Credit card

We Do the Math: Save for Retirement or Pay Off Credit Card Debt?

Should you save for retirement or pay off credit card debt? If you’re carrying a card balance, you may be wrestling with whether to put all your resources into attacking the debt, or start building your retirement nest egg while you slowly pay off debt.

Which one will give you a better net worth? There’s no simple answer. For some people the situation may warrant clearing credit card debt first; for others, it’s better to start investing right away. To figure out which scenario is better in a given situation, we’ll need to do some math. Don’t worry, we’ll show you how to do it in a few easy steps.

Step 1: Gather important numbers about your debt and your retirement plan

First, look through your credit card statements and accompanying information to pull up the following numbers:

  • Credit card debt. You’ll find this on the front of your credit card statement.
  • Credit card interest rate, or APR (Annual Percentage Rate). You’ll find this further down on your statement, in a section labeled “Interest Charged” or something similar.
  • Minimum payment. You’ll find this in your card’s terms and conditions, under a discussion about how minimum payments are calculated. It will probably be a percentage, but there may also be a flat sum.

Next, consider any retirement plan you are enrolled in or have available. What is the average annual return? You can identify past returns by reviewing your retirement account statements. For example, your 401(k) plan account may list your annual return. Note that past returns don’t guarantee or predict future returns, but we’ll use the average annual return as a proxy for future returns in this case, knowing that if our portfolio takes a long-term downward turn, our calculations will change.

Finally, how much extra do you have in your monthly budget that you could put toward credit card payments, retirement investments, or both?

Follow along as we consider a hypothetical debt situation and retirement opportunity. Let’s say there’s $500 in our monthly budget, which equals $6,000 annually ($500 x 12 months = $6,000) to put toward debt or retirement.

Currently, the balance on our credit card is $5,000. Our APR is 22%. Our minimum monthly payment is 3% of our outstanding balance or $25, whichever is greater.

Our employer offers a 401(k) plan. For the sake of keeping this illustration simple, we’ll say our employer doesn’t match employee contributions and we choose to make taxable contributions with a Roth designated account within the 401(k).

In reality, you might choose instead to make tax-deductible contributions to a traditional retirement account. With a Roth 401(k) there are no immediate tax benefits, which makes our calculations simpler and therefore better suited for this purpose.

We’ll say the default investment in our 401(k) is a target-date mutual fund with an average annual return of 6.3% since its inception. We know that future performance is unpredictable. But to run the numbers for the retirement vs. debt decision, we’ll apply an annual return of 6% to our retirement account.

We’ll look at the retirement account and credit card balance after five years to compare the two choices: 1) making minimum payments on our card balance so we can start investing right away, or 2) putting all our extra money toward our credit card debt before we consider retirement investing.

In both scenarios, we’ll assume that we won’t make additional charges on our credit card. In addition, we’ll contribute to our retirement account when we have money available to invest.

Step 2: Calculate net worth if you prioritize retirement savings over paying off credit card debt quickly

In this scenario, we’ll see what happens if we only make minimum payments on our credit card so that we can get started investing for retirement right away. Your credit card statement should state very clearly how long it will take to pay off your balance if you make minimum payments.

You can also find an online calculator to help you with these calculations. Here’s the information we’ll enter for our example (you can put in your own numbers from your real-life situation):

  • Current credit card balance: $5,000
  • Annual percentage rate: 22%
  • Proposed additional monthly payment: $0

5 Steps to Picking the Best Airline Credit Card for the Most Rewards Value

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If you’re ready for a change of scenery but have limited travel funds, an airline credit card might be a dream come true. With an airline card, you’ll earn valuable frequent flyer miles you can use to book free airfare and seat upgrades. Some of the best co-branded airline credit cards even offer additional perks that make travel cheaper, such as free checked bags, companion ticket deals, and discounted award bookings.

But with so many airline credit cards out there, choosing one can seem overwhelming. Before you can truly benefit from an airline credit card, you need to learn about these cards and weed out the options that won’t work for you.

To get a handle on your choices, you should consider several factors including your airline preferences, your travel style, and your spending habits. Follow these steps, and you’ll have the ideal airline credit card in no time.

Step 1: Figure out which airlines you can fly

First things first. To pick the right airline credit card, you need to know which frequent flyer miles you can actually use.

To find out which airlines you should consider — and which you should mark off your list — check your local airport’s website. You might discover that nearly every major airline flies into your area, or that only a few do. Finding out which airlines fly out of your home airport is the best way to narrow down your options fast.

Step 2: Ask yourself where you want to go

Now that you know which airlines are at your disposal, you can ask yourself where you want to go. Maybe you have family that you fly to visit frequently, or you have a list of dream vacations that you want to tackle. Knowing where you want to fly in the near- to medium-term is key to narrowing down which airline’s frequent flyer program you’d like to concentrate on.

Larger and more established carriers such as American Airlines and United Airlines fly almost everywhere. Smaller regional…

How to Protect Yourself From Identity Theft

We live in a digital age where all sorts of personal information is stored on our cell phones, computers, and even in the chips of our credit cards. This has opened us up to the possibility of a security breach… and, in turn, identity theft.

identity theft

Over the years, the frequency of identity theft and fraud complaints has continued to increase, and shows no signs of stopping anytime soon. It’s important to be informed as to what identity theft actually is and how you can protect yourself. That way, you can prevent this growing crime from happening to you.

Before we discuss ways to protect yourself from identity theft, let’s take a look at how it can happen in the first place.

How Your Identity Can Be Stolen

There are a number of ways your identity can be stolen. With the prevalence of the internet and technology, identity thieves are always coming up with new ways to gain your information.

Hacking

Think of all the pieces of technology you own that are connected to the internet: your smartphone, your tablet, your computer, and your TV, just to name a few. Hackers can find ways to get into those devices and install malicious software that steals your information. For example, keystroke-logging software records what you type on your computer and can pick up any personal information you enter. This may mean giving a thief access to your credit card or Social Security numbers.

Hackers don’t only target individuals; they also target large organizations. The retail giant, Target, was hacked in 2013, exposing many of their customers’ names and credit card numbers.

Phishing

Phishing is the act of sending fraudulent emails to people. The sender claims to be from a reputable company, often playing on fears in order to get the receiver’s personal information.

Two common phishing emails include a “bank” asking you to verify your account and an “email provider” claiming you need to change your password (often claiming that they believe your account has been compromised, and that this password update is a security measure). Email providers have picked up on this scam, thankfully. Gmail will display an alert above an email it believes may be phishing. They may not pick up on each instance, though, so it’s smart to check the sender’s actual email address, avoid clicking links in emails of which you are unsure, and never sending your personal information in a response.

Identity thieves target people by phone and text message, as well. The terms for those acts are “vishing” and “smishing” respectively.

Dumpster diving

Dumpster diving is a technique identity thieves use to retrieve personal information from people’s trash. They search through dumpsters and trash bins looking for mail and other documents that may have personal information they can use. Some common mail pieces that identity thieves may…

How Automation has Helped Me Reduce Debt and Save

Readers often e-mail me for tips on how to keep their finances manageable. There are so many options out there that it can be overwhelming. I was speaking with my mom about this some time ago, and she felt the same way.

My mom has been responsible with her money over the years, but she felt that she could be doing better. After chatting with her, we decided that she should switch banks and automate some of her bills. It would free up some of her time and take a few things off of the to-do list… wins all around. I was talking with her the other week, after she had implemented the new system, and she said she’s really happy with her decision. She has saved both time and money with her new bank and online bill pay.

Why do I love automating my finances? Well, why wouldn’t I? Automating your finances can be a wonderful process, if done correctly. For one thing, it puts me in control of my bills without having to deal with paper, stamps, envelopes, and checks. But there are plenty of other reasons to love automating my finances, too. Here are my favorites.

I don’t pay late fees

I used to occasionally lose bills or forgot to send checks whenever I had a very busy week. Late fees definitely add up, and can be as high as $29 to $39 for credit cards! Sometimes I can pay my credit card accounts online for a same-day payment, but if I’m a day late, I may still get a fee imposed.

With online bill pay, you don’t have to worry about late fees because your bills will get paid on time every month, without any added work on your end. We’ll talk more below about different options for setting up automatic bill pay. But for now, just know that in exchange for a little effort up front, you can reap the benefits of avoiding late payments… forever.

Late payments don’t hurt my credit score

Getting rid of late payments isn’t just good for saving money by avoiding late fees. It also helps keep my credit score high. Payment history makes up the lion’s share of most credit scoring algorithms, and even a single late payment can quickly tank an otherwise excellent credit score.

Again, there are several options available for automating payments. But any of these options can keep you from having late payments recorded on your credit file, which helps you build your credit score or keep it high.

Resource: How to Check Your Credit for Free (and Avoid the Scams Out There)

I’m saving money, and I barely notice

In the past, I would save money for a few weeks and then have an emergency. After getting through the trouble, I’d neglect to re-start my savings. This cycle would repeat over and over. I felt like I couldn’t possibly save more money without cutting my budget to the bone.

How did I fix this issue? Automation, of course!

Now, I have a portion of my pay automatically transferred to a high-yield savings account each time my check hits my account. The trick to making this work is to make sure the transfer happens before you can even check your account balance on payday. It’s hard to miss money that you never had a chance to see!

But don’t be a hero. Start out with just a small…

How to Read a Credit Report

Building and maintaining your credit history takes time and dedication. While there are many things you can do when shooting for that perfect 850 FICO score, checking your free credit report every year from AnnualCreditReport.com is among the best personal finance habits. Once you have a copy of your credit report, let’s review step-by-step what to look for.

1. Check your personal information

First things first: Make sure that your credit report correctly shows your name, Social Security Number (SSN), phone number, and address. The three credit bureaus (Equifax, Experian, and TransUnion) keep track of all variations of names and SSNs reported as belonging to you.

You can easily rectify a small error, such as a misspelling, absence of a hyphen in a last name, or transposition of a street number by contacting the credit bureau and providing supporting documentation. Keep an eye out for information that you don’t recognize at all — this may be a sign of identity theft. (See also: Don’t Panic: Do This If Your Identity Gets Stolen)

2. Verify it’s really you

Even after checking that your full name and address are correct, you may recognize some accounts on your report that belong to somebody else in your household. In this case, you may be a victim of a mixed file — when the credit information of two individuals sharing the same name gets mixed up in a single report.

This can be a potential issue in multigenerational homes with several family members sharing the exact name. For example, John Smith Jr. opens a store card but the credit bureaus list the account on the father’s report (John Smith Sr.) instead of the son’s. That would be a mixed file.

3. Watch out for errors in account ownership

Going back to the example of the father and son, the father may have decided to open the store card in his name, and then add his son as an authorized user, or vice versa. Make sure that reported accounts are only the ones for which you are the owner.

4. Look out for accounts incorrectly reported as late or delinquent

Unless you were…

12 Times Your Credit Card Has Your Back

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Many of us view credit cards as much more than just a way to pay for things. They can help us accrue miles and status in rewards programs, get us into airport lounges, and even help us snag hard-to-get theater reservations.

But did you know that calling your credit card company can be like calling your dad when things go wrong? Glitzy perks like concierge service get most of the attention, but the perks that kick in when things go wrong may actually be the most valuable. Let’s look at services some credit cards offer when you’re in an accident, have a problem with a purchase, or are facing other dire straits. (See also: 14 Awesome Credit Card Perks You Didn’t Know About)

(As you might imagine, credit cards place restrictions on all of these benefits, such as per-claim and per-year reimbursement ceilings. If you need access to one of these benefits, consult your card agreement and/or call customer service.)

1. Return protection

You buy a beautiful rug. When you get it home, you realize it’s way too big for your room. Now the retailer won’t take it back. What do you do?

If you’re using a card with return protection, you can file a claim and get reimbursed for some or all of the purchase. One typical limitation: no holiday decorations (so don’t even think about returning your Christmas tree in January).

2. Extended warranty

You buy a grandfather clock with a one-year warranty. As your luck would have it, 53 weeks later, the thing stops working. If you purchased it with a card that offers extended warranty coverage, any repairs covered under the original warranty may now be paid for by your credit card’s extended protection. Make sure to call the card issuer before you pay for any repairs.

3. Purchase security

You buy a new bike, and the next day, it’s stolen! Your homeowners insurance won’t help, since the cost of a replacement is lower than your deductible. Are you out of luck? Maybe not.

If you bought the bike with a card that offers purchase security, and you submit all the required documentation, you could get reimbursed for the stolen bike. Besides theft, purchase security can cover damage due to fires, plumbing leaks, vandalism, and a number of other threats. Most cards require you to file the claim within a certain window — generally within 90 days of the incident.

4. Price protection

This has got to be one of the most underutilized protections that credit cards offer. Make a mental note to save all of your receipts and try it this year!

You splurge on new TV. A month later, you see the same TV advertised for hundreds of dollars less. Instead of throwing the remote at the screen, call up the credit card you used to buy it and ask if they offer price protection, which could get you a full or partial refund of the price difference, subject to per-item and annual limits. One typical restriction is that the lower price must appear in a printed ad, not just online.

5. Travel insurance

You are planning to fly your family to Paris, but your daughter breaks her leg and you have to cancel at the last minute. The tickets are nonrefundable. If…

Airline Credit Card or Flexible Rewards Card: What’s the Best Way to Earn a Free Flight?

When it comes to strategizing how to earn free airfare with travel rewards credit cards, there are two main schools of thought. On one hand, you can sign up for your favorite airline’s frequent flyer program and get their co-branded credit card to earn miles through regular spending and flying. Or, you can get a credit card that lets you earn flexible travel rewards good for any airline instead.

Both strategies can be advantageous depending on your travel style and goals. Still, earning a free flight becomes easier when you’re able to make an informed decision about what type of travel rewards card is right for you.

So, which should you choose? Airline miles or travel credit?

Airline frequent flyer programs

While each airline loyalty program works differently, they all follow a similar format. When you pay for a flight, you earn frequent flyer miles based on the cost of your paid airfare and/or the many miles you fly. You can get more points by using the airline’s credit card to pay for it.

The upside of earning airline miles is obvious; through regular flying, credit card spending, or a combination of the two, you can earn miles and redeem them for flights around the globe. With the American AAdvvantage program, a round-trip domestic flight costs as little as 25,000 miles while a round-trip flight to Europe can run as little as 45,000 miles. Since the average domestic flight costs around $400 and the average flight to Europe can cost $1,000 or more, you can score an exceptionally good value for your miles with this program (points are worth 1.6 cents and 2 cents respectively). (See also: Which Airline Loyalty Program Has the Best Value for Their Miles?)

Keep in mind that, on top of your miles, you’ll need to pay government-mandated taxes and fees. These fees are usually $5.60 per leg for domestic flights, but can range in the hundreds of dollars for flights abroad. The fees also differ with airlines. Do your research before you settle on the airline program to pursue miles with. Other factors include where they fly and their partner airlines that you’d be able to get use miles for. Also, blackout dates and award seat availability are factors, too.

How to spot a frequent flyer program

These are the things you should look for when considering a frequent flyer program to join.

No blackout dates or seat limitations

The best programs allow you to redeem your miles for any seat on any flight as long as they haven’t been sold. Some programs designate a specific number of award seats per flight (or on select flights), or they impose blackout dates when you can’t use miles at all. Unless you are a solo traveler with very flexible plans on when and even where to go, you’ll end up very frustrated at your options and may see a lot of your points go unused due to the lack of availability. (See also: 10 Ways to Get Free — or Almost Free — Flights)

Multiple ways to earn miles

Being able to earn miles through other ways than flying with that airline makes racking up miles easier and faster, which means free flights faster. Airline credit cards will often give points for all spending, and maybe even bonus points for additional categories.

Travel…

3 Ways Retirees Can Build Credit

You might think that once you reach retirement, your credit score is just one of those things you get to stop worrying about. While it’s true that most retirees won’t be applying for mortgages, it’s not true that you don’t need to maintain a decent credit score. What if you want to apply for a car loan? What about credit cards? You certainly won’t get the lowest interest rates and best rewards programs possible without a good credit score to back you up.

A low credit score can also hurt you if you want to downsize to an apartment, or even move into a senior living facility. You might need a solid credit score to qualify.

Why it’s hard for retirees to build credit

According to FICO, to have a credit score, you must have at least one credit account that is at least six months old. You must also have at least one account that has been updated by a creditor or lender during the last six months.

If you aren’t paying a mortgage, paying off an auto loan, or using credit cards, you might not meet any of these requirements. This might lead to you becoming what FICO calls an “unscorable,” a consumer who has no credit score at all.

Fortunately, there are ways for retirees to continue building credit. They require the same good financial habits you’ve been practicing before retirement.

Use the credit cards you have

You might prefer paying for items in cash. Instead, make small purchases throughout the month with your credit card. If you pay off your entire card balance each month, you’ll continue to boost your credit score. (See also: How…

Futuristic New Mastercard Includes a Built-In Fingerprint Scanner

You can put down the pen and forget your PIN with Mastercard’s newest credit card. As The Verge reports, the company is testing out a credit card with a built-in fingerprint scanner that allows customers to authorize their payments with the swipe of a digit—no PIN or signature necessary.

The new Mastercard is just as slim as a regular one, and it works with all existing chip-and-PIN readers. To get one of the fancy new cards, you’ll need to register at a branch. Your fingerprint will then be converted into an encrypted digital template, which is stored on the card. To use the card, you’ll just dip it into a store’s card reader as normal. But instead of entering a PIN, you’ll be prompted to place a finger or thumb on the embedded sensor on the card’s top right corner in order to…