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The Things You Should And Shouldn’t Put On A Credit Card

A credit card just might be the ultimate frenemy. Depending on how you use it, that little piece of plastic could be a good friend or an awful enemy. There are really only two secrets to keeping that credit card a good friend. The first is to use it sensibly. The second is knowing what and what not to put on it.

Using a credit card sensiblyman holding multiple credit cards

This is relatively easy. If you want to use that credit card sensibly you need to keep the balance low and pay it off at the end of every month. What’s a low balance? That’s pretty simple, too. It’s whatever amount of money you have to pay off your card when you get your statement. How much is that? This is question that only you can answer, which means doing a little budgeting. Sit down with a spreadsheet program or a pencil and a piece of paper and list all of your expenses – both fixed and variable. Your fixed expenses would be things like your rent or mortgage payment, car payment and insurance. Your utility bill, transportation costs, clothing and entertainment would be variable expenses. When you finish your list add up everything and subtract this number from your monthly take-home pay. If you have money left over, which we hope you do, you should save some of it and then budget the rest for your credit card. Let’s say, for the sake of the example, that after you subtract your fixed and variable expenses and the money you’ve earmarked for saving you have $100 left over. This then is the balance you could afford to carry on a credit card because you would know you would be able to pay it off at the end of the month.

The danger of carrying balances forward

Why you don’t want to carry a balance forward from month-to-month is because of the power of compounding interest. This is something else that can be either a friend or an enemy. It can be your friend when you’re saving money but an enemy when you create debt. The way it works with a credit card is that once you carry a balance forward you’ll be charged interest on it, which will be carried forward to the next month where you will again be charged interest. This means you are now paying interest on interest. That’s compounding. And it can get ugly. If you were to run up a $5000 balance on your credit card at 15% and made only a minimum payment of $112.50 it would take you 266 months to be rid of that debt and would cost you $5,729.21 in interest – or more than that original balance.

What to put on a credit card

You’ve already seen the real answer to that question, which is to put no more on that credit card than you can pay off when you get your statement. So long as you know what that number is you can put anything on that card and you should probably charge as much as possible as this then becomes a record of your spending, which you could use in your budgeting.

The one exception

The one exception to this rule of charging only what you can afford is major purchases like a washer-dryer or refrigerator. If you need to buy one of these big-ticket items and don’t have the cash available it could be okay to put it on a credit card. Just keep in mind that you will need to pay back the money, which means budgeting for it. If you were to put a $1000 item on that credit card you should budget an extra $100 or $200 a month to pay it off as quickly as possible and keep from falling victim to that old devil of compound interest.

What not to put on a credit cardWoman depressed over bills

It’s important to remember that credit card debt is unsecured debt. Many experts believe that it’s the worst way to borrow money because it typically carries a very high interest rate – much higher than a car or home loan. Plus, credit card debt is never tax deductible as is the interest you pay on a home mortgage or student loan. Given this, there are five things you should never put on a credit card.

The first is college tuition. There are literally millions of American adults who are still paying for their college educations years after they left school. In many cases they haven’t even been able to find work in their fields of study – leaving them members of what’s now called the “underemployed.”

There are two big reasons why you should never put college tuition on a credit card. The first is the aforementioned compounding interest. The second is that it’s better to fund your education with low-interest student loans, grants, part-time jobs and scholarships as this would save you thousands of dollars over the long term.

Second, don’t put your income taxes on a credit card. Even if you find yourself hit with a big tax liability, don’t charge it. While the IRS makes it easy to make your payments with a credit card there are several reasons to not do this. First, the payment processing company will assess a fee of 1.88% to 2.35% and this will only add to the burden you’re already facing. In addition, the IRS will let you set up a payment plan with a much better interest rate. As of this writing its underpayment interest rate charge for each quarter is just 3%, which is much better than you would get with any credit card.

A third thing you shouldn’t put on a credit card is a vacation. While getting away from the stress of everyday life can feel really good don’t finance that trip with a credit card. If you do this you’ll only be coming home to the problems caused by that debt. A better solution is to plan a vacation that fits within your means such as camping, staying at hostels or visiting friends and family members. You say that’s not your idea of a dream vacation? Then set up a vacation fund, contribute to it every month and you will eventually have the money in hand to finance your dream vacation.

You should also never put a big wedding on a credit card. You might be tempted to have a really lavish event but just as with a vacation, you need to plan a wedding that will fit within your means and avoid creating credit card debt. We know that this will be a very special day for the two of you but it’s not worth it if you have to begin your lives together laboring underneath a huge pile of debt.

Last but not least, don’t put medical bills on a credit card. These bills can be staggering but if you talk with your healthcare providers you should be able to get payment plans that have little or no interest and payments you could actually afford. It’s possible that you could also tap into a charitable organization for financial help. But once you put those bills on a credit card that’s it. You ‘re stuck with that debt and with a big monthly payment probably for years to come.

How To Rebuild Your Credit After Divorce

man jumping with a chart behind himGetting divorced can be one of the most stressful things you’ll ever have to endure. If you have children there’ll be the issues of who has custody and maybe visiting rights. You or your attorneys will need to determine how to split your finances as well as your furniture and personal possessions. And, of course, the more stuff you have and the more you and your spouse earn, the more complicated things will be. But there is one piece that’s easy to overlook and that’s your credit score.

Why your credit score will take a hit

Despite what many people think a divorce per se will not damage your credit score. This is because your credit score and your spouse’s credit score are different. It’s not like you had a joint credit score and getting divorced will cut your score by 50%. However, there are several reasons why a divorce will damage your credit score. First, your expenses will likely go up since you’re no longer splitting them. This will make it more difficult for you to keep up with your bills. Second, it’s likely that you and your spouse had some debts when you divorced. If they are not paid off immediately they will end up being the responsibility of one of you. If that person doesn’t pay them off then both your credit reports and ultimately your credit scores will be damaged. And third, the harsh truth is that there can be identity theft. It’s unfortunately very common for one spouse to “borrow” the ex’s personal information to get new utility services, new credit cards, an auto loan, etc.

Divorce can lead to bankruptcy

It’s also sad but true that a divorce can lead to bankruptcy. If this happens to you it might be because your finances just got stretched over the limit, as you’re now required to pay for new expenses such as alimony or childcare. But some people are actually pushed into filing for bankruptcy by his or her former spouse. As an example of this let’s suppose that you owned a house with your ex spouse but you can’t sell it because it’s upside down. Your ex agrees to pay the mortgage but then doesn’t do so. If you want to keep the house you could end up having to file for bankruptcy in order to save it. Or just to get rid of the responsibility of having to pay on it.

Making your credit score a priority

There are numerous things that need to be taken care of as the result of a divorce. This could make it easy for you to miss paying a bill. And believe it or not just one late or missed payment could cause what would otherwise be your excellent credit score to fall by 50, 75 points or more. After your divorce you will need good credit to get a place to live and to get new utility service without having to make a deposit. Plus, the stain on your credit report of having missed a payment can come back to haunt you as it will stay in your credit reports for seven years.

Get your credit reportsmagnifying glass on credit report

One of the most important things you should do post-divorce is to get your credit reports. They are available free from the three credit reporting bureaus – Experian, TransUnion and Equifax. They are also available free on the website www.annualcreditreport.com. While this site makes it possible to get all three of your credit reports simultaneously most financial experts say it’s better to get them one at a time every four months. This becomes a way to monitor your credit year round without having to pay a credit monitoring service.

There are several reasons why you should be getting your credit reports. First, it’s so you can see all your debts. Any debts that were the joint responsibility of the two of you should be paid off as quickly as possible. This is because you are legally responsible for paying off any joint debts and getting divorced doesn’t change that.

It’s also possible that there are errors in your credit reports that are dragging down your credit score. When you review your credit reports look for purchases you don’t remember making or companies you don’t remember having done business with. If you find errors be sure to dispute them with the appropriate credit bureau. You should do this in writing so that you will have a paper trail. If you are able to get erroneous items removed from your credit reports your credit score should get a nice bounce.

Rebuilding your credit

If your credit was damaged due to the divorce, take heart. While you can’t change the past, you can make sure that you pay all your bills on time going forward. Recent information about how you handle your credit tends to have a greater impact on your score then older information. This means that paying your bills on time should ultimately lead to a significant improvement in your credit score. If you lost your credit cards for some reason or just don’t have one then get a new, secured credit card. This is where you deposit money at a bank or credit union and then can use the card so long as you have a balance. If you do get one of these cards make sure that if you use it sensibly this will be reported to the three credit bureaus, as you need this in order to rebuild your credit score. You might also be able to get a personal line of credit secured by a savings account. This would be yet another step in rebuilding your credit.

If your financial circumstances are really bad

If you have a 401(k) and are in dire financial circumstances you could borrow from it to clear up your debts and get a jump in your credit score. While this is never an ideal solution it’s better than cashing in your retirement account early, which would mean having to pay taxes and penalties. There is also a relatively new way to borrow money that could help. It’s called peer-to-peer lending. Two of the most popular sites that offer these loans are Lending Club and Prosper. The way this works is that you fill out and submit an application with your name, Social Security number, address and the amount of money you need and why you need it. Once your application has been verified, your request will be put online for lenders to review. If you write a good enough “pitch” or reason why you need the money a lender or group of lenders might decide to take a chance on you and fund your loan even though you have a poor credit score.

True Or False – You Should Auto Pay All Your Bills?

If your goal is to simplify your finances one thing the experts tell you to auto pay all your bills. That way you’ll never have to remember your payment due dates, never have to mail a check and never have to remember whether you paid that utility bill or not. If you have online banking then putting your bills on auto pay should be a real snap. You might even be able to have your statements sent to you electronically so you would never again have to worry about filing them or ultimately shredding them. Putting your bills on auto pay would certainly help simplify your finances but should you really put all of them on auto pay?Manager working diligently on the computer

The pros

The biggest pro of putting your bills on auto pay is, of course, convenience. As noted above when your bills are on auto pay you’ll never have to wonder whether or not you’re late on a payment or when your bills are due. When you fully automate your bill paying you’ll had made sure that your bills will be paid when they’re due and in full – assuming, of course, that you have a sufficient amount of money in your checking account to cover them.

You might also earn some nice incentives by signing up for auto pay. This is because there are companies that will reward you for paying them automatically. As an example of this, Nelnet will cut the interest rate on your loans by 0.25% when you agree to pay it automatically. This may not seem like a lot but could actually add up to many thousands of dollars over the life of your loan.

Third, paying your bills automatically can help your credit score because it should mean you never miss a payment. And missed payments can hurt your credit score fairly seriously. In fact, missing a single payment could ding your credit score by 60 points. Miss two and your credit score could be reduced by 120 points, which could drop you from having a good credit score to a poor score. In either event this would ultimately cost you money because you’d end up paying higher interest rates. This might even increase the cost of your auto insurance premiums.

The cons

There’s no question but that automatic bill pay can make your financial life simpler. However, there are times when it might not make good sense.

One of these is if you need tight control over your monthly spending. If you’re living from paycheck to paycheck then paying your bills manually could make better sense as this would give you greater control over how you allocate your funds and keep you from going into overdraft in a tough month. This would also help you keep money available for crucial expenses such as food and rent.

A second type of bill you might not want to put on auto pay is one that varies monthly. An example of this might be your utility bill, which could vary considerably between winter and summer – especially if you have air conditioning. If you were to put it on auto pay and had a very hot June or July this could substantially mess up your monthly finances. On the other hand, if you have bills such as a cell phone bill or your rent that remain the same from month-to-month they would be great candidates for auto pay.

A third consideration is that if you’re not careful you could end up paying for things you didn’t intend to buy. For example, it’s never a good idea to set up auto pay for temporary services or memberships. There are instances where if you were to try to cancel or change the service you could end up in customer service hell. Suppose you were to sign up to try Amazon’s Prime Service free for a month. If you forget to cancel you could find yourself hit with an unpleasant surprise – a $99 yearly fee.

Some other things to consider

When you sign up with a company for auto-pay this tells your bank to automatically approve requests to withdraw money for that company. The Federal Trade Commission says that you should only do this with those companies you trust and know. If not, you could wind up paying for stuff you didn’t want. It’s also possible that automatically paying your bills would make you more susceptible to having your identity stolen. While this may or may not be true it’s always a good idea to carefully read the company’s privacy policy and make sure that it will encrypt all of your transactions digitally.

As we have seen from the data breaches that recently hit Anthem Blue Cross/Blue Shield and Target there is no such thing as a totally safe website. However, automatic bill payment is usually much safer than mailing your payments physically. This is due to the fact that the postal system is more vulnerable to tampering and interception.

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeThe net/net

Automatic bill payment may not be for everybody but it is a very convenient way to pay bills for many consumers – making sure their bills are paid in full and on time. It can save money as well as time. But most banks now allow you to set up your bills to be paid online but not automatically. While this puts the burden of paying your bills back on your shoulders it does provide the convenience of paying your bills electronically but allows you to keep control of how much money goes out of your of your account each month. We have a number of bills that vary from month to month. We have it set up with our bank so that we can pay them online. When one of these bills arrives in the mail we note its due date and then immediately go online to our checking account and arrange to pay the bill on that date. This eliminates the need for us to remember to make the payment as well as the annoyances of having to find a stamp and to get the bill in the mail in enough time for it to make its due date. We view this as sort of the best of both worlds.

Automate your saving, too

In addition to putting your bills on auto pay it’s also a good idea to automate your saving. This short video explains how to do this and why it makes really good sense.

Simple Tricks For Cutting Costs And Fattening Up Your Piggy Bank

woman with a full grocery shopping bagWe’ve always find it ironic that when the government reports that the cost of living or Consumer Price Index has increased only +0.4% (Feb 2015) that this does not include the cost of gas or food. And while the cost of gas has dropped recently, the cost of food continues to increase every month. If yours is a typical family you’ve probably also seen increases in the cost of your cable or satellite service and your utilities. It’s tough these days to just stay even let alone save money. Fortunately there are some simple tricks that you could use to cut your everyday costs and fatten up your piggy bank.

Let’s work on that grocery bill

If you grow pale and faint when you see the total amount you’ve just spent on a week’s groceries, take heart. There are some simple things you could do to cut down the cost of your groceries. It begins with making a grocery list. The simple fact is that you should never go to the grocery store without a list. This accomplishes two things. First, it ensures that you’ll get everything you need, which will cut down on those trips you have to make to get the stuff you forgot. Second, having a grocery list will keep you from spending money on all those tempting things you see at those aisle-and displays.

Next, become an avid coupon clipper. You’ll find them in your newspaper – probably on Wednesday — as this is normally food day. If you don’t get a newspaper go online and sign up for your favorite supermarket’s newsletter. There are also tons of websites that offer coupons, many of which are printable. Some of the best include Shopathome.com, Thecrazycouponlady.com and, of course, Coupons.com. Always look for stores that offer double coupons on the stuff you need and for coupons that align with sales that are going on at your supermarket. And, finally, try to buy as many store brand items as you can, as this should save you up to 25% vs. brand name items.

Small changes can mean a lot

As an example of this the stuff that you drink can really add up. If you’re using bottled water, stop it. Those bottles are not only costing you money but they’re not good for the environment. Buy one of those bottles that filters water and then just fill it up with tap water. Believe it or not this can save you hundreds of dollars over the course of a year. Also, stop buying those lattes and brew your coffee at home. This alone could save you more than $700 a year. If you eat out a lot you can save big money by not doing it. Half of the average American’s budget goes to eating meals out of the home. If that’s typical of you just think how much you could do in cutting costs simply by eating at home instead of going to restaurants or getting takeout.

money and measuring tape

Slash your cable bill

Did you know that the average American spends $86 a month on cable or $1032 a year? If you have a digital TV you could buy an antenna for $30 or less which would get you all your local channels free. If your TV is analog all you would need to do is buy a cheap converter. We have a small antenna next to one of our digital TVs and we get more than 30 local channels. Not all of these are ones you would watch on a regular basis but we were surprised at what’s available and you might be, too.

If you do decide to ditch cable or satellite TV you could get movies through a subscription service such as Netflix or at one of those kiosks at your supermarket. You say you just can’t give up cable entirely? Then call your cable company and see if you couldn’t negotiate a better deal. Most of these companies will offer you a nice discount if you bundle, which means getting television, Internet and phone service all together. Or go online and check to see what packages your cable provider has available, as you might be able to save money by downgrading to fewer channels.

You can also save money by changing your movie going habits. Matinees and early shows always cost less than if you were to go to the same film at night. And the same holds true of restaurant meals. When there’s a hot new restaurant in town that you would like to sample, have lunch there instead of dinner.

Chop down that energy bill

If you’re like the average family you spend $1900 a year on energy. You could knock that down a few dollars simply by shutting off the lights in rooms you’re not using. If you don’t have a programmable thermostat you should certainly get one. It shouldn’t cost you more than $60 and will pay for itself in just a few months by automatically turning down the temperature during those times of the day that you’re not there. You might also do a home energy audit. The Environmental Protection Agency has a free calculator that would help you see where you could achieve some savings. It’s available at EnergyStar.gov.

For that matter, this short video show how you could actually cut your electric bill in half and just think how much that could save you …

Do you commute to work?

Another great way to save money if you commute to work is by getting into or forming a carpool or by taking public transportation. This would not only cut your gas costs but also the wear and tear on your car.

The big stuff

There are some changes you could make that would result in some really big savings. If you have a mortgage, think about refinancing your home. Last week we heard that one of our local mortgage brokers was offering fixed rate mortgages at less than 4%. If you have a mortgage at 5% or higher and you were to refinance you could put a couple hundred dollars a month in your pocket. If you rent try negotiating with your landlord for a cheaper rent when you next sign a lease or offer to sign a longer one in return for a discount.

Get creative

If you stop to think about it there are probably dozens of other ways you could cut your spending. Just get creative. And be sure to get your entire family involved. We know of families that have a meeting once a month where everyone contributes their ideas for saving money with a prize to the person that comes up with the best suggestion. Be sure to make a budget so that you can keep track of your spending, as you might be amazed at how little changes along the way have helped fatten up your piggy bank. And when it gets right down to it, what’s better than a fat, happy piggy bank?

Advice About Low Interest Credit Cards That May Totally Shock You

Here’s a piece of advice you likely won’t read anywhere else except in this article – you may not want to get a low interest credit card. Despite what you may have been told or read getting a low-interest credit card is not necessarily your best option. This is not to say that you should rush to apply for a credit card with a high interest rate but there are reasons why this sometimes makes sense. Of course, if you pay off the balance on your credit card every month it probably doesn’t make any difference whether it has a high or low interest rate because you’re not paying any interest anyway. But there is a case to be made for passing on those low interest credit cards and here it is.Multiple credit cards in one hand

1. Low interest credit cards offer fewer benefits

A good rule of thumb is that credit cards with low interest rates generally offer fewer benefits than those with higher interest rates. As an example of this, airline rewards cards that have high interest rates not only come with frequent flyer miles but they often have other perks such as priority service, checked baggage fee waivers and even an airport lounge membership. Of course, you could always have one of these cards for its benefits but then charge most of your purchases to a low-interest credit card, which would give you the best of both possible worlds.

2. Low interest credit cards offer no rewards

If you choose a credit card that offers no rewards you will have a lower interest rate than other cards that offer miles, points or cash back. This means that if you generally carry a balance forward from month-to-month then a low interest card might make better sense. On the other hand if you hardly ever carry a balance, and rarely have to pay any interest charges, you might be better off with a higher interest rate credit card they would offer you a return on your spending.

3. You may not qualify for the lowest possible rate

A lot of credit cards have a range of interest rates and the one that you get will depend on your creditworthiness. When you see an offer with a very low interest rate this might actually apply only if you have excellent credit. If not, your rate won’t be that low. If you don’t know your credit score make sure that you get it before you apply for a new credit card. The three credit reporting bureaus – Experian, Equifax and TransUnion – will give you your credit score free though you may have to jump through some hoops to get it. There are also websites such as Credit.com and CreditSesame where you can get your score free.

4. You’ll miss out on any sign-up bonuses

The credit card business is very competitive. Banks often offer new customers hundreds of dollars in miles or points just for signing up. However, when you choose a low-interest credit card you probably won’t get one of these generous offers. This is because if the bank knows you won’t be paying much interest every year, there’s no incentive for it to offer you a big sign up bonus because you will never be paying enough interest to offset the cost of the promotional offer.

5. You won’t get 0% interest

It doesn’t take a mathematical genius to realize that a card with 0% interest is better than even a very low interest credit card. Many of the higher interest credit cards offer interest free financing on both balance transfers and purchases. While there are cases where these cards might also offer a low interest rate, those that have the very lowest interest rates generally do not offer this type of promotional financing.

6. You could end up carrying a balance

If you were able to get a credit card with a very low interest rate this could encourage you to start carrying a balance. Of course, you’ll always save money if you pay your statement balance in full every month. But if you get a low-interest card and feel that it’s now okay to carry a balance forward, then the card probably isn’t worth it.

7. You could get hit with a penalty interest rate

If you fail to make a payment on time you could get hit with a high interest rate even if the card has a low interest rate. This is called a penalty interest rate and it can be as much as three times higher than your normal interest rate meaning that this could end up being incredibly costly. Fortunately, there are some credit cards that have no penalty interest rates such as Citi Simplicity and the Discover it Card. While these cards have competitive interest rates, they may not be the lowest you could find.

man jumping with chart behindWhat’s the difference between a good and bad credit score?

As mentioned previously if you do want a credit card with a very low interest rate you must have a very good credit score. But what is a good credit score? Lenders often look at credit scores as follows.

• Between 700 and 850 – Very good or excellent credit score
• Between 680 and 699 – Good credit score
• Between 620 and 679 – Average or OK score
• Between 580 and 619 – Low credit score
• Between 500 and 579 – Poor credit score
• Between 300 and 499 – Bad credit score

What this translates into is that if you have a credit score of 620 or higher you should be able to get whatever credit you apply for. However, to get the very lowest interest rate you would need to have a credit score above 700. And, of course, the higher the score the better. The overwhelming percentage of lenders use what’s called your FICO score. It’s available only on the site www.myfico.com. However, it would cost you $24.95 a month to get your FICO score monthly as well as your credit reports from the three credit- reporting bureaus. As mentioned previously, you can get your credit score free from a variety of sources and while it might not be your true FICO score it should be close enough that you would be able to see how creditworthy you are. It should also tell you whether or not you would be able to qualify for a very low interest credit card.

The net/net

If you’re in a financial position where you need to carry a balance forward from month-to-month then a low interest credit card might be your best bet, as it would save you the most money. Conversely, if you never or rarely carry a balance forward you might be better served getting a higher interest rate credit card that comes with perks such as cash back, airline miles or points. We know of people that will put a big ticket item on their credit cards to earn cash back but then turn around the next day and send a payment to the credit card issuer to cover the cost of the item to avoid having to pay any interest. If you could afford to do this then a higher interest rate might be a better deal than a credit card with a very low interest rate.

Let One Of These Free Personal Finance Software Programs Simplify Your Financial Life

Manager working diligently on the computerAs my father used to say, free is tough to beat. And the following seven personal finance software are not only for either very powerful. Yes, we’re familiar with the old saying that “there is no such thing as a free lunch” but the Internet has amended that to “there can be such a thing as a free lunch.” There is a huge amount of free or open source software available on the Internet and personal finance software is no exception. In fact, when it comes to personal financial software there is almost a banquet table full. However, these are the ones considered to be best by the site Gizmo’s software.

GnuCash

Does a fast education in accounting appeal to you. Then this would be a good choice. It will teach you about how assets equal liabilities plus equity, It will also allow you to manage your budget without having to use all those categories that are usually found in commercially available personal finance programs. GnuCash permits you to easily have as many accounts as you would want under each of your categories. It has the ability to do graphing and reporting into the program that can generate a complete group of customizable and standard reports. The program includes profit and loss, a balance sheet, portfolio valuation and so forth. The one negative of GnuCash is that won’t automatically track the movements stock prices and there are brokers that don’t support file downloads unless they are compatible with Quicken.

HomeBank

HomeBank is very feature-rich and enables you to keep track of detailed expenses including assets, income as well your categories for your budget. It offers many different report generating options plus the capability to import information related to Amiga.

GFP

This program is also very feature rich and offers numerous transaction report categories. It also supports many different edit and settings for all transactions and reports. GFP is simple to use as it has a exhaustive help file that offers clear guidance. The program has a gentle learning curve and is great for both novices and even professionals. GFB is open source and built on the GNU license model.

Money Manager EX

This is also an excellent program. It would allow you to create numerous accounts , reports, transactions and categories. It is described as relatively simple to use as it has a large help file you could use to learn how to use its many features and options. The program can be used with practically all computer OSs (operating systems) and would be a good choice for both beginners and personal finance wizards. Unfortunately, you must do data entries manually as this application seriously lacks real-time download and fiscal tracking capabilities.

Grisbi

This is also a GNU open-source program that also offers numerous features. You can use it to create an endless number of, categories, accounts and reports. Its GUI (graphic user interface) is attractive and easily understandable. However, Grisbi
lacks a built-in help file giving it a steeper learning curve. While Grisbi is an excellent program overall you would make sure that you never forget your password as this would mean you would lose all of your financial data.

Metalogic Finance Explorer

This is a very straightforward but powerful, program for budgeting that offers two big advantages over other similar programs. First, it allows you to automatically upload data from your bank and second it will import financial data in all formats in from all possible sources via the OFE (Open Financial Exchange) protocol. You can also use MetaLogic Finance Explorer to import stock market data and print its financial information. Unfortunately, the program doesn’t have much built in Help. The good news is that there is a more comprehensive help file available online. With this translates into is that you will need to fiddle around with it to learn how to use all its many features.

AceMoney Lite

This is a “light” version of AceMoney in that it allows only two accounts compared with its big brother which will handle an unlimited number of accounts. This program enables you to keep track of all your expenses and provides numerous options to generate reports by various categories, subcategories and even functions. One definite plus of AceMoney Lite is that it offers password protection, which is good for security purposes. It has a currency converter and includes a complete and very detailed local help file. The program is fairly easy to use with a gentle learning curve making it good for both experts and novices.

couple looking at a laptopMint.com

This is not like the other free software programs described in this article because it is available only online. However, Mint.com may just be the most popular way to manage personal finances because it’s sort of the Swiss Army knife of online options. To use this program you will need to make an account and then input information about your credit cards, home loans, banks and brokerage accounts. The people behind Mint say it doesn’t require any information that would be personally identifiable. The account is basically anonymous. All that’s required is that you set it up using an email, a password and your ZIP Code. Mint never knows your name, Social Security number, address, account number or your PINs. It will track your spending and makes it easy to set up budget categories. Once you set up your categories and assigned spending limits to them it will send you an email alert if you are exceeding any of your limits. Mint will also send you an email alert if it finds any financial product better than one you’re currently using.

Money Strands

This is also an online-based service that’s 100% free. It’s set up so that you can import your bank data automatically and it will automatically classify your financial data into meaningful categories based on the information you provide. If you find that your bank does not support Money Strands you can’t provide its name to the site’s owners and it will attempt to get the bank to link with the program.

Rudder

This is also an email-based system but does have some privacy issues. It puts all your accounts together in one place, provides bill reminders, allows you to create a budget and control your cash flow. According to Gizmo’s freeware site it is not possible to know if your personal details would be totally protected. “I need a credible guarantee that if my ID, password, account numbers and credit card numbers are somehow compromised through their service that they will make me whole.” The people behind this site also wonder if they were ever to close their accounts would they be able to know that their data has been securely erased.

5 Financial Loopholes Guaranteed To Make Your A Smarter Money Manager

Happy BusinessmanWe 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.

#3. Use the equity you have in your houseHouse with cash on the roof

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.

Smart Credit Use: Should You Use Debt To Improve Your Home?

piggy bank in a houseSmart credit use does not necessarily mean you have to stop putting yourself through debt. Total elimination of debt is something that will really restrict you in terms of financial opportunities. There are certain financial improvements that are easier to achieve if you put yourself through debt. The most popular to this is buying your own home.

Buying a house is one of the most expensive spending that you will ever make. It cost hundreds of thousands of dollars to purchase. This is why most homebuyers can usually afford this purchase if they apply for a mortgage loan.

According to an article published on Reuters.com, the US housing is forecasted to gain steam in 2015. Thanks to the strengthening job market, more and more people are confident to borrow money just so they can buy their own home. This is one way for them to increase their personal net worth. If they wait to save up to buy a house in cash, it will take them forever to do so. In the meantime, they will be wasting their money paying rent. Instead of the monthly rent, it is more logical to just borrow money to buy your own home. The monthly amortization that you pay towards your mortgage increases your home equity. That means you get to increase your personal net worth as you pay off your mortgage loan. That is more preferable compared to the money that you will be wasting making your landlord rich.

But while putting yourself through debt to buy a house is acceptable, do you think the same is true with home improvements? Is it an example of smart credit use to borrow money so you can renovate your home to look at lot better? After all, to increase the value of your home you need to improve it every now and then. If the housing market is forecasted to improve this year and the next, you can really maximize the value of your home by doing a bit of improvement every now and then.

Survey shows that consumers plan to use debt for home improvement

According to a survey published on PRNewsWire.com, 30% of homeowners who plan to improve their home would be using their credit cards. 59% said that they will tap into their savings. But some of the people who plan to use their savings are also thinking of using credit for a portion of their home renovations.

Do you think that these people are practicing smart credit use by borrowing money to improve their home? That probably depends on a couple of factors. If you are one of these people contemplating to borrow money just to renovate your home, look into these factors first.

Why do you want to improve your home?

Start by looking at the purpose of this home renovation. Do you plan to sell your home in the near future? With the improving housing market and the rising value of homes, any improvement that you will make could help you sell your property at a higher price. You can profit more from this transaction than when you leave it as is.

But if you simply want to improve your home because you want to make it more modern, you need to further scrutinize the specific renovations you will make. If the improvements will help insulate your home so you do not have to spend so much on utilities, then it might be justifiable. If you want to make your home more eco friendly and energy efficient, then borrowing may also be justified. But if you only want to increase your living space or improve the aesthetics of your home, then you should ask yourself other questions.

What is the status of your current debts?

This is the next question that you need to ask – what is the current status of your debts? Do you still owe a lot on your mortgage? If you only own a small percentage of your home equity, do you really think it is practicing smart credit use if you add more to that? And what about your credit card debt? How much do you owe your creditors? This is a high interest debt that you still need to pay off. If you want to use your credit card for the home improvement, that would add to the high interest balance that will burden you.

If your current debt is still high, you may want to find ways to keep your home improvements to a minimum. Or you can ask the next question.

Is your source of income stable?

If your income is currently struggling to pay off the debts that you owe, then that is a sign that you cannot take on more credit. Otherwise, it would be very difficult to pay off everything. You might end up really selling your house just because you got too much debt to your name. If ever you still have a lot of debts, you can be justified in borrowing more money as long as your income can still support the additional debt. That is how you practice smart credit use.

If none of the answers to these questions justify borrowing money, then you should postpone it or just save up for it.

Good and bad ways to use credit to improve your life

CNN.com published an article that says it is impossible to live debt-free. Apart from homes, the college education of children is hard to pay for in cash. While it is not impossible, a lot of households cannot afford to put their kids through college without the help of student loans.

While debt is unavoidable, that does not mean we should let it get out of hand. It is all about smart credit use.

One way for you to really implement it is to know the difference between good and bad debt. For those of you who got stung by too much debt during the Great Recession, it might be hard to believe that there is such a thing as good debt.

But there is such a thing as good debt. You need to know the difference between what is a good or a bad debt so you can make the right choices when it comes to your credit.

Good Debt

According to the CNN article, a good debt is something that you really need but cannot afford to pay in cash. At the very least, this is something that you cannot do without liquidating your assets and wiping out your cash reserves. Robert Kiyosaki defines good debt as something that puts money in your pocket. That means, the debt should lead you into a position that allows you to earn more money or increase your assets. This include mortgages, student loans and business debts. These three can help you put more money in your pocket.

Bad Debt

Robert Kiyosaki defines bad debt as something that will take money from your pocket. The CNN article identifies it as debt that you took to pay for things that are unnecessary and you cannot afford. These include credit card debts for designer clothes, accessories you can live without or that vacation that was clearly beyond your budget. You need to stay away from these debts because they will not really do you cany good to have. These could even drag you under if you are not careful.

Here is a video that simplifies what good and bad debts are.

In the end, smart credit use is not really about debt elimination. It is taking on debt that is necessary, improves your financial situation and you can afford to pay off.

Purchasing A Big-Ticket Item – Pay Cash or Use Credit?

Man looking frustratedIt doesn’t happen every month but at least once or twice a year you’re faced with the task of purchasing a big-ticket item. It might be a new washer-dryer, new living room furniture or an entertainment center. You’ve decided what you want to buy and how much you’re willing to pay for it but … the question is should you pay cash or use credit? Unfortunately, what financial experts will tell you is that there is no hard and fast answer. The decision to pay cash or to use credit will depend on your finances, whether or not the asset will increase in value and what interest rates are available.

The first thing you should do according to most financial experts is evaluate your personal finances. What’s your household income? Do you have one or two wage earners? Is your income very consistent? How much are you saving for retirement? Do you have a lot of revolving, credit card debt? If your answers to these questions tended to be on the negative side, it would make less sense to buy that big-ticket item in the first place. If you find that you would have trouble financing the purchase, this could create even greater problems going forward.

When financing doesn’t make sense

If you’re eyeing something that’s actually out of your reach financially or beyond your means then financing it just doesn’t make sense. The only time it makes sense to finance a big purchase is if it’s an asset that will grow in value such as your home or an educational degree. The reasoning here is that the asset will ultimately be worth more than what it would cost you plus the interest you paid. And despite what you may have been told, it just doesn’t make sense for most people to pay $500,000 in cash for a home when they could invest that money and get a 6% or 7% rate of return.

Not all are created equal

It’s important to understand that not all loans are created equal. If you were to take out an interest-only loan this can mean that you’re buying a house you truly can’t afford. When you do this, you really don’t own your home. The bank does. While your mortgage loan payment may be low it’s important to remember that you’re spending money every month but not making any progress towards owning your home. In other words you never gain any equity. The better option is to get a loan where every month you’re paying on both the interest and principal.

The conventional wisdom

While conventional wisdom is that you shouldn’t finance any asset that will depreciate such as a car, a vacation or consumables this is not necessarily true these days. Interest rates are at almost all-time lows. It might make good sense to finance that car. If you can find a dealer that will give you 2%, why not take it? This means that if you have a four- or five-year loan, you’re basically financing your purchase at the rate of inflation. For that matter, 0% financing can be had on a number of purchases such as furniture and jewelry or even an automobile. Unfortunately, those mouthwatering rates are typically available only if you have a credit score of 720 or higher.

Paying it off immediately

If you decide it’s not best to finance that big-ticket purchase you might consider using a credit card to buy it and then pay off your balance immediately in place of handing over cash or writing a check. The policies on credit cards vary but there are often advantages to charging a big purchase. In fact, any time you can put a large purchase on a credit card, it’s pretty appealing to do so. When this is the case, you’re simply using the credit card as a sort of payment conduit so that you can pick up points or miles. In addition, some cards offer protection for the purchases you make with them. As an example of this, if you have a credit card with built-in travel insurance you’d probably be better off charging that $5,000 vacation as cash doesn’t come with any of these kinds of protections.

The caveats

If you decide to use your credit card to make a big-ticket purchase there are some caveats to keep in mind. For one thing, don’t max out your card in such a way that it disrupts your everyday cash flow. You could have an utility bill you pay automatically that bounces because putting that big-ticket item on your card put you at your credit limit. In addition, you should try to keep your debt-to-credit ratio at 30% or less to maintain a good credit score. If you’re not familiar with your debt-to-credit ratio it’s simply the amount of debt you’ve used divided by the total amount of credit you have available. For example, if you have $7500 in total credit limits and you’ve charged up $2000, your debt-to-credit ratio would be roughly 26%, which is good. Your debt-to-credit ratio makes up 30% of your credit score so if you were to let it get to 40% or more your credit score could be adversely affected. You need to be careful when charging that big-ticket item as it could put you over the 30%. And of course, you don’t want to put a big purchase on a credit card if you’re already carrying a revolving balance. This can be a slippery slope that ends in serious financial problems. In fact, this is where most people get into trouble – by continuing to use their credit cards when they can barely make the minimum monthly payments required.

If you’d like to learn more about credit scoring and why your credit score is important then here’s a short video from the credit reporting bureau TransUnion you should find of interest.

When it makes more sense to pay cash

There are certain instances where it’s better to pay cash or to write a check then to put the purchase on a credit card. As an example of this, it’s best to pay cash if it would allow you to negotiate a price as with an independent shop or a dealer. You might be able to save 10% or even better on a purchase if you can pay with cash. There are also some institutions or businesses that charge credit card-processing fees. If this is the case, make sure that the miles, points or cash back that you’re earning is more than what these fees will cost you.

In short, the answer to the question of whether to pay cash or to use credit when purchasing a big-ticket item is … it all depends. You need to take stock of your financial situation including how much you currently owe on your credit cards, whether you’re purchasing an asset that will grow in value and what the purchase could do to your credit score. If you do this you’re certain to make a good decision and not one that will come back to haunt you in the months ahead.

8 Tips To Keep From Having Your Income Tax Return Audited

young woman looking frustratedWell, it’s that time of the year again. If you’ve already filed your income tax, congratulations. If you’re typical you should be getting more than $3000 refunded. You might think that’s great but remember it’s your money and you let the government use it interest-free. Many people choose to claim fewer or even no dependents so that they can take home more money every paycheck. Others and maybe you’re one view withholding as a sort of savings account that can be cashed in the following year.

Our government has made it clear that fewer people will be audited this your because of funding cuts to the IRS. Of course, that doesn’t mean that you won’t be audited. A tax audit can have a severe effect on your life. You could end up learning that you owed thousands of dollars more than you had thought. However, there are things you can do to reduce the risk that you might be audited.

#1. Prove that you run a small business

If you have a small business, the IRS will forgive you if you show a loss for the first few years. However, if you report that your business has lost money for three years or more the IRS will begin to suspect that it’s more of a hobby than a business aimed at turning a profit. This can trigger a field audit, which is done in person and is a lot more nerve racking than an audit by correspondence. You need to keep records of all of your business expenses and be prepared to document how much time you spend on the business and what you did with it.

#2. Make sure you report all and we mean all of your income

The income you earn from your job is reported to the on an IRS W-2 form. If you have income from dividends, interest or capital gains this is reported to the IRS on form 1099s, as is any income that you earned as a freelancer or independent contractor. You are sent these forms and so is the IRS. So make sure that you include all of the information from them on your tax return. The reason for this is because the IRS uses a program that matches these forms to your return and flags any differences between what you reported and what was reported to the IRS. If the program finds any discrepancies, this will trigger what’s called a correspondence audit. What this amounts to is a letter from the IRS on how much more money you owe because of what you didn’t report. You can either just pay whatever amount the IRS has said you owe or challenge it if you believe that the IRS has made a mistake.

#3. Explain anything that seems “weird”

The IRS is a shark when it comes to unreported income. If you have any income that seems weird, you need to explain it as this may stop the agency from auditing you. As an example of this, if you the net income you report is too little to live on given the size of your family size and where you live, you need to include a statement revealing how you supported your family including any credit cards, loans or savings you used to pay for your cost of living.

#4. Watch those deductions for you home-office

It’s typical to have your office in one place, which would be either in your home or a rental space. Be careful to not report a deduction for both. Of course, you might legitimately have an office at home and in a rental space. If so you will need to explain this in a disclosure statement. You might also have an expense for equipment or a business storage unit. If so label this as a “storage rental cost” or an “equipment rental cost.”

#5. Be honest if you have any money overseas

If you have investment accounts or a bank account overseas you must report any income you earned from it to the IRS. While you’ve always been required to do this, there is the new Foreign Account Tax Compliance Act so that the foreign institution where you have money may start to report the information to the IRS just as would any brokerage or bank in the US. Here’s the scary thing. If you’ve had that account for years but never reported it and the IRS discovers it from your foreign investment firm or bank, you could owe some really serious penalties in addition to back taxes.

#6. Report the sale of mutual funds correctly

Let’s suppose you sold a mutual fund that you bought prior to 2011 and it was not part of your tax-advantaged retirement account and then reinvested in another mutual fund. This must be reported on your income tax return. If you fail to do this the IRS will treat everything you made from the sale of the mutual fund as a taxable gain and will recompute how much you owe. When this is the case, you need to be able to prove that only part of the proceeds you received were actually capital gains and the remaining portion was he amount you had originally invested in the fund. Of course, if you lost money on the fund, you owe nothing on the sale.

#7. Report the sale of your houseHouse with cash on the roof

The title company sends the IRS a 1099-S form when you sell your house showing how much you sold it for. This is true even if all the capital gains you made on the sale are tax exempt because they weren’t more than $500,000 if you’re married or $250,000 if you’re single. It is recommended that you still report the information on your income tax return anyway. Why is this? It’s because that 1099-S will be part of the IRS’s automated form-matching program. If you don’t report it, this can lead to a correspondence audit.

#8. Be wise about your mortgage interest

When you and your spouse own a home, your mortgage holder will send both you and the IRS a form 1098 showing the amount of interest you paid the past year. This is an area where you need to be careful because there are cases where the 1098 has only the Social Security number and name of one of you. If that person were to die and the surviving partner tries to take the deduction, a correspondence audit may be triggered. When this is case you need to have the mortgage holder change the name and Social Security number on the 1098 to yours before it’s filed.

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