over? No.

Is it annoying? Yes.

Also, the more money you put into a CD, the more risk you take on in the context of shorting yourself on what could be a higher interest rate. A difference in rate of 0.3% may not amount to much for a $3,000 deposit. For a $30,000 CD, you’re talking about a difference of $90 in interest.

While the sum of money you put into a CD will generally be protected, there are other risks involved. Make sure you understand those completely before committing to a CD. And if you’re not comfortable with the idea, you may want to stick to a regular savings account just to play it completely safe.

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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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