Money Management

It’s a necessary move for me. 

When my husband and I bought our home about 14 years ago, it was brand spanking new. Not only did we get a say in its design, but we got the benefit of new appliances and the warranties that came with them. And while buying new construction meant taking out a larger mortgage than we would’ve been looking at for a previously lived-in home, the upside was that for our first few years in our home, we didn’t have to worry about repairs.

Things haven’t been as easy over the past few years, though. In fact, once our home hit the 10-year mark, a host of problems arose.

First we had to replace our water heater. Then our downstairs air conditioner went kaput, costing us thousands of dollars for a replacement. One year later, our upstairs air conditioner said goodbye, forcing us to dip deeply into our savings to cover a new unit.

But this year, I’m hoping not to have to raid our savings as much for home repairs. Instead, I’m taking a different approach.

I’m expecting more things to go wrong

Although I generally don’t consider myself an overly negative person, I’ve decided to take that approach with my home. I’m going to assume we’ll need thousands of dollars in repairs this year — and I’m working that into our budget by setting aside $500 on a monthly basis. All told, we’ll have $6,000 allocated to repairs this year.

To make room for that $500 a month, we’re cutting other expenses. Last year, for example, I started using a meal delivery service because I really found myself pressed for time to cook. That service cost about $200 a month. This year, I’m eliminating it to make room for more home repairs. (I guess I’ll just have to make more time to cook or otherwise learn to be happy with peanut butter and jelly sandwiches for dinner.)

Of course, it’s possible our home repair costs this year will exceed $6,000 — especially if something major goes wrong.

Although we replaced our washing machine a few years back, all of our kitchen appliances (think fridge, stove, dishwasher, and oven) are 14 years old. So is our dryer. And I recognize there’s a good chance we might have to replace at least one of these items within the next 12 months.

Plus, our heating system, which is also 14 years old, has been giving us trouble this winter. It recently got serviced and supposedly the issue was resolved. But replacing it could be a whopping expense, so I want to set aside extra funds in case that needs to happen sooner rather than later.

The downside of homeownership

While homeownership has its benefits, one major drawback is having to cover the cost of repairs. This year, I’m allocating extra money for that purpose due to the fact that my house is aging, and due to not wanting to keep dipping into my emergency fund every time something goes wrong. And if your house is getting older, you may want to take a similar approach.

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The high cost of medical care is making some parties involved very wealthy. 

When it comes to hospitals, it’s easy to imagine a place where everyone works together to help patients heal and get back to the business of living. Perhaps it’s time to rethink that image.

According to a group of Democratic senators, some hospitals have teamed up with credit card companies to push high-interest debt on those desperate for medical help. Unfortunately, it is those most in need who are being harmed by this practice.

The letter

Sens. Elizabeth Warren, Ed Markey, Bernie Sanders, Chris Murphy, and Sherrod Brown recently sent a letter to the chief executives of Wells Fargo Bank and Synchrony Financial. While they are not the only financial institutions offering medical credit cards, they are two of the largest.

In the letter, the senators expressed concern that these medical credit cards could be predatory. After all, once treated, patients are left with “hefty, high-interest medical debt.”

While the majority of Americans are insured, millions are not. Of those who are fortunate enough to have health coverage, many cannot afford the out-of-pocket maximums, copays, or uncovered services.

How profits are made

Here’s how the system works, step by step:

Someone goes into a hospital in need of care but can’t afford the cost of treatment.The hospital convinces them to open a medical credit card.The credit card offers an introductory “no interest” period.Desperate for the money to pay the bill, the person applies for the card.They’re approved for just enough money to pay their hospital bill.Once they use the card to pay, the card is maxed out. Maxing out the credit card impacts their debt-to-income (DTI) ratio, often lowering their credit score.If the patient is unable to come up with enough cash to pay the credit card balance off in full by the time the introductory period expires, they end up with a large credit card debt, carrying one of the highest interest rates in the industry.

The hospital profits

Once the patient agrees to take out a medical credit card, the hospital is paid upfront by the bank issuing the card. These kickbacks are good for the hospital’s bottom line.

The bank profits

The high interest rate means that many borrowers quickly strain their bank accounts and can afford no more than their minimum monthly payment. This cycle of debt leads to greater profits for the bank that issued the card.

Not their first dance with trouble

In 2013, the Consumer Financial Protection Bureau (CFPB) ordered Synchrony Financial to refund up to $34.1 million to consumers. According to the CFPB, CareCredit, Synchrony Financial’s medical credit business, victimized consumers by using deceptive credit card enrollment tactics.

In December 2022, CFPB hit Wells Fargo with $3.7 billion in penalties for a myriad of abuses. CFPB described Wells Fargo and its Health Advantage medical credit card as “one of the most problematic repeat offenders of the banks and credit unions.”

An unfortunate loophole

Credit reporting agencies recently agreed to remove 70% of negative medical debt remarks from credit reports. While that’s great news for some consumers, the change will not benefit those who took out a medical credit card because it’s considered credit card debt, rather than medical debt.

It’s a race to see who wins. Will it be patients and their advocates or banks who view profiting off a broken medical system too lucrative to give up?

It’s worth noting that more than 100 million people in the U.S. are burdened with medical debt. The collective total owed is around $200 billion. At the same time, the U.S. is the only industrialized country in the world that does not guarantee universal health coverage for its citizens.

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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.Synchrony Financial is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Dana George 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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Consumers are feeling the crunch of inflation. Will economic conditions worsen? 

Consumers struggled immensely in 2022 as inflation reared its ugly head. Many people, in fact, had no choice but to rack up credit card debt last year just to stay afloat.

But surprisingly, consumer spending was strong in 2022, despite soaring inflation. And that’s a big reason lawmakers did not approve a round of stimulus aid in 2022.

The last time lawmakers sent out federal stimulus checks was March of 2021. Back then, unemployment was still high and the economy was in a much different place. But 2021’s stimulus aid helped fuel a quick economic recovery, so much so that lawmakers simply couldn’t justify another stimulus round in 2022, despite raging inflation.

But new data from the Federal Reserve Bank of New York shows that consumer spending is finally starting to slow down. And if that trend picks up, it could push the economy into a less stable place — and potentially warrant a round of stimulus checks in 2023.

Consumers are starting to pull back

In December, monthly household spending growth fell to 7.7%, according to the Federal Reserve Bank of New York. That’s considerably lower than August’s 9% reading, which represents a recent peak.

Now to be clear, that 7.7% reading isn’t alarmingly low. It’s still well above pre-pandemic spending levels. But still, the data points to a notable pullback in spending, and higher interest rates are likely a big driver of that trend.

The Federal Reserve implemented a series of aggressive interest rate hikes in 2022 in an effort to slow the pace of inflation. That’s made borrowing more expensive for consumers across the board, so it’s easy to see why Americans are finally cutting their spending.

Also, many people gained buying power in 2022 due to the stimulus aid they received in 2021. But at this point, a lot of that money is no doubt gone, forcing consumers to cut back.

Will a decline in consumer spending fuel a recession?

It’s certainly possible. In fact, the Fed’s goal in raising interest rates is to get consumers to drop their spending just enough to cool inflation, but not so much to drive the economy into a recession. But that’s a very delicate balance to strike. And if spending declines too much, we could have a broad economic downturn on our hands.

But will a recession, if one comes to be, lead to another stimulus round? That’s not guaranteed either.

Things will need to get really bad for lawmakers to approve another round of stimulus checks — especially since the last round was met with a fair degree of criticism. In fact, many financial experts have said that a big reason we got into trouble with inflation in 2022 is that lawmakers were so generous with their stimulus policies in 2021. So for another stimulus round to get approved in 2023, we’d need to see unemployment levels increase pretty drastically on a national level.

Right now, unemployment is pretty much at a 20-year low. So unless things take a sharp turn for the worse, a drop in consumer spending probably won’t pave the way to a follow-up stimulus round. It may not even fuel a recession to begin 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.
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You could end up overpaying a lot. 

If there are people in your life who depend on you financially, or might end up struggling financially if you were to pass away, then it’s a good idea to buy life insurance and designate those people as your policy’s beneficiaries. But you have choices when it comes to getting life insurance. And the type of coverage you choose could determine how much your policy costs you.

Generally, life insurance is broken down into two main types: whole life insurance and term life insurance. With whole life insurance, you get perpetual coverage. Once you put your policy in place, it remains in effect for the rest of your life, provided you keep paying your premiums and don’t fall behind.

Whole life insurance can also accumulate a cash value over time. That gives you the option to borrow against your life insurance policy should the need arise, or even take cash out of it.

Term life insurance works very differently. For one thing, you’ll only be covered for a limited period of time, known as the term. And also, term life insurance won’t accumulate a cash value. The only way to get a payout from a term life insurance policy is to pass away. And that’s really not what you want.

But while whole life insurance might seem like a good deal based on these factors, you should know that it generally costs far more than a term life policy. And while you might think that higher price tag is worth it, financial guru Ramit Sethi says otherwise.

Don’t waste your money on whole life insurance

In a recent tweet, when asked if whole life insurance is worth buying, Sethi’s answer was an emphatic “no.” He then followed that up by saying “some questions have very simple answers.”

The reason experts like Sethi tend to discourage people from buying whole life insurance really boils down to cost. Yes, whole life insurance might offer longer coverage than term life, and there’s that cash balance you can dip into or borrow against as needed. But if you save yourself money on life insurance premiums by opting for a term life policy instead, you can bank and invest all the money you’re not spending, thereby landing in a much more solid financial position down the line.

In fact, you’ll often hear that whole life insurance is a means of forced savings. But you know what you can do instead? Pay less for life insurance and save the difference.

If a term life insurance policy costs you $3,000 less per year than a whole life insurance policy, you can bank that extra money and invest it for decades. That could leave you a lot richer later in life — wealthy enough that you’re in a position where you don’t have to cash out a life insurance policy or borrow against it.

A risk you shouldn’t take on

The primary danger in buying whole life insurance is struggling to keep up with your premiums to the point where you fall behind and your coverage is yanked out from under you. So don’t take that risk. Instead, shop around for term life insurance and secure a policy that better fits your budget.

You may find that having a term life policy is a lot less stressful. At the same time, it could end up providing more than enough coverage for the important people in your life.

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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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Don’t be lured by those promotions. 

In the world of marketing, there’s perhaps no more effective a phrase than the word “free.” Whether it’s free shipping, free returns, or free stuff, consumers tend to love the idea of getting something for nothing.

As such, you’ll often find retailers advertising “buy one, get one free” deals, or BOGO deals. And you may be tempted to whip out your credit card the next time you see one flashing before your eyes.

But falling into the BOGO trap could cost you money in different ways. And that’s something you ought to be aware of.

When ‘free’ isn’t really free

The idea of the BOGO deal is simple: Buy an item and get an item of equal or lesser value at no cost. If you’re out shopping for books and come across two novels you’d love to take home for $9.99, a BOGO deal will mean spending $9.99 for both instead of $19.98. There’s a lot of savings in that, right?

Well, not necessarily. Often, what retailers will do in the course of BOGO deals is mark up the prices of the items they’re selling. That $9.99 book you’re getting for free? It might normally retail for $4.99. And in that case, the cost of two full-priced books actually comes to $9.98, which means you’re actually spending a penny more on the BOGO deal.

Of course, this is just one example. The point, however, is that much of the time, when you’re offered something for free at a retail store or site, you’re paying for it in a less obvious way.

The same can be said for free shipping. Let’s say a given retailer offers free shipping on purchases of $49 or more, and voila — you find a sweater you love with a $49 price tag. In that scenario, you might think you’re coming out a winner. You’re getting the exact item you want, and you won’t see a separate charge for shipping on your credit card.

But chances are, the cost of that sweater was marked up by $10 to $15 to cover the cost of shipping it to your home. So in that case, did you get free shipping? Yes. But did you save money? No.

The same can be said for BOGO offers. You might pay the equivalent of two items’ worth without even realizing it (such as shelling out $9.99 for a book whose normal price tag might be $4.99). And also, seeing the word “free” might push you to spend money you weren’t initially planning to part with. And so in that case, you’re not saving money either.

Be careful with BOGO deals

One final thing to keep in mind when seeking out and acting on BOGO deals is that even if you’re getting a decent price on the one item you’re paying for, if you don’t actually want a second item, you’re not getting much of a bargain. Let’s say you see a BOGO shoe deal at a local shop and you find a pair of $25 sandals you want to purchase. That may render you eligible for another $25 pair of shoes at no cost. But if you can’t find one that fits well or suits your taste, then what are you really getting?

All told, retailers are in the business of making money. And they’re very good at doing so. So when you see BOGO offers, don’t assume that retailers are throwing you a bone. If anything, they’re just employing an age-old tactic that gets you to part with your hard-earned cash.

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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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