Money Management

It’s usually recommended to pay off credit card debt before traveling. Here’s when it could make sense to take a summer trip even if you’re in debt. 

As summer rolls around, it’s normal to start feeling some serious wanderlust. The weather warms up, you hear about other people’s vacation plans, and it makes you want to go on a trip of your own. But if you have credit card debt, you may question whether traveling is a responsible decision.

The answer would normally be no, and some financial advisors are absolutely adamant that you shouldn’t travel in this situation. Travel is a luxury, and when you have credit card debt, you shouldn’t be spending money on luxuries until those cards are paid off.

While that’s good general advice, not all situations are black and white. There can be exceptions, so if you really want to go on an important trip, it’s worth taking a closer look at things.

It depends on the amount of debt and your travel plans

Credit card debt comes in all sizes. So, the first thing to consider is just how much credit card debt you have. You should definitely hold off on vacations if you’re dealing with, say, $25,000 in credit card debt. But if it’s a smaller, more manageable amount, you can sometimes afford to be a little more flexible.

Here’s a simple rule of thumb — if you’ve set up a payment plan, and you’re going to be able to pay off your credit cards within six months, you can consider traveling. If you don’t have a payment plan, or it’s going to take you longer than six months to get rid of credit card debt, focus on that for the time being.

The other consideration is your travel plans. Ask yourself these two questions about the trip you want to take:

How important is it? If it’s a once-in-a-lifetime type of trip, then it’s worth prioritizing. The same is true if it’s an opportunity to spend time with friends or family that you don’t see very often.How much is it going to cost? If you’re going to travel, it’s important to keep it affordable. Going on a vacation to a luxury resort may be fun, but it will also make your debt much harder to pay off.

Your age and your overall financial situation are also important factors. When you’re young, it’s normal to not have a whole lot of disposable income. You also have time to get on track with saving and investing to build wealth. If you’re in your 20s and have a little credit card debt you’re paying off, it’s not the end of the world to do some budget travel this summer.

As you get older, the truth is that there’s less margin for error. You have less time until retirement, and you may have already reached your peak earning years. If you’re in your 40s or 50s with credit card debt and no retirement savings, focus on paying off that debt and setting up retirement accounts first. Spending money on a vacation isn’t a great idea, because you have more pressing financial needs.

How to travel on a budget this summer

If you want to travel, but money is tight, then budget travel is the name of the game. Start by looking for more affordable ways to travel so that you can avoid the biggest expenses.

For example, instead of flying somewhere, look for destinations within driving distance so you can plan a road trip. Instead of staying at a hotel, check out vacation rentals or hostels. Some vacation rental sites, most notably Airbnb, also have room rentals available. These tend to be much cheaper than renting an entire place for yourself.

If you have any credit cards that earn rewards, see if you can cash those in to cover travel costs. Travel credit cards are great for this. Depending on the card, you may be able to use your rewards to cover the cost of airfare, a place to stay, or other travel expenses.

Once you’re at your destination, be careful about how much you spend on day-to-day expenses. Look for free or low-cost activities, as most cities have plenty of them. Pick up some food at the supermarket, too, so that you don’t always need to go out or order delivery.

The safest option, and the best from a pure financial perspective, is to not travel if you have credit card debt. However, there can be exceptions, especially if it’s a special trip or an opportunity to make memories with loved ones.

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Want to buy a home? Read on to see what important step to tackle first. 

So far, 2023 is proving to be a pretty difficult year to buy a home. Not only are mortgage rates up, but the real estate market lacks inventory in a very serious way. And that means you might struggle to find a home that meets the right requirements.

As of the end of March, there was only a 2.6-month supply of homes on the housing market nationally, according to the National Association of Realtors. A more “normal” housing market, however, could easily have a six-month supply.

Given the state of the housing market today, the one trap you don’t want to fall into is searching for a home and finding the perfect one — only to realize it’s out of your budget. To avoid landing in that situation, there’s one key step you have to take before starting your home search.

Get pre-approved for a mortgage

Many people think that once they get pre-approved for a mortgage, they’re all set as far as financing a home goes. It’s important to understand that a mortgage pre-approval letter is not the same thing as a mortgage approval itself. But that doesn’t mean a pre-approval letter isn’t worth getting.

First of all, in a housing market with limited inventory, there can be a lot of competition. If you go to make an offer on a home with a mortgage pre-approval letter in hand, it might give you an edge over competing buyers who haven’t taken that step.

Just as importantly, in the course of giving out a pre-approval letter, a mortgage lender collects some basic information about your finances (including your income) and uses it to determine what sum of money you’re eligible to borrow in theory. And that’s a really important number to have when you’re looking for homes to buy.

Let’s say you don’t get pre-approved for a mortgage and spend weeks looking at homes in the $550,000 range. If you only have $50,000 to put down on a home, it means you’d need a $500,000 mortgage to make a purchase happen.

Now, let’s say you get pre-approved for a mortgage and realize you’re only approved to borrow $425,000. That may not be the news you want to hear, but at least that way, you can avoid wasting your time looking at more expensive homes.

A step worth taking

Getting pre-approved for a mortgage can be a quick process. It’s one you can often do over the phone.

In today’s market, it’s worth having a pre-approval letter so you can present yourself as a serious buyer. Just as importantly, knowing what sum of money you’re eligible to borrow could prevent a scenario where you waste time looking at homes that are out of your price range.

Buying a home can be an emotional process. And it’s common for house hunters to fall in love with a home only to have their hearts broken when their offers aren’t accepted. If you get pre-approved for a mortgage, you might save yourself not only time, but heartache.

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Ramit Sethi believes once you upgrade your house, switch to luxury hotels, or sign up for kids activities, you can’t ever go back. Here’s why. 

If you’re trying to decide whether to increase your spending on a particular category of purchases, it’s important to think about what the long-term commitment will be.

It may not be a big deal to give your credit cards a workout on one splurge purchase, for example. But, it can do a lot more damage to your bank account if you make a decision that will increase all of your costs going forward for the foreseeable future.

That’s why you may want to think carefully about upgrading your spending on these items since finance expert Ramit Sethi says that once you do, you may never be able to go back.

These splurges could become permanent

According to Sethi, there are several big splurges that could become permanent needs once you try them out for the first time. On Twitter, he warned that permanent lifestyle upgrades could include:

Moving to a larger homeSwitching from flying coach to flying first class or privatePurchasing luxury clothingStaying in luxury hotelsSigning your children up for activities

Sethi said that because it is so difficult to switch back to cheaper alternatives once you get used to these better options, he is careful about which of these types of lifestyle upgrades he chooses. And he makes sure that the added spending is sustainable before making a change.

I’ve found the same to be true in my own life. We signed my son up for some karate lessons and he fell in love with them. But they kept increasing the monthly cost of tuition and adding on new charges for belts and promotion ceremonies and the costs became ridiculous for a 3-year-old — more than $300 a month — so we decided to pull him out. He was upset for weeks and even months later I still frequently hear, “when can I go back to karate?”

Always consider the long-term impact of an increased expense

In some cases, it would be difficult to go back on these upgrades for practical reasons. For example, if you’ve purchased a larger home, selling it and moving to a smaller one could cause major upheaval in your life. You could also face significant costs, including a 6% real estate commission on an expensive property. If you’d upgraded to a $1 million home and had to go back, for example, the transaction costs would be $60,000 for real estate fees alone, plus other closing costs as well.

In most cases, though, these examples of splurges that could become permanent would only become essential long-term upgrades to your lifestyle because it would feel mentally difficult to go back. You might not want to disappoint your kids by taking away an activity, for example, and a budget hotel or a coach seat in the back of the plane would seem a lot worse to you once you’d gotten used to something better. But, the reality is you could downgrade these items if you need to.

Money is often psychological

The key point Sethi is making here, though, is a good one. A lot of money management is psychological. So, while you may theoretically be capable of scaling back after you increase spending on a particular item, you may find yourself unable to actually follow through.

And, if you’ve upgraded your expectations without making sure you can continue to afford the change over the long term, this could be a risk to your future — especially if you start taking on debt or compromising long-term financial goals to fund splurges you can no longer afford but can’t make yourself give up.

Now, Sethi’s list of “permanent” splurges may not be the same as yours. A lot depends on what you value the most. But, chances are good, there are some lifestyle upgrades you are likely going to make permanent once you make them. So, before you embark on any of these changes, take the time to really think about the costs and whether they are sustainable.

This means considering both what your ongoing income is and how much the upgrade will cost you over the long term. It may not be a big deal, for example, to switch to premium coffee that costs you an extra $20 a week over instant if that’s one of your splurges. But, opting for business class international plane tickets (which can cost two to 10 times what an economy ticket would set you back) is a much bigger upgrade to be able to continually finance.

If you do this exercise, you can make meaningful, sustainable upgrades to your life as your income increases — without putting your future in jeopardy.

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I thought I had made a credit card payment but I didn’t hit “submit.” Keep reading to learn the steps I took to get a late fee waived and avoid credit damage. 

A short time ago, I made a mistake with my credit cards. I had switched checking accounts and didn’t have autopay set up yet, so I had to go in and manually make a payment. I thought I had completed this process, but unfortunately I must have gotten distracted before I hit “submit” because my payment didn’t go through.

I did not find out about this issue until I received my new credit card statement and saw I had been charged a $25 late fee and been charged interest on my balance — something I usually avoid by paying my card off in full each month.

I was not happy about these charges and I was also worried that my near-perfect credit score would be adversely affected if the card issuer reported my payment as 30 days late. So, here’s what I did.

This simple move saved me $25 and maybe a lot more

After I got my credit card statement and realized my mistake, I immediately made a very important decision. I was going to call my credit card company and see what it could do for me. Specifically, I was hoping to have the fee and interest charge reversed and make sure it didn’t report me to the credit reporting agencies.

I called the customer service telephone number on the back of my card, reached a helpful customer service agent, and explained exactly what had happened and how I thought I had made the payment but forgot to follow through.

I also explained I had been a cardholder for years and suggested they check my past payment history to see that I had always paid my card off on time and in full. After explaining these details, I asked for my desired outcome.

The customer service person was fortunately very understanding and said that if I provided my details to make a full payment over the phone then and there, she would take care of the interest reversal and fee waiver and make sure no late payment was noted on my credit record.

I happily made the payment and promptly set up autopay as soon as I hung up the phone, to ensure I won’t make a similar mistake going forward.

Should you call your card issuer after a late payment?

Calling my credit card company worked very well for me, but this could have been because of my solid customer history. I charge just about every single thing I can on my credit card, which card companies like because they get fees from merchants every time the card is used. And I always pay on time, so the card issuer hasn’t had to worry about late payments from me.

Because I had a multi-year history of being a good customer, the card company was much more likely to work with me than if I was a brand-new customer or if I paid late often. But, even for good customers, card companies won’t always be as responsive as they were to me.

Still, if you miss a payment, you have absolutely nothing to lose by calling to ask for help avoiding the consequences. Just be ready to get current on your account, because it’s very unlikely your card issuer will help you out and waive the fees if you continue to be delinquent on your payment.

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Got an audit notice? Read on to see how to react. 

In 2019, only 0.25% of tax returns wound up being audited by the IRS, according to the U.S. Government Accountability Office. Since IRS manpower hasn’t really increased since then, it’s fair to assume that the audit rate over the past three years has been comparable.

But that doesn’t mean that you won’t get audited this year. If the IRS has an issue with your most recently filed tax return, you could end up with an audit letter in the mail pretty soon. In fact, the IRS actually has three years to audit a tax return, so you might receive a notice for a return you submitted for 2020 or 2021.

The most important thing to do when you get an IRS audit letter is keep your cool and don’t panic. From there, here’s your game plan.

1. Read your notice thoroughly

Often, when you get an audit letter, it’s really just the IRS’s way of asking for more information about your tax return. So it’s important to read your audit letter carefully to see what it is the IRS wants.

The IRS may be proposing an adjustment to your tax return. For example, let’s say you forgot to include the 1099 form your brokerage account sent you that shows some capital gains. The IRS might be seeking to lower your tax refund by $54 to account for those capital gains you didn’t report.

On the other hand, the IRS might be asking for proof of the $7,300 in small business expenses you submitted. Make sure you understand exactly what’s being asked of you.

2. See if you’re able to respond on your own

Some audit matters are really simple to resolve. Going back to our example, let’s say the IRS is saying you didn’t report capital gains and now owe $54 more in taxes. If you realize you made that mistake and that the IRS is correct, you might just agree to that adjustment and move on.

Similarly, if the IRS needs a specific receipt to back up a claimed deduction and you know where to find it, then there’s no need to involve anyone else in your audit response. Simply make a copy of it, attach it to your IRS reply, and send it off.

3. Seek help from your tax preparer, or find an accountant who can step in to help

IRS audits don’t always result in taxpayers owing more money. Sometimes, an audit can work out in your favor. But if you’re gotten an audit letter that has unfavorable financial implications, or you’re confused about what the IRS wants, then it’s a good idea to turn to a professional for help in responding to your audit letter.

If you used a tax preparer to file the return being audited, they’re your best bet to turn to. If you filed your taxes on your own, then you may need to go out and find an accountant who can step in and help you resolve the matter at hand. In that case, asking friends, neighbors, and family members for recommendations can help you find one.

Although IRS audits aren’t that common, you never know if you might end up on the receiving end of one. But if you take the above steps, you can hopefully resolve the matter as quickly and painlessly as possible.

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Taking a break from your studies this summer? Read on for ways to pad your bank account. 

Attending college can be stressful, so by the time the summer break comes along, you may want nothing more than to kick back, relax, and decompress. Some people opt to take classes during the summer so they can get their degrees sooner. But if that’s not your plan, then it pays to use the summer months to earn some money — even if you’d rather spend most of it lounging by the pool.

Not only could extra cash help you cover your tuition, but it could also serve as a nice cushion in your savings account. And if you’ve racked up any credit card debt in the course of previous college semesters, a summertime side hustle could be your ticket to paying it off before all of that interest really gets out of control. Here are a few jobs to consider this summer.

1. Camp counselor

When you have the entire summer off, there’s the potential to stay pretty busy by working as a camp counselor. You could work at a day camp, a sleepaway camp, or a specialty camp (for example, a band camp if you have musical skills).

Salary.com says the average hourly wage for a camp counselor is $25, but the wages you earn as a camp counselor will hinge largely on the type of role you end up with. But if you want to work as a camp counselor, get your application in as soon as possible. Many camps need to be fully staffed well ahead of the summer so employees can attend training and get up to speed.

2. Tutor

Many parents use the summer months to help their children get up to speed for the coming school year. If there’s a subject you’re great at, you could try rounding up tutoring gigs.

Payscale says that tutors make an average of $19.37 an hour. However, the rate you’re able to command will depend on different factors, such as the subject you’re tutoring, your geographic area, and whether you’re willing to travel to your clients’ homes (in that case, you may be able to command a higher rate than you would for tutoring out of your own home).

3. Pet-sitter/dog-walker

Love animals? Plenty of families go away during the summer and need people to care for their pets in their absence. You could sign up to be a pet sitter and fill that need. You could also try signing up to walk dogs, which might provide a more steady income during your summer break.

The amount you can earn as a pet sitter or dog walker will depend on where you live and the animals you’re caring for. If you’re able to find clients yourself, you won’t lose a portion of your income to fees. But if you use a service like Rover, it’ll take 20% of your earnings. However, you might need a service to connect you with people who need care for their pets.

4. Landscaping assistant

You could try to get a temp job at an office during the summer. But let’s be real — you’d probably rather get to enjoy the outdoors rather than stay cooped up. That’s why it could pay to find a local landscaping company that needs workers for tasks like mowing lawns and maintaining shrubs and gardens.

As of April 30, 2023, the average hourly pay for a landscaper was $15.50 an hour, says ZipRecruiter. You might earn more or less, depending on where you live and the experience you have.

Getting a side hustle this summer could make the upcoming year at college a lot less financially stressful. It pays to see if any of these gigs are a good fit for you.

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