Money Management

First-time home buyer? Read on for some pitfalls to avoid. 

Buying a home for the first time is exciting. And if you’ve had a bad experience as a renter, you may be super eager to buy a place of your own. But as a first-time home buyer, there are certain pitfalls you’ll want to avoid, like these.

1. Taking on too much house

In March, the median existing home (meaning, not new construction) sold for $375,700, according to the National Association of Realtors. You may be looking at a home that’s more or less expensive than that, depending on the neighborhood you’re hoping for. But either way, it’s important to make sure your home is comfortably affordable for you from the start.

As a general rule, your recurring housing costs, including your monthly mortgage payments, property taxes, and homeowners insurance, should not exceed 30% of your take-home pay. Keep that number in mind when searching for a home so you stick to the right budget and avoid an instant financial crunch.

2. Taking on too many repairs

You’ll often get away with spending less on a home when the property in question needs work. But be careful, because the “discount” you get buying a fixer-upper may not be worth it when you account for the cost of the repairs needed to get that home into better shape.

Financial concerns aside, buying a home that needs lots of repairs could make for a very disruptive existence. If you’re purchasing a home whose kitchen needs to be gutted, for example, you might have to endure many weeks without a way to store or cook food.

3. Forgetting about rising costs

You may decide to purchase a home at the top end of your budget. Doing so might allow for a larger or more updated space. But don’t forget that the housing costs you start out with aren’t necessarily the cost you’ll face a year or two down the line.

Property taxes have the potential to rise, and the cost of homeowners insurance can increase, too. Leave yourself with some financial wiggle room to avoid a crunch a year or two after you’ve moved in.

4. Not realizing what a time commitment home maintenance is

You may know to factor the cost of home maintenance into your budget when buying a home. But even if the money you’re shelling out isn’t a problem, you may run into an issue with finding the time for upkeep.

Of course, if you start struggling to find the time to maintain your home, you could always outsource more tasks. But that could end up straining your budget.

If you know upfront that you have a busy schedule and don’t particularly enjoy home upkeep, you may want to opt for a property that’s easier to maintain. That could mean choosing a home with a smaller lawn and less outdoor space, or even a smaller home to begin with.

Buying a home can be a rewarding experience, and there are many ongoing benefits you might get to enjoy as a property owner. But if you’re buying a home for the first time, be careful when it comes to things like money and maintenance. You don’t want to end up purchasing a home that makes you regret your decision to become a homeowner in the first place.

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A bachelor’s degree is worth about $2.8 million over a person’s lifetime. Find out how much a degree boosts your salary, plus what to consider before applying for a four-year degree. 

Up until recently, college fees have been rising. But that’s changing. In the last few years, college costs have dipped according to CollegeBoard data, making higher education more affordable to your average high school graduate.

But is attending college worth it? A recent study by Georgetown University suggests that taking home a degree actually pays dividends in the long run. Put simply, the higher the degree, the more money people make.

Here’s what happens to your salary when you attend college.

How much does a degree boost your salary?

More education typically leads to higher salaries. The median lifetime earnings of someone who doesn’t graduate high school is $1.2 million. The median lifetime earnings of someone with a professional degree, the highest measured, is a whopping $4.7 million.

Snagging a top-tier degree can more than triple your earning potential. The more you study, the more higher-paid fields open up to you, potentially boosting your salary and earning you millions more over your lifetime — enough to cover a mortgage, a car, and other essentials.

But only some folks are willing to spend five or more years obtaining a certificate of completion. Most opt for four-year degrees or less, which are typically more affordable and manageable. Across all degrees, here are median lifetime earnings by education level:

Earning a four-year bachelor’s degree can double how much money you make over your lifetime. But the value of a degree is impacted by more than education level. Race, gender, and area of study matter, too.

Other factors that boost your salary

Men tend to earn more than women, and white and Asian workers command higher salaries. Your area of study matters, too. The following four-year degrees tend to make the most money:

Architecture and engineeringComputers, statistics, and mathematicsBusiness

While these majors tend to earn more than, say, liberal arts majors, they don’t always. A high-earning (75th percentile) communications major makes twice as much as a low-earning (25th percentile) business major. Occupation matters.

Generally speaking, STEM and healthcare jobs command the highest wages. Folks with bachelor’s degrees tend to make the most in these three occupational categories: architecture/engineering, computer/mathematics, and management.

College expenses eat into lifetime earnings

According to educationdata.org, it costs the average student about $25,000 per year to attend a public, in-state college in the U.S (this includes housing, but not interest payments). Private and out-of-state universities are significantly more expensive on average.

You’ll want to subtract the cost of obtaining a degree from your potential lifetime earnings to help you judge whether a degree is worth it. The longer you study, the more your degree will cost.

Is it worth getting a college degree?

It is if you want to earn a higher salary and can afford to pay the total cost of college. The right degrees open doors to higher-paying jobs and correlate to higher lifetime earnings. But taking on debt is no trivial decision; consider what you can afford.

Here are three ways to lower the total cost of college:

Save money beforehand so you don’t have to pay as much interest. A college bank account or a 529 savings plan are safe places to store funds, and they earn interest.Work a part-time gig in college. You can put the money toward paying off tuition and housing. The best side hustles give gig workers the flexibility to build their work schedule around school.Apply for free money. Fill out the FAFSA form and apply for local scholarships: the more local, the fewer applicants, and the greater your chance at obtaining free money.

How much can you afford? Check out a college expense calculator to estimate the cost of a college education, including paying tuition.

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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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A maxed out credit card means you’ve reached your credit card limit. Find out what happens to your credit score and personal finances when you hit the limit. 

When you max out a credit card, you borrow up to the card’s credit limit. For example, if you borrow $7,998 on a card that has a credit limit of $8,000, then you’ve all but maxed it out.

Sometimes, you can’t help but max out credit cards. For instance, if the card has a low credit limit — say $1,000 — then it might be difficult to stay below the limit. The same is true when you’re consolidating debt. You might transfer $5,000 of debt to a 0% APR card that has a $5,000 credit limit. The card allows you to pay down debt without paying high interest, even if the maxed out limit doesn’t allow you to spend.

In most situations, however, a maxed out credit card can become a serious liability and cause damage to your credit score, personal finances, and mental health. Let’s take a quick look at what you can expect when you’ve maxed out a card.

Transactions may be declined

A maxed out credit card has little or no funds available to borrow. As such, stores will likely decline your card if you try to use it to buy new things.

But some credit cards will let you continue borrowing money even after you’ve hit the credit limits. This is called “over-limit protection.” Not all credit cards offer over-limit protection and those that do require you to opt-in to the protection beforehand. You might also pay an over-limit protection fee when you exceed your limit.

If your card isn’t opted-in to over-limit protection, your transaction will be declined. Your card will be practically useless, until you start paying off the balance.

You could undermine your credit score

Maxed out credit cards could hurt your credit score by roughly 30 to 50 points.

A huge chunk (30%) of your credit score is made up of what’s called credit utilization. In simple terms, this is a measure of how much credit you’re using versus how much credit is at your disposal.

For instance, let’s say you have two credit cards with a total of $15,000 in revolving credit. If you max out one card at $8,000, your credit utilization would be 53%. A good credit utilization is below 30%. When credit rating bureaus, like FICO, see you’ve used more than half your available credit, they will lower your score as a red flag to credit card companies.

Minimum payments might increase

For large unpaid balances, credit card companies often calculate minimum payments by a fixed percentage, like 2%. Here’s the problem — as your balance approaches the maximum, your minimum might grow with it.

As an example, let’s say your credit card provider uses 2% to calculate minimum payments and your card has a limit of $8,000. For a $4,000 balance, your minimum would be $80. But if you maxed out the card at $8,000, your minimum would jump to $160.

Your monthly payment can increase in another way: penalty APRs. If you fail to pay your monthly minimum for 60 days, your credit card provider will replace your current APR with a higher interest rate. This will increase how much you owe and can make it difficult to get out of debt.

What to do if you max out a credit card

Maxing out a credit card doesn’t spell the end of your personal finances. But it can put you in a tough spot, especially if your card has a high interest rate.

If you’re having trouble paying down a maxed out card, consider getting a 0% APR credit card. These cards come with an introductory period, usually six to 21 billing cycles, during which you’ll pay zero interest on unpaid balances. You can transfer a balance from your current card to the 0% APR card, then focus your efforts on paying down the balance.

You could also consolidate credit card debt with a personal loan. Depending on your credit score, a personal loan might offer you a lower interest rate than credit cards. This would work well if you have multiple maxed out cards and want to lower the total interest you pay.

Finally, you could also apply for credit card hardship programs. These programs are designed to help you control your finances during hard times, like unexpected deaths, medical emergencies, or job losses. The program might come with some consequences — like limiting your access to credit — so be sure you research the repercussions before applying.

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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.

 Read More