Using Balance Transfers When Setting up An Emergency Fund

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The Truth About Department Store Credit Cards

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If you’ve ever shopped in a department store, you know the story. Maybe you picked up a new set of cutlery, registered for a wedding or tried on some new dresses. Whatever the reason for your trip, the checkout process is always going to start the same way – “Have you signed up for our store credit card?”

The interest rates and perks may vary, but pushing a retail credit card is standard practice at many department, big box and outlet stores. They usually include a signing bonus or discount that can be applied to the purchase you’ve come for, making them a tempting offer for anyone looking to save a quick buck.

But what are the consequences of signing up for retail credit cards? In what ways do they differ from standard cards? Should they be approached cautiously, embraced fully or avoided entirely?

Why You Shouldn’t Use Them

Retail credit cards are tied to specific stores and often offer discounts when you sign up initially. Some also offer extra sales and coupons such as an additional 10% on top of another sale. But they can be a dangerous entry to the world of credit.

Unfortunately, the benefits and rewards of retail cards are often tied to the store directly, so you’re encouraged to spend more there to see the benefits. A sale at your favorite clothing brand might not entice you unless you have a store credit card that offers an extra 10% when you use the card.

Some store credit cards can also hurt your credit score, depending how you use them. Many offer lower credit limits than other types of credit cards, which can affect your credit utilization.

For example, if you have a credit limit of $500 on a department store’s credit card and spend $200 on a new duvet, your utilization percentage will be 40%. An ideal credit utilization percentage is 30% or less – any higher will negatively impact your credit score.

Store credit cards also often have higher interest rates than other cards, which will negate any discount you receive from using them. The cards are mostly aimed at short-sighted consumers, so those who take the time to weigh all the factors are less likely to be drawn in.

When to Sign Up

These cards aren’t completely useless. If you’re still building a credit history, a store credit card can be a good way to get your foot in the door. Their standards may be lower than other major credit cards and can prepare you for the “big leagues.”

Before applying for a store credit card, find out if they report to the three major credit bureaus – Experian, TransUnion and Equifax. These bureaus are responsible for your credit reports so if they don’t report to them, you won’t be able to build up a credit history.

Using a store credit card wisely can teach you how to be responsible, avoid temptation and build a credit history. After a few months, you may find yourself eligible for better rewards cards, including ones with large cash back or travel bonuses.

Stores that you frequent, like a superstore, can be good options in this situation. If you’re going this route to build credit, try to use a credit card from a store you’ll actually frequent.

The trick is to not spend more than you would have just because you’re receiving a small discount. That’s how these store credit cards really profit the companies they’re created by, and why they’re pushed so heavily in the checkout line. They know the money lost from the discounts they offer will pale in comparison to the extra business they’ll drum up by offering them – and now you do too.

Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Debt Free After Three.

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Mint Success: Going From Carrying Debt to Paying it Off

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Once upon a time, Scott Henderson used credit cards like “free money,” maxing out his balances and getting cash advances to pay for wedding expenses – then carrying those balances forward monthly, paying the only the minimum.

He wasn’t alone: 34% of Americans carry credit card balances vs. paying the cards off every month (and 35% of Mint users do the same).

But once Scott, a peer mentor at University of Utah, and his new wife took a good look at how this debt was affecting their financial picture, everything changed. They used Mint to set their goal and keep track, and the rest is history (and the future).

What kind of credit card debt did you have before you started paying them off?

When we started paying down our credit card debt, we had four credit cards. One of them was maxed out to nearly $1,500, and the other cards were nearly maxed out as well. I didn’t fully understand how a credit card worked before I got married, other than it was pretty much free money to me. When I decided to get married, I made cash advances to pay for my wife’s wedding ring and maxed out all of my cards. I later found out the many reasons why that was a bad idea.

What led to your decision to pay off your credit card debt?

A few months into marriage, my wife asked me why I had been carrying such high balances on my credit card. I said, “because of you!” That’s when we decided to get serious.

How did you use Mint to help?

When we realized we were carrying more debt than we could handle (and it was only getting worse), we decided to set a goal in Mint to pay down our credit card debt. It let us know that if we were to pay only the minimum payment each month, we would never pay off our debt. Instead, we put as much money toward our credit card debt each month as we could manage and were able to pay it off in a reasonable amount of time.

How long did it take for you to pay off all the credit card debt?

It was the first year of our marriage of sacrificing things to pay off our balance completely. But one year into marriage it felt extremely good to know we no longer had credit card debt. Now that we pay off our balance each month, it is still easy to let it get out of control, but we dedicated ourselves to never carry a balance again.

How does Mint help you now?

Checking Mint every few days helps me to know what categories I am spending the most on, my monthly average amount of expenditures, upcoming bills, my credit card balances all in one place, and so many other things.

How do you use credit cards now?

We put everything on our credit card to build rewards, points, miles and increase our credit score. My wife and I pay off the balance every week and before the credit card companies report to the credit bureaus. The greatest part about it is now that we don’t carry a balance we don’t have to pay interest.

How has your lifestyle changed since going from balance carrier to balance payer?

We feel we have more freedom to do the things we want to do. We don’t pay for things we did last year that we don’t care about anymore. Now that [the debt] is paid off, we are able to put all that money towards our first home.

Now that we are balance payers, we have a budgeting system that we set up where each time we get paid, we are so excited that we both argue about who gets to break up the money into the different accounts.

You can be like Scott

We can identify with the excitement of budgeting and tracking goals! Next month we will look at how recent college graduates or people just starting out in their careers use mint to build a promising financial future.

Are you one of those? We would like to hear your story! Contact us at Editor_Mint@intuit.com with “Mint User Story” in the subject.

Kim Tracy Prince is a Los Angeles-based writer who also paid off her credit card debt after getting married! She recommends doing it before, if you can.

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How To Prioritize Emergency Funds, Savings and Paying Off Debt

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We all want to be more responsible with our money. While that sounds great in theory, it can get confusing once you start to break things down. Emergency funds, savings funds and debt all need to be addressed regularly, but trying to figure out a consistent method leaves some paralyzed with indecision.

One of the problems that tends to trip people up is prioritization. Allocating your finances to the right place is crucial, but how do you decide how much to put towards any one purpose? How can you cut through the confusion and get your finances on the right track?

Read on for our tips.

1.   Save a Mini-Emergency Fund

You need to save at least a partial emergency fund first. If you don’t have one and have to face a crisis, you’ll probably need to borrow the money. That means you’ll end up in more debt – whether you owe a family member or a credit card company.

A basic emergency fund should be around $1,000. That will cover minor emergencies like new tires after your car has a blowout on the highway, last-minute plane tickets to a funeral, or a brief ER visit.

Each time you deplete your emergency fund, halt any other debt-reducing or saving until you build it back up. Once you’re debt free, you can focus on building a more substantial emergency fund, covering between three to six month’s worth of expenses.

2.   Refinance Debt

Before you start paying off your debt, you should find other ways to reduce it. If you have high-interest credit card debt, do a balance transfer onto an account with a 0% offer. See if you can refinance to get a lower interest rate for your other debt, including car loans, mortgages and student loans.

When you refinance, make sure that your new loan doesn’t extend your terms. The longer your loan, the more you’ll pay in interest. You should use the refinance as an opportunity to save money, not spend more of it.

After you refinance, keep making the same payments you were previously. Doing so will shorten how quickly you pay off your debt without forcing you to make any changes to your lifestyle.

3.   Focus on Saving

The general rule of thumb is that you should put between 10-15% of your income towards retirement. While some people advocate for focusing all your efforts on debt payoff, putting money toward retirement now can save you money later.

Why? Because saving for retirement is designed to be a long-term approach, and the most important aspect of saving for retirement is time. The more time you spend saving, the more you’ll have – simple as that. That’s why putting a little bit away for 40 years is better than putting a lot away for 20.

“A 28 year-old that saves $5,000 a year into a retirement account – if they average 8% and retire at age 68 – should earn approximately $1,295,000,” said CFP Peter Creedon of Crystal Brook Advisors. “To match the $1,295,000, a 40 year old would have to contribute $13,583 a year until retirement if we use the above parameters.”

4. Create a Debt Payoff Plan

Once you’ve started saving for retirement, you should focus on becoming debt free and creating more money to throw at that debt. There are two ways to do this – lower your living expenses or increase your income.

You can increase your income by asking for a raise, finding a new job or starting a side gig. Working an extra 10 hours a week at $10 an hour will yield about $400 a month before taxes.

To decrease how much you need to live on, you should find areas of your budget that you can cut. Do you eat out too often or have a yoga studio membership that goes unused? Are you paying too much for car insurance or internet? Take the money that you cut from your budget and apply that to your debt payments.

With the help of a loan repayment calculator, you can pay off your debt with one of two strategies – the snowball or the avalanche method (more on that later this week).

Once you’ve paid off your debt, put the money you were spending on monthly payments and beef up your emergency fund. Now you’ll be saving for yourself and your future instead of paying off old debt.

Zina Kumok is a freelance writer specializing in personal finance. A former reporter, she has covered murder trials, the Final Four and everything in between. She has been featured in Lifehacker, DailyWorth and Time. Read about how she paid off $28,000 worth of student loans in three years at Debt Free After Three.

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