Money Management

If you’re thinking of using buy now, pay later, make sure you know about the risks involved. 

Shoppers don’t always have enough saved to cover big-ticket purchases, like a new mattress or computer. But there’s a good chance you could spread out the cost over time using buy now, pay later (BNPL).

Many major retailers have partnered with BNPL services, and these have become popular with consumers for a few key reasons. They normally don’t charge any interest if you pay off your balance within a certain time period. They’re also easy to use and have a quick application process.

However, there are some potentially costly drawbacks to BNPL, and a lot of users don’t know about them. Before you try one, it’s important to be aware of these little-known risks.

1. You could be charged deferred interest

The best part about BNPL is that you can finance a purchase without paying any interest, but there’s sometimes a catch. This may be a deferred interest plan, meaning the interest is only deferred for an introductory period.

If you pay off the balance within that introductory period, then you don’t get charged interest. But if there’s any balance left over, even $1, you can be charged interest on the original amount of the purchase. If you paid for a $500 purchase with a deferred interest plan, you’d be charged interest on the full $500, regardless of how much you had paid down that balance.

To spot these types of BNPL plans, look for language like “no interest if paid in full within six months.” That usually indicates that you’ll be charged deferred interest if you don’t pay in full. You can also find out if a BNPL service is offering deferred interest by checking the terms and conditions.

2. It won’t help your credit — but it can hurt your credit

This is a double whammy. Most BNPL services don’t report the payments you make to the credit bureaus. Any on-time payments you make won’t improve your credit score. That’s a disadvantage compared to credit cards, since credit card payments do help your credit.

Some BNPL companies may, however, report late payments. The payment needs to be at least 30 days late to go on your credit file. So, you have some margin for error, although you could be charged a late fee as soon as you miss a payment. And just a single late payment on your credit history can decrease your credit score by over 100 points.

Even if a BNPL doesn’t report late payments, they could send your account to collections if you don’t make a payment for several months. Collections activity almost always ends up on your credit history and has a significant impact on your credit score.

3. It encourages overspending

The appeal of BNPL apps is that they break down big, daunting purchases into smaller, bite-sized payments. It’s easier to talk yourself into paying $75 per month than parting with $300 all at once.

That’s also why BNPL can be so dangerous. These services make expensive items look much more affordable, even though the total price is still the same. There are a couple of common traps people fall into:

They make too many purchases with BNPL. It might seem reasonable to always choose smaller payments. But you could end up with lots of extra bills this way if you take on payment plans for several items.They convince themselves to make a big purchase because of BNPL. For example, maybe you normally wouldn’t get a $3,000 jacket, until you see that you could pay for it in 24 monthly payments of $125. This is how BNPL apps can convince you to spend a lot more money than usual.

4. It doesn’t have the same protections as credit cards

One of the reasons why it’s usually good to pay with credit cards is because of the protections you get. The Fair Credit Billing Act entitles you to dispute credit card charges if there’s a quality issue or a billing error. BNPL plans don’t qualify for this, although providers may have their own dispute process.

Many top credit cards also offer complimentary extra protections on purchases you make. Once again, you don’t get this if you use BNPL. These protections can include:

Purchase protection against damage or theftExtended warranty coverageReturn protection

None of this is to say you should never use BNPL. There are some situations where this type of payment plan could be your best option. Just make sure you’re aware of the risks they carry.

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These tips may help you save money on your next hotel stay. 

When traveling, I try my best to find a deal on airfare and hotels, so I have more money left in my vacation budget for fun activities like food tours and museum and event tickets. I’ve spent the last seven years exploring new places all around the globe, so I’ve gotten better at finding ways to save money on travel expenses. Are you planning a trip and want to keep your hotel costs down? Here are a few ways to get a good deal on a hotel.

1. Sign up for hotel loyalty programs

Hotel loyalty programs offer a way for travelers to get free perks. Many hotel chains give loyalty members discounted rates. Even a small discount could help you save money on your next stay. If you’re brand loyal and travel often, you may also be able to take advantage of other loyalty benefits like free room upgrades, early check-in, and late check-out. Stay at the same company’s properties often enough and eventually you’ll achieve elite status.

2. Check room rates offered directly through the hotel

You can either book directly with the hotel or use travel booking websites to reserve a hotel. It can be a big win for your wallet to book directly with the hotel, though. Before booking a room, check the hotel’s price first so you don’t waste your hard-earned money. Make sure to use hotel credit cards or travel credit cards when paying so you don’t miss out on the chance to earn rewards.

3. Book refundable rates and rebook later at a lower rate

One of my favorite ways to save money on travel is by booking a refundable room before my trip begins. Then I’ll monitor the prices throughout the coming weeks to see if a lower price becomes available. If it does, I will make a new reservation at a lower rate and cancel the previous reservation. While this method requires additional research, it could save you hundreds.

4. Adjust your expectations and try something different

If you aren’t finding deals, you may need to adjust your expectations and try something new to save money. Instead of booking a room you would usually book, consider other options. One way to save on costs is by booking a smaller room with basic amenities.

Brands like Pod Hotels and Moxy Hotels offer affordable rates for travelers who don’t need a lot of space or extra amenities. If you’re traveling internationally and aren’t claustrophobic, you may want to see if there are capsule hotels at your destination. Capsule hotels are more common outside of the United States and are a budget-friendly solution.

5. Redeem credit card points and miles

If you have travel rewards you’ve been meaning to use, why not redeem your points or miles for a free hotel stay? One way to do this is to transfer your rewards to one of your credit card’s travel transfer partners. Another option is to book a hotel room through credit card travel booking portals, like the Chase Ultimate Rewards Portal or the Amex Travel Portal. Review your redemption options to find the best use of your points or miles.

6. Use price comparison tools to keep your spending in check

There are many price comparison tools available that can help you price out your next hotel or flight. You can narrow down hotel options based on your room, location, amenities, and price preferences to find the best deals. Use these tools to your advantage so you don’t spend more than necessary. Here are a few price comparison tools you may want to check out:

Google HotelsKayakHotwireBooking.comTripadvisorHotels.com

7. Use HotelTonight to book last-minute stays

If you’re in a bind because you forgot to book a room or have a last-minute trip that popped up, you still have options. Tools like HotelTonight allow you to book a room at the last moment without going into credit card debt. Use this company’s website or mobile app to check pricing to see if you can save money on a hotel booking. I’ve used this service on several occasions.

Don’t disregard your budget

You can find cheap travel and it’s possible to get a great deal on your next hotel. It may require you to spend extra time researching, but you can honor your personal finance goals while prioritizing travel. If you don’t yet have a travel credit card but want to earn travel rewards, check out our list of the best travel rewards credit cards.

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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.Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and JPMorgan Chase. The Motley Fool has a disclosure policy.

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There’s a solution that doesn’t involve losing sleep night after night. 

At a time when inflation is costing Americans so much money, the idea of coming up with extra money is throwing a lot of people for a loop. In fact, a good 85% of U.S. consumers say they’re worried about the possibility of facing unplanned or unknown expenses, according to the latest BMO Real Financial Progress Index.

If you feel the same way, there’s one very important goal you should commit to in 2023. It could not only help ease your mind, but also, spare you from landing in costly debt when unexpected bills pop up.

You absolutely need an emergency fund

You’ll often hear that it’s important to have money in savings for unplanned expenses. But you may not feel the push to build cash reserves until you’re actually looking at a situation where you need money but don’t have any.

You really don’t want to let things get to that point. A much better bet is to do your best to build up a solid emergency fund. What that means, however, depends on your personal circumstances.

What should your emergency fund look like?

Financial experts differ on how much money you need in a savings account for emergency fund purposes. Some will say you’re okay with three to six months’ worth of living expenses. Others will say that nine to 12 months’ worth of bills is more appropriate.

A number of financial experts changed their emergency fund guidelines after the COVID-19 pandemic hit and spurred a massive unemployment crisis. We saw back in 2020 that many people lost their jobs overnight and couldn’t find work again for many months. And while there was lots of stimulus aid available at the time to help people get through that crisis, we can’t assume stimulus checks will come to the rescue if a future economic downturn comes to be.

That’s why it’s certainly not a bad idea to aim for nine to 12 months of living costs in the bank. But if that seems overwhelmingly daunting, start with a smaller emergency fund goal and work your way up.

Meanwhile, to see how much money your emergency fund needs, calculate your essential monthly bills. These might include things like:

Rent or mortgage paymentsAuto loan paymentsTransportation costs like gas and auto insuranceFoodMedicationsUtilitiesCellphone service (these days, this is more of a need than a want)

Once you figure out how much you spend monthly on essentials, you can multiply that total by three to get your minimum emergency fund balance. You can also try an emergency fund calculator (you’ll still need all the numbers for what you spend). And once you’ve met that goal, you can continue to aim higher if you want more financial protection.

Don’t leave things to chance

You never know when an unplanned bill might land in your lap, or when you might lose your job and need your savings to fall back on to pay your bills. Having money in the bank for emergencies could make it so you’re not instantly plunged into debt when things don’t go your way. And that, in turn, should make it a lot easier for you to recover from whatever financial crisis has arisen, whether it’s a period of unemployment, a major home repair, or a medical issue that not only sidelines you, but leaves you with lots of bills to pay.

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Some of this Dave Ramsey advice is worth following, but homeowners should avoid one rule. 

If you want to buy a home, you need to make sure you’re financially prepared. And, of course, you must also make smart choices about what mortgage loan you end up with. To help ensure you don’t regret your property purchase, finance expert Dave Ramsey has outlined three rules you need to follow.

He’s right on two of them, but not the third. Here’s why.

1. Make a down payment of at least 5%

First and foremost, Ramsey says you should not move forward with buying a home unless you can put some money down for it.

“Here’s the bottom line: If you can’t afford to put any money down on a home mortgage, you’re not in a financial position to become a homeowner.”

Having no down payment is risky because you won’t be able to sell your house for enough to pay off the mortgage and closing costs for a long time — even if property values stay the same. If property values fall, you could end up owing much more than the home is worth.

Ramsey ideally recommends a larger down payment of 20% to avoid having to pay for private mortgage insurance (a policy that protects lenders against loss), but said “a 5–10% down payment will work, especially if you’re a first-time home buyer, but be prepared for the PMI payments.”

This is good advice and you should follow this rule, aiming to put down as much as you can to get the most affordable loan.

2. Take out a 15-year mortgage

Ramsey’s next rule relates to the type of mortgage he recommends.

“No matter how much you’re putting down, go for a fixed-rate 15-year mortgage,” the Ramsey Solutions blog reads. Ramsey believes this is a better option because it allows you to become debt-free sooner.

This is the rule you should break. A 15-year mortgage comes with monthly payments that are much higher than on the more popular 30-year loan. There is a huge opportunity cost to making these high payments.

You’ll need a larger emergency fund to make sure you can afford the payments if things go wrong. Additionally, you won’t be able to invest all that extra money you’re putting toward your mortgage, and you’ll be accepting a much lower return on the money you’re using to pay down your loan if you opt for a 15-year loan. You’d be much better off investing and potentially earning around a 10% average annual return with a safe investment in an S&P 500 index fund, rather than the paltry return on investment (ROI) that comes with saved interest.

Instead of listening to Ramsey on this, consider getting a 30-year loan. If you decide you have extra cash and want to pay it off within 15 years, you can, but you won’t be tied into a huge payment you can’t escape.

3. Keep your payments to 25% of your income

Finally, Ramsey suggests keeping your housing costs to no more than 25% of your income. This is good advice because you don’t want to end up house poor. If you take on too large a mortgage, you could regret it when doing other things with your money becomes impossible.

If you’re looking to buy a home the right way, make sure you follow two of these three rules. Save up a good size down payment, be sure your housing costs aren’t too high, and get a 30-year loan that has the best interest rate you can find. This is the best recipe for success in home buying, and it maximizes the chances your purchase will pay off for you in the end.

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It’s a great time to go after bargains. 

The funny thing about Costco is that some people absolutely love shopping there, while others dread the idea of trekking out to their local warehouse club store. And it’s easy to see why.

Shopping at Costco can be an overwhelming experience. The stores are huge, the selection is vast, and, at times, the lines at the checkout area can be lengthy. And so if Costco is the type of store that only hits your rotation every so often, you may not be so motivated to visit in the coming weeks.

But if you’ve pledged to spend less money in 2023, then it’s a good idea to get into the habit of shopping at Costco more regularly. And it pays to visit Costco in January, when you may be particularly mindful of how much you’re spending.

An easy way to save

Maybe your nearest Costco store isn’t as conveniently located as your go-to supermarket. Or maybe you have a Costco three miles down the road, but you just don’t love shopping there. Either way, if one of your main New Year’s resolutions for 2023 is to spend less and add more money to your savings account, then working Costco into your shopping routine could help you achieve it.

Costco is known for its low prices on everything from shelf-stable groceries to dairy products to produce to paper goods. And if you tend to go through cleaning products and toiletries quickly, stocking up at Costco could leave you with a lower credit card tab.

Meanwhile, January is when a lot of people tend to pay more attention to what their various bills cost them (it’s all part of that “spend less, save more” mentality). So if you do some shopping at Costco this month and then compare your bills to those you rack up at your local supermarket and big-box stores, you may realize just how beneficial it is to make a Costco run more frequently.

Shop mindfully

Even though Costco offers a world of bargains for members, it’s still important to take a strategic approach to shopping there. For one thing, assess your storage capacity before heading out on a shopping run. You might find your favorite frozen and dairy products at an ultra low price, but that won’t do you much good if you don’t have room in your freezer or fridge.

Also, do your best to plan out your meals so you end up buying the right food items. This is an especially important thing to do when it comes to perishables. If you buy a giant sack of rice, chances are, it’ll still be fine six months down the line as long as you store it properly once opened. But don’t expect to buy shredded cheese in January and have it still be edible come July.

Finally, make sure to avoid impulse purchases at Costco, as those could negate any money you’re saving. You may want to stick to the aisles that house items on your shopping list.

Just because you’re a Costco member doesn’t mean you have to shop there every week. But it could pay to visit Costco in January and see what positive impact it might have on your 2023 finances.

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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.Maurie Backman 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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Making them authorized users costs me nothing but sets them up for success. 

My two children are currently three years old and eight months old. Unsurprisingly, they don’t do a lot of shopping independently at this age. But, while they may not have a lot of use for a credit card, they are authorized users on my accounts and both technically have tens of thousands of dollars of credit available to them should they want to go on a spending spree and stock up on Paw Patrol gear.

I did not make my children authorized users on my credit cards to enable them to indulge their fantasy of buying every toy at Costco, though. There’s a very important reason why I added both kids to my account.

Being authorized users is helping my kids build credit from a young age

When I made my children authorized users, the credit card accounts that I added them to started showing up on their credit reports. In other words, even though they are years away from getting any loans or credit cards of their own, a credit file has been opened up for them.

My accounts are in good standing, with all of my payments made on time. The accounts that I added my kids to as authorized users have been open for many, many years. I have very high credit limits on those accounts, and I don’t use much of the available credit, so there’s a good credit utilization ratio.

These accounts all count toward my kids’ credit history, so as of this moment, their average age of credit would actually be older than they are and they would have great records in all of the key metrics that go toward determining their credit scores.

I intend to keep my kids on my accounts throughout their childhood and into young adulthood. That way, they’ll continue to benefit from having my accounts with a positive history on their credit records for years to come. When they do finally decide they’re ready to borrow for something, like to get their first credit card or a car loan, or when their credit is checked because they want to rent an apartment, they’ll have a strong credit history that opens up doors for them.

It doesn’t cost me anything to do this, since my card allows authorized users for no fee and since my kids aren’t going to start charging things on my cards that I’d have to pay for (at least not anytime soon). So this is an effortless way for me to give them a leg up in their own financial lives.

Should you add your kids as authorized users?

Adding your kids as authorized users can help your children as long as you don’t carry a high credit card balance, which could make it look like they’re responsible for high monthly debts — and as long as you pay your account on time and are responsible with your credit.

You don’t have to give them the physical card if you don’t want them to use it (we didn’t, and we won’t). Just putting their name on the account is enough to reap the benefits of authorized user status, and you can keep the cards sent in their names in a drawer somewhere. Although, you should be aware that if your kids do get access to the card and run up charges, you would be responsible for paying them.

Still, unless you think your kids are going to go wild with your credit cards, you may as well add them if you have an account in good standing that could help them out in the credit-building process.

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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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