We would never suggest that you do anything illegal with your money but there are some financial loopholes you could take advantage of even if you’re not a member of that wealthy 1%. There are tips or “hacks” that could help you get the most out of your money and here are five of them.
#1. Get rid of your debts with a 0% interest credit card
Would you be surprised to learn there are credit cards that have 0% interest? These are generally called 0% interest balance transfer cards and their purpose is to entice you to transfer your balances on other credit cards to that new card. Of course, this loophole is available only to those that have a fairly good credit score. But if you do and you shop carefully you should be able to find a card that offers 18 months interest-free. If you’re carrying a sizable amount of debt on a credit card or multiple credit cards with an interest rate of 15% or higher you should definitely look into a balance transfer. However, you do need to be able to pay off that new balance before the interest-free promotional period ends as once it does your interest rate could jump to 19% or higher – leaving you right back where you began. There will be a balance transfer fee, which is generally around 3% of the amount that you’re transferring. This means if you only have a small balance on one card this may not be right for you. If you’re uncertain as to whether or not you could save enough money to warrant transferring your balances to a new card, you can figure things out by using a credit card balance calculator.
Be aware that when you open a new card your credit score will get dinged because you’ve changed your credit utilization rate, which makes up 30% of your credit score. However, in the big scheme of things this won’t compare to the damage that major credit card debt could do to your life.
#2. Save for your kid’s college with a Roth IRA
If you’re saving for your child’s college with a 529 account you know that it has some limitations. The way to get around this is with a Roth IRA – assuming your adjusted gross income is less than $112,000 if you’re single or $112,000 if you’re filing jointly. As you may already know a 529 plan is generally not federal income tax deductible. In addition, when you fill out the required FAFSA form (Free Application for Federal Student Aid) the money in your 529 account will be considered as part of your family’s assets.
If you have a Roth IRA and are saving for retirement we don’t generally recommend that you withdraw money from it. However, money saved in a retirement account won’t count towards your assets when you fill out the FAFSA. What this means is that you can save money for your child’s college in a Roth IRA and maybe still get financial aid because you won’t have to declare it as an asset. You would then withdraw money from the Roth IRA when it came time to pay for college. If the two of you each contributes $5500 a year or a total of $11,000 then in 15 years you would have $82,500, which you could then withdraw to pay for your child’s college and without any sort of a penalty. Plus, retirement accounts are generally protected from your creditors so they could not be seized in the event you go into a real financial jam.
If you are not familiar with the term equity it’s the difference between the total amount you owe on your mortgage and your home’s appraised value. If you have some equity in your home you might want to borrow against it instead of getting a bank loan. There are two benefits to this. First, getting a home equity loan will be less complicated since you’ve already been approved for a mortgage. While you will need to get your home appraised, your lender should be able to help you through the process. Second, and equally important, the interest payments you make on a home equity loan are generally tax deductible – unlike the interest you would pay on a personal loan.
Don’t count on lenders loaning you an amount equal to the total amount of equity you have in your house. At the most you’ll probably get 75%. Let’s say you have $100,000 in equity. This means you should be able to borrow up to $75,000. This can be a very good deal if you plan on staying in your home for some time or if your home is worth a good deal more than you paid for it. Of course, if you don’t have much equity in your home or if you think you’ll be moving in just a year or two, this tip is likely not for you. And you will need to be sure you make all the payments on your home equity loan on time as you’re borrowing against your house so if you were to fall behind you could actually lose your home.
#4. Pay your insurance premiums once a year
Do you have an insurance policy that you plan on keeping for at least a year? Then this tip could help you save some money. You’re probably now making payments monthly on your life insurance and auto insurance. However, you don’t have to do this. In fact, insurance companies would rather that you pay in one lump sum annually. That way they know that the policy is paid up for the next year. They allow you to pay monthly as a courtesy but they do charge you for this by multiplying each of your month’ payments by .08 to. 09%. While this may not seem like much let’s say that the total premium on your life insurance is $400 a year. When you pay this monthly, it will cost you $36. If you multiply that by 12 months you’ll see that you’ll be paying $430 for the year. That’s an extra 8% or $32. Of course, to pay in one lump sum means you need to have the money available. One way to do this is by setting up a separate savings account specifically to cover your annual insurance payments and then auto-contribute a little to it each month.
#5. Auto-draft your investing
If you are investing for your retirement, as we hope you are, you’re undoubtedly paying a commission or fee every time you make a trade. However, most brokerages will drop this if you create an auto-draft where you’re automatically contributing an amount to your account every month. The reason they are willing to do this is because it ensures that you’ll be paying them every month instead of just occasionally when you make a trade. Do be sure to ask your broker if it would be willing to waive its commissions before you create that auto-draft.