Money Management

A single late payment could cause a lot of damage. 

As a credit card holder, you know you’re supposed to pay your bills on time every month. And to be clear, you’re considered timely even if you’re only able to make your minimum payment.

But sometimes, things happen. You might simply forget to make a payment on a credit card. Or, you might run out of money in your checking account, forcing you to be late with a payment even though you haven’t forgotten about it.

You might think that a single late credit card payment isn’t such a big deal. But actually, it could cause extensive damage to your credit score.

The damage can be significant

Your payment history, which measures how timely you are in paying bills, is the most influential factor in calculating your credit score. Experian confirms that it accounts for about 35% of your score. So it stands to reason that if you’re dinged in that area, your credit score could drop quite a bit.

Once you’re late with a credit card payment, the issuer in question is likely to report that activity to the credit bureaus. And depending on your credit score, that single late payment could have a huge impact.

Now, this may seem counterintuitive, but actually, the higher your credit score, the more damage a single late payment might cause. The reason? If you’re someone who has a lower credit score, it means you’ve probably had a string of late payments already, and so another one isn’t such a big deal (even though it’s not a good thing). But if a late payment is an unusual thing for you, it might cause your score to drop by a larger number of points.

Worse yet, a single late payment on a credit card could remain on your credit report for up to seven years. Thankfully, its impact on your credit score will wane over time. But either way, that’s a black mark that could stay on your record much longer than you’d like it to, so your best bet is to avoid being late with a credit card payment if you can.

How to avoid a late credit card payment

Setting calendar reminders could help you avoid late credit card payments due to forgetfulness. But often, it’s a lack of money, not a lack of remembering, that causes consumers to be late paying their bills.

To avoid that fate, aim to build yourself an emergency fund so you have cash reserves to tap in case you can’t make your minimum payment in a given month. And also, make a point of checking your credit card balances every week.

That way, if you see your balances starting to creep upward, it might prompt you to stop spending. It might also prompt you to spread your purchases out more carefully so as to allow certain charges to hit your next billing cycle, buying you some breathing room.

Finally, if you’re late with a credit card payment but it’s the first time that’s happened, and you’ve had your card open for a long time, call your credit card issuer, explain the situation, and ask for a little leeway. If you’re able to make your minimum payment on the spot, in some cases, your credit card company might agree not to report you as delinquent on that payment. This isn’t guaranteed to work, but it’s worth a try if it means potentially avoiding credit score damage.

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Hint: It’s not a small number. 

If you’re looking to buy a home, you may have noticed that property values aren’t quite as elevated as they may have been in 2021 or 2022. That’s because a combination of higher home prices and mortgage rates has led to a decline in buyer demand. So while sellers are still profiting in the course of selling their homes, they’re not profiting quite as much as they may have in the past couple of years.

Still, today’s homes are far from inexpensive. The median existing-home sale price in January was $359,000, as per the National Association of Realtors. That’s a 1.3% uptick from a year prior.

Of course, just because the median home sale price last month was $359,000 on a national level doesn’t mean that homes in your target neighborhood are anywhere near that number. It may be that you’re looking to buy in a less expensive part of the country where the median home is selling for $250,000. Or maybe you’re moving to an area where even a starter home costs upward of $500,000.

Either way, it’s important to know how much house you can afford. Going overboard could lead to a host of financial struggles you’re apt to want to avoid.

How much can you afford to spend on housing?

As a general rule, your housing costs should not exceed 30% of your take-home pay. And when we talk about housing costs in this context, we don’t just mean the amount you spend each month paying your mortgage.

Rather, that 30% should cover all of your predictable monthly housing costs. These might include:

Property taxesHomeowners insurance premiumsHOA feesPMI (private mortgage insurance), if you’re required to pay it as a result of putting down less than 20% on your home

So, let’s say you bring home $5,000 a month after taxes. That means you’re generally safe to spend $1,500 a month on housing.

Let’s say that based on home prices in your area, today’s mortgage rates, and the amount of money you have available for a down payment, you’re looking at a monthly mortgage payment of $1,100. If you think you can keep your remaining housing costs to $400 a month, you should be in good shape to move forward with a home purchase.

Don’t buy if the numbers don’t add up

In some cases, you may be okay to exceed that 30% limit and buy a home that costs you more. If you’re moving someplace with ample public transportation, for instance, then you may not need a car. That’s a huge expense to shed, which means you might have a little more leeway to spend a bit extra on a home.

But otherwise, do your best to stick to that 30% limit. If you go beyond it, you might struggle to keep up with your housing costs or other bills you’re on the hook for. And if you fall behind in either regard, you might end up damaging your credit, racking up costly debt, and, in an extreme situation, putting yourself at risk of losing the home you worked so hard to buy in the first place.

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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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Read this before your next Costco trip. 

If you’re headed to Costco, it’s important to make sure you have a shopping list so you aren’t tempted to run up a big credit card bill with impulse buys. Deciding what to buy at this warehouse store — and what to skip — can be a challenge, though, since Costco has so many products on sale.

Finance expert Dave Ramsey has some advice to consider to help you decide what you should and should not purchase at Costco. In fact, here are six items he says you should skip.

Ramsey says to leave these on the shelf

Although Ramsey has made clear he believes you can get some great deals at Costco and other warehouse clubs, the six items he says you should steer clear of include the following products:

FruitsVeggiesDairy itemsAnything perishableCondimentsSpices

There’s a very simple reason why Ramsey doesn’t believe any of these items belong in your Costco cart. You could end up wasting money if you purchase them because Costco requires you to buy in large quantities. Buying too many of any of the items on this list could leave you with products that go bad before you get a chance to use them up.

“Buying perishable items like produce in bulk is always a huge gamble. The odds are rarely ever in your favor that it’s going to spoil before you can eat all of it,” Ramsey warned. As for spices, Ramsey also said they could “outlive their shelf life and flavor” even if they don’t necessarily spoil the way that fruits and vegetables might.

Should you follow Ramsey’s advice?

Ramsey’s advice on items to skip at Costco makes sense in a lot of situations. After all, if you end up buying a huge container of blueberries and half of them get moldy, all you’ve done is drain your bank account to pay for food that gets tossed in the trash.

Of course, that doesn’t mean everyone should listen to him, though. If you have a huge family of milk drinkers who go through gallons a week or if you need a few pounds of strawberries in order to make jam, then buying these perishable items at Costco could be a wise use of your hard-earned funds if you can get them cheaper there than elsewhere.

The important thing before going to Costco is to know your consumption habits and to make a plan before you buy anything. And that doesn’t just include perishable items that will go bad within weeks, but also things like canned goods or frozen items that could have a longer shelf life.

You should think about how much of any product your family is realistically going to use — and consider whether you’re likely to get sick of it or have your tastes change — before you’ve finished up all of the servings you’ve bought. Unless you’re confident that you will use up a bulk purchase in full while it’s still good, you shouldn’t make it.

By taking the time to consider your consumption needs, you can make smarter choices about what kinds of Costco products are worth buying for you.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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If you have some money in savings, it’s an option you may decide to look into. 

You may reach a point where you need to borrow money, whether to fix up a car or travel to a wedding. And from there, you have options. You could charge the expense on your credit card and pay it off over time, but in doing so, you might rack up a lot of interest.

You could also apply for a personal loan if you need access to money. But if your credit score isn’t so great, you may be denied a personal loan. You’d also need to go through the process of researching different lenders and shopping around for rates. That can be time-consuming and potentially little stressful.

A better bet may be to just borrow the money you need from your own cash reserves. And if you have money in a savings account, you can take out what’s called a passbook loan.

But is a passbook loan the right choice for you? It depends.

How a passbook loan works

A passbook loan lets you use the money in your savings account as collateral for a loan through your bank. Let’s say you’re sitting on a $10,000 balance in your savings account and you need to borrow $3,000. You can apply for a passbook loan, and chances are, you’d get approved. Your bank would then effectively put a freeze on that $3,000 until you’ve paid it back.

The pros and cons of a passbook loan

You may be thinking, “What’s the point of taking out a passbook loan when I have the money sitting there in my own savings account?” Well, the upside of a passbook loan is that you’ll get to leave your savings intact. For some people, it can be demoralizing to have to take a massive withdrawal from savings, so a passbook loan lets you avoid that.

You’ll also generally face a low interest rate on a passbook loan. The reason? Your bank isn’t taking much risk by giving you that loan. If you don’t pay it back, the bank can simply access your money in your account to get repaid.

On the other hand, when you take out a passbook loan, the equivalent amount of funds are basically frozen in your savings account, so you can’t use them. So while you’re not withdrawing from your savings, you’re also cutting off access to some of your money for a period of time.

Also, passbook loans charge interest. And to some degree, paying interest doesn’t make sense when you have the money in your account you can just withdraw.

Is a passbook loan right for you?

If you need money and are afraid to raid your savings, a passbook loan may not be such a great solution — because while you’re not taking cash out of your savings, you’re putting yourself in a situation where you can’t use it.

That said, a passbook loan may be a good bet if you’re trying to build up your credit score, or establish a credit history. When you pay your passbook loan on time, those payments will count as positive activity on your credit report, which could lead to a higher score.

It’s similar to a secured credit card, where you put down a deposit that’s equal to your spending limit and charge expenses against that limit. You’re not really gaining buyer power, but you’re helping yourself build credit. And there can be a lot of value in that.

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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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