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7 Bad Credit Card Habits You Need To Break

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Credit cards can be beneficial tools when used responsibly, but they can wreak havoc on your credit score and financial health when used the wrong way. Unfortunately, it’s easy to find yourself on a slippery slope with credit cards, but it’s not too late to turn it around by making smart choices and avoiding bad habits.

Here are seven bad credit card habits you should avoid if you want to make the most of your credit cards.

1. Making late payments

Making a late payment can have serious consequences. For starters, you could incur late fees up to $35 and a potential interest rate hike. What’s more, if your payment is more than 30 days late, the major credit bureaus — Equifax, Experian and TransUnion — could add a late payment mark to your credit report that could remain there for seven years. This can impact your ability to achieve or maintain good credit.

If you often forget your due date, consider creating a reminder on your phone or setting up automatic payments. If it’s a lack of funds that is preventing you from making timely payments, you might request a new due date from your card issuer that aligns better with your pay schedule.

2. Paying only the minimum due

Paying only the minimum due on your credit card payment is kind of like kicking the can down the road. Technically, you are making some progress, but you’re not really accomplishing much in the long run.

Similarly, if you’re just paying your minimum balance, you’re not progressing toward paying off your balance, and you’re likely paying more in interest than you want to. Not only that, paying only the minimum could negatively impact your credit by raising your credit utilization. Credit utilization is the percentage of your total credit you’re using, and it makes up 30 percent of your FICO credit score. Experts commonly recommend keeping your credit utilization ratio between 10 percent and 30 percent to keep it from impacting your credit score.

Pay more than the minimum whenever you are able. The best practice is to pay your bill in full each month so you’re not carrying a balance. Putting as much as you can toward your monthly payment will reduce the balance you’ll carry over to the next month, and result in lower interest charges. Even if it’s just a small amount over, you’ll be surprised how quickly that little bit extra can add up.

Use Bankrate’s credit card payoff calculator to play with the numbers and see how quickly you can pay off your credit card.

3. Taking cash advances

Getting a cash advance is fast and easy, but chances are it’s not worth the convenience. Many card issuers charge a higher interest rate for cash advances than for regular purchases. And, unlike the grace period issuers offer for purchases (as long as you’re not carrying a balance), you won’t receive a grace period to pay back a cash advance. Interest for cash advances begins accruing immediately.

And if all that wasn’t enough, you’ll likely be on the hook for a one-time cash advance fee, typically around 3 percent of the cash amount. That means if you get a cash advance for $400, you’ll be subject to a $12 fee for the privilege.

4. Using the wrong credit card

One reason credit cards appeal to consumers is because of the rewards and perks they offer, like cash back on purchases and air travel miles. While taking advantage of credit card rewards is a popular and potentially lucrative strategy, mismatching cards with your spending patterns or not making use of your cards’ rewards means you could effectively be leaving money on the table.

For example, you probably don’t want to use a rotating bonus category card like the Discover it® Cash Back as your everyday grocery card. That’s because you’d only earn the maximum 5 percent cash back for groceries for three months of the year (typically January to March, depending on Discover’s cash back calendar). The rest of the year, you would only earn 1 percent cash back. For everyday groceries, you’d be better off with the Blue Cash Preferred® Card from American Express, which earns an unparalleled 6 percent cash back on groceries up to $6,000 per year, then 1 percent cash back after that.

Here’s another example: If you don’t travel or dine out regularly, it probably doesn’t make sense to shell out a $550 annual fee for the Chase Sapphire Reserve®, or $250 for the American Express® Gold Card, since both cards’ rewards skew heavily towards travel and dining, two of the most popular bonus categories for rewards cards. You’d likely be better off with a general purpose card with a flat rate for cash back, like the new Wells Fargo Active Cash℠ Card, which offers unlimited 2 percent cash rewards on purchases.

Rewards cards are a fantastic way to get benefits for charging purchases you would’ve made anyway. Be mindful not to overuse the card just for points or miles, though, and practice good habits with your rewards card.

5. Closing older credit card accounts

Many people believe that closing an unused credit card will improve their credit. However, the length of your credit history makes up 15 percent of your credit score, and high credit score achievers tend to have long credit histories

Closing an older account can have a negative impact by lowering the average age of your accounts. Say you’ve had one credit card for six years and another card for two years. The average age of your credit history would be four years. But if you closed the older card you’d be left with just a single two-year account, effectively dropping the age of your accounts to two years.

Closing a credit card or loan account could impact your credit score, but it might not have an immediate effect. It all depends on the scoring model, VantageScore or FICO. VantageScore may not include closed accounts when it calculates your credit score, so closing an account could lower the average age of your credit accounts and negatively affect your score. FICO, on the other hand, includes both open and closed credit accounts in its score calculations. Closing a credit account might not have an immediate effect on the length of your credit history since a closed account will stay on your report for seven to 10 years (depending on its standing when closed).

Think twice before closing an older credit card, especially your oldest one. Of course, it makes sense to cancel your credit card if it has a high annual fee that isn’t recouped by the card’s rewards, but it’s worth investigating other options, like a product switch or downgrade before shutting the account down altogether.

6. Not repaying the balance during a 0% promotional APR offer

0 percent APR credit card for an introductory period gives you immediate access to funds and the potential to use it interest-free, so long as you pay off your balance before the introductory period expires. Unfortunately, that’s where it goes wrong for many people.

If you don’t pay off the balance before the end of the promotional period, often up to 18 months on the best cards and sometimes more, the card’s regular interest rate — the current average APR for cards is north of 16 percent — kicks in. This new rate will apply to new purchases and any unpaid balance remaining after the introductory period.

A smart plan for repaying balances for intro APR cards is to calculate a monthly payment that results in the full repayment of the debt before the promotional period expires. Say you have $1,500 of debt on your card and an introductory interest rate of 0 percent for 15 months. If you make sure you pay at least $100 each month for the duration of the intro offer, you’ll pay off your balance before accruing any interest.

7. Perpetually transferring debt to new balance transfer cards

Balance transfer credit cards offering a promotional 0 percent APR provide an excellent way to pay off high-interest credit card debt. And, while we don’t always recommend transferring a balance multiple times, it may make sense if you’re following a disciplined debt reduction plan and you know you won’t be debt-free before the first intro APR period ends. In that case, a second balance transfer would give you the opportunity to continue paying down your debt interest-free, saving you a lot of money in the process.

On the other hand, if you are frequently opening new credit cards and only making the minimum payment, you’re not paying down your debt. What’s more, you’re probably racking up a lot of balance transfer fees along the way. It’s a mistake to keep moving debt from one credit card to another if you’re not making significant progress in paying down your debt.

Rather than risk a potentially endless cycle of credit card payments, you might want to consider getting a personal loan instead. Credit requirements are often more lenient with personal loans than with credit cards, and the interest rates are typically significantly lower. Sure, you’ll have to pay interest on an installment loan, but at least your installment loan will have a defined end date, so you’ll know exactly when you’ll be debt-free.

If you have a new balance transfer card or are considering getting one,  Bankrate’s balance transfer calculator can help you determine the amount of time it will take to pay off your debt.

The bottom line

There are a lot of advantages to using credit cards wisely and being aware of the pitfalls above will help you make smart choices when managing your credit cards. An occasional slip-up, like pulling out your gas card at the grocery store or only making a minimum payment one month, is not going to completely derail your financial life. But it’s important to avoid getting stuck making the same credit card mistakes over and over.

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Are Sallie Mae Student Loans Federal or Private?

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When you hear the name Sallie Mae, you probably think of student loans. There’s a good reason for that; Sallie Mae has a long history, during which time it has provided both federal and private student loans.

However, as of 2014, all of Sallie Mae’s student loans are private, and its federal loans have been sold to another servicer. Here’s what to know if you have a Sallie Mae loan or are considering taking one out.

What is Sallie Mae?

Sallie Mae is a company that currently offers private student loans. But it has taken a few forms over the years.

In 1972, Congress first created the Student Loan Marketing Association (SLMA) as a private, for-profit corporation. Congress gave SLMA, commonly called “Sallie Mae,” the status of a government-sponsored enterprise (GSE) to support the company in its mission to provide stability and liquidity to the student loan market as a warehouse for student loans.

However, in 2004, the structure and purpose of the company began to change. SLMA dissolved in late December of that year, and the SLM Corporation, or “Sallie Mae,” was formed in its place as a fully private-sector company without GSE status.

In 2014, the company underwent another big adjustment when Sallie Mae split to form Navient and Sallie Mae. Navient is a federal student loan servicer that manages existing student loan accounts. Meanwhile, Sallie Mae continues to offer private student loans and other financial products to consumers. If you took out a student loan with Sallie Mae prior to 2014, there’s a chance that it was a federal student loan under the now-defunct Federal Family Education Loan Program (FFELP).

At present, Sallie Mae owns 1.4 percent of student loans in the United States. In addition to private student loans, the bank also offers credit cards, personal loans and savings accounts to its customers, many of whom are college students.

What is the difference between private and federal student loans?

When you’re seeking financing to pay for college, you’ll have a big choice to make: federal versus private student loans. Both types of loans offer some benefits and drawbacks.

Federal student loans are educational loans that come from the U.S. government. Under the William D. Ford Federal Direct Loan Program, there are four types of federal student loans available to qualified borrowers.

With federal student loans, you typically do not need a co-signer or even a credit check. The loans also come with numerous benefits, such as the ability to adjust your repayment plan based on your income. You may also be able to pause payments with a forbearance or deferment and perhaps even qualify for some level of student loan forgiveness.

On the negative side, most federal student loans feature borrowing limits, so you might need to find supplemental funding or scholarships if your educational costs exceed federal loan maximums.

Private student loans are educational loans you can access from private lenders, such as banks, credit unions and online lenders. On the plus side, private student loans often feature higher loan amounts than you can access through federal funding. And if you or your co-signer has excellent credit, you may be able to secure a competitive interest rate as well.

As for drawbacks, private student loans don’t offer the valuable benefits that federal student borrowers can enjoy. You may also face higher interest rates or have a harder time qualifying for financing if you have bad credit.

Are Sallie Mae loans better than federal student loans?

In general, federal loans are the best first choice for student borrowers. Federal student loans offer numerous benefits that private loans do not. You’ll generally want to complete the Free Application for Federal Student Aid (FAFSA) and review federal funding options before applying for any type of private student loan — Sallie Mae loans included.

However, private student loans, like those offered by Sallie Mae, do have their place. In some cases, federal student aid, grants, scholarships, work-study programs and savings might not be enough to cover educational expenses. In these situations, private student loans may provide you with another way to pay for college.

If you do need to take out private student loans, Sallie Mae is a lender worth considering. It offers loans for a variety of needs, including undergrad, MBA school, medical school, dental school and law school. Its loans also feature 100 percent coverage, so you can find funding for all of your certified school expenses.

With that said, it’s always best to compare a few lenders before committing. All lenders evaluate income and credit score differently, so it’s possible that another lender could give you lower interest rates or more favorable terms.

The bottom line

Sallie Mae may be a good choice if you’re in the market for private student loans and other financial products. Just be sure to do your research upfront, as you should before you take out any form of financing. Comparing multiple offers always gives you the best chance of saving money.

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Tips to do some fall cleaning on your finances

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Wealth manager, Harry Abrahamsen, has five simple ways to stay on top of the big financial picture.

PORTLAND, Maine — Keeping track of our financial stability is something we can all do, whether we have IRAs or 401ks or just a checking account. Harry J. Abrahamsen is the Founder of Abrahamsen Financial Group. He works with clients to create and grow their own wealth. Abrahamsen shares five financial tips, starting with knowing what you have. 

1. Analyze Your Finances Quarterly or Biannually

You want to make sure that your long-term strategy is congruent with your short-term strategy. If the short-term is not working out, you may need to adjust what you are doing to make sure your outcome produces the desired results you are looking to accomplish. It is just like setting sail on a voyage across the Atlantic Ocean. You know where you want to go and plot your course, but there are many factors that need to be considered to actually get you across and across safely. Your finances behave the exact same way. Check your current situation and make sure you are taking into consideration all of the various wealth-eroding factors that can take you completely off course.

With interest rates very low, now might be a good time to consider refinancing student loans or mortgages, or consolidating credit card debt. However, do so only if you need to or if you can create a positive cash flow. To ensure that you are saving the most by doing so, you must look at current payments, excluding taxes and insurance costs. This way you can do an apples-to-apples comparison.

The most important things to look for when reviewing your credit report is accuracy. Make sure the reporting agencies are reporting things actuary. If it doesn’t appear to be reporting correct and accurate information, you should consult with a reputable credit repair company to help you fix the incorrect information.

4. Savings and Retirement Accounts

The most important thing to consider when reviewing your savings and retirement accounts is to make sure the strategies match your short-term and long-term investment objectives. All too often people end up making decisions one at a time, at different times in their lives, with different people, under different circumstances. Having a sound strategy in place will allow you to view your finances with a macro-economic lens vs a micro-economic view. Stay the course and adjust accordingly from a risk and tax standpoint.

RELATED: Financial lessons learned through the pandemic

A great tip for lowering utility bills or car insurance premiums: Simply ask! There may be things you are not aware of that could save you hundreds of dollars every month. You just need to call all of the companies that you do business with to find out about cost-cutting strategies. 

RELATED: Overcome your fear of finances

To learn more about Abrahamsen Financial, click here

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How to Get a Loan Even with Bad Credit

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Sana pwedeng mabura ang bad credit history as quickly and easily as paying off your utility bills, ‘no? Unfortunately, it takes time. And bago mo pa maayos ang bad credit mo, more often than not, kailangan mo na namang mag-avail ng panibagong loan. 

Good thing you can still get a loan even with bad credit, kahit na medyo limited ang options. How do you get a loan if you have bad credit? Alamin sa short guide na ito. 

For more finance tips, visit Moneymax.

 

 

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