Money Management

There are ways to improve your credit score and manage debt. Learn here how financial education can make a difference. [[{“value”:”

A recent survey by Credit Sesame has cast a bright spotlight on the financial literacy landscape, especially among marginalized communities. The findings are quite telling: while 65% of marginalized non-white individuals reported never receiving financial education, only 41% of white Americans could say the same. This gap in financial knowledge is not just a minor issue — it’s a major barrier to economic empowerment.

So, what can we do with this information? Well, for starters, understanding some core financial principles can significantly impact our lives and our budgets. Here, Richard Barrington, a financial analyst for Credit Sesame, shares five must-know financial tips everyone should learn.

1. Avoid credit card debt

According to Barrington, credit card debt is notably the most hazardous type of debt one can incur. This is primarily because credit cards are always readily available, making it far too easy to accumulate debt.

The high interest rates associated with credit cards (average of 24.74% APR as of August 2024) exacerbate the issue. Compare that to a 12.8% interest rate for personal loans, a 6.73% rate for car loans, or a 6.59% for a mortgage, and you’re treading dangerous waters.

Furthermore, the lack of a fixed repayment period means that credit card debt can continue to accrue interest indefinitely, deepening the financial hole.

2. Take care of your credit score

Low credit scores can close many doors, affecting much more than just your borrowing capabilities. As the survey illustrates, over 20% of individuals with poor credit scores could not secure apartment rentals — almost double the rate of those with better scores.

Furthermore, employers and insurance companies also use credit scores to assess responsibility and risk, which means a low score can increase job search difficulties and insurance premiums. Given these wide-ranging implications, it’s crucial to maintain and regularly monitor your credit score.

3. Check your credit score regularly

Keeping a good credit score isn’t a one-time task; it’s something you need to do regularly. Think of it like brushing your teeth — something you do consistently to avoid bigger issues later. A good credit score is essential not just for borrowing money but for many everyday situations, too.

For example, if you’re trying to rent an apartment, landlords often check your credit score to see if you’re reliable. The same goes for job hunting; some employers look at your credit score as part of their hiring process, seeing it as a sign of responsibility and stability.

Plus, having a good credit score can help you get lower interest rates on loans and credit cards, saving you a lot of money over time. By regularly checking your credit and keeping up with good financial habits, you can maintain a healthy score. This way, you’ll always be in a good position when opportunities arise.

4. Pay more than the minimum on credit cards

As Barrington points out, one strategic approach to managing credit card debt is to always pay more than the minimum payment required. Credit card companies benefit when consumers extend their repayment period, as this leads to more accumulated interest. By paying more than the minimum, you can significantly reduce the lifespan of your debt and save on interest.

5. Match your loans to your purchases

When taking on debt, it’s smart to consider the lifespan of what you’re buying. Long-term loans should be reserved for purchases that will last at least as long as the loan period, like a house or a car. These investments hold value over time and justify the extended repayment period.

On the flip side, financing short-lived expenses, such as a week-long vacation, over several years isn’t a good idea. This kind of mismatch can lead to prolonged financial stress, as you’ll still be paying for something long after its value has faded. It can also limit your future financial flexibility, making saving or investing in more meaningful, lasting purchases harder.

Essentially, you want your debt repayment schedule to match the useful life of what you’re buying to avoid unnecessary financial strain.

What can be done to improve financial literacy?

The survey really drives home the importance of learning about money and budgeting early on. People who get financial education in school tend to end up with higher incomes and better credit scores. It’s like giving kids a financial head start. But here’s the kicker: only about half the states in the U.S. actually require financial education in high school.

But don’t worry; parents can still step up to the plate. Teaching your kids about managing money can prepare them for future success and stability.

Credit Sesame’s findings show that this kind of early financial knowledge helps people navigate the tricky world of money much better. It’s clear we need more comprehensive financial literacy programs for everyone, no matter where they come from.

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Top MMAs pay APYs of over 5.00% right now. Find out how you can put these hybrid accounts to work for you. [[{“value”:”

Banking products are always evolving to offer new and useful combinations to consumers. There used to be a time when you used a checking account only for handling checks.

These days hardly anyone writes checks. Instead, top checking accounts have become a one-stop-shop for a host of everyday transactions.

Some high-yield checking accounts even pay interest. However, if you want to earn interest on a transactional account, it is worth looking into money market accounts (MMAs). Think of them as hybrids between savings and checking — you get decent interest payments, but without as many restrictions on how you can access your money as you’d get with savings accounts.

If you’re tired of earning low APYs on the money in your checking account, MMAs can be part of the answer.

What is a money market account?

Money market accounts are a type of deposit bank account. They pay high APYs and often come with debit cards or check-writing privileges, so you can access your funds easily.

The best APYs on top MMAs right now are as high as 5.30%. In comparison, top checking accounts might pay around 1.00%, maybe more.

There are a lot of different MMAs out there. Some will demand a high minimum balance for the more competitive APYs, while others limit the number of transactions you can make.

The transaction limit is a hangover from a Fed rule called Regulation D. The rule was suspended during the pandemic, but some banks still implement it.

It’s worth shopping around. Some MMAs are paying APYs of over 5.00% right now. You will find that some allow unlimited deposits and withdrawals, and many have no (or very low) minimum deposit requirements. Check to make sure there are no monthly fees.

Don’t confuse MMAs with money market funds, which are a type of investment and do not come with FDIC protection. The majority of MMAs are offered by FDIC-insured banks and will give the same protection as your savings or checking account.

Money market accounts vs. checking accounts

Put simply, checking accounts offer a lot more functionality than an MMA. Debit cards, automatic transfers, a wide network of fee-free ATMs, online banking, mobile banking apps, and more are standard with a checking account.

You won’t get this level of functionality with an MMA, though you’ll usually get higher rates of interest. Money market accounts offer more functionality than a lot of savings accounts, but not as much as a checking account.

Here are some key differences and similarities between the two:

Money market account

Often pay higher APYs than both checking and savings accountsMay have higher minimum balance requirementsMay allow check writing and/or debit cardFDIC insured

Checking account

Usually pay low APYs or no interest at allUsually have low or no minimum deposit requirementsRange of transaction optionsFDIC insured

There’s a rule of thumb that suggests we keep one to two months’ worth of expenses in our checking accounts. But if you want to maximize your interest earnings, it’s worth thinking about whether your MMA and checking accounts could work together.

For example, you might be able to keep a slightly lower balance in your checking account and move money from your MMA as necessary. Or consider what transactions you can carry out from your MMA without using your checking at all.

That level of active management takes effort and you’ll need to make sure you don’t accidentally overdraw your checking. But it could be worth it. To give you an idea, a balance of $5,000 in an MMA that earns a 5.00% APY could earn over $250 in interest a year.

Key takeaway

I’m a big fan of maximizing interest on every single dollar. But sadly, you probably can’t forget checking accounts completely. They may pay low interest rates, but they are also financial workhorses and useful for a lot of your daily transactions.

All the same, as we enter a phase of lower savings rates, there’s no harm in getting creative to earn a slightly higher APY. As such, it could be good to open a money market account and use it to complement your checking.

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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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