Does The Fed Rate Cut Mean I Can Get A 0% Interest Rate Mortgage?

Last night when the news broke that the Federal Reserve would slash interest rates to zero in an effort to bolster the economy and get financial markets running smoothly again (the most drastic economic measures that have been taken since the 2008 financial crisis) I’ll admit one of my first thoughts was pretty selfish: Does this mean it’s time to refinance my mortgage? And what kind of interest rate could I really get? 

My husband and I bought our first place last year (I wrote about the experience here, all about how signing a 30-year, $250,000 mortgage felt so much more serious than any other commitment I’d ever made before) and our current mortgage rate stands at around 4%. I’d been considering looking into refinancing for a few months now, but hadn’t taken the next steps. This morning I reached out to one of my favorite sources Greg McBride, CFA and chief financial analyst at Bankrate.com to get his expertise.

The short answer:  No, you can’t get a 0% mortgage. Rats.

McBride elaborated: “Even the government currently pays 1.4% when they want to borrow money for 30 years — and they have the luxury of being able to print money to pay it back.” If the best rate the government can get is 1.4%, we individual homeowners should expect to pay a good bit more than that.

So who qualifies for the 0% rate? “The rate the Federal Reserve cut to near 0% is a rate banks pay to borrow from each other – but overnight, not for 30 years. This rate serves as a basis for the rates on other loans and savings products,” McBride says.

With that said, mortgage rates have fallen substantially from where they were one year ago (the average 30-year fixed mortgage rate is currently 3.77%), and refinancing a mortgage is the single-biggest way most households can benefit from lower rates. “Cutting a 4.5% rate to 3.5% can shave $100, $150, or even $200 off monthly payments depending on the size of your loan,” McBride says. “But lenders have been inundated with applications, and there is a traffic jam to get on the mortgage refinancing highway. This will ease with time and mortgage rates are poised to remain low throughout 2020.”

If you are considering refinancing, just hold off a bit – “Waiting until the initial wave of refinancing applications work their way through the system should allow rates to normalize, and they’ll do so at levels near-historic lows,” says McBride.

Getting a deal on my mortgage would have been nice, but right now, like most people, it’s far from my greatest concern. We’re living in unprecedented times — never before has a virus like COVID-19 disrupted the world economy in such a way. Like everyone, we’re monitoring the situation as it evolves. And we’ve got you covered. Here’s a look at some of the stories the HerMoney team has whipped up over the last couple of weeks. 

More from the HerMoney team: 

  • Jean lays out the questions you need to ask before you make any changes to your portfolio
  • Kathryn and Becca put together a list of frequently asked questions from our readers, and we checked in with experts to tackle them one by one. 
  • Dori dishes on what a recession really is, and how it will impact your finances.
  • Dayana deconstructs the sharp market movements we’re experiencing and puts crashes, dips, recessions and corrections in perspective by showing how long they typically last. 
  • Beth explains how your investment goals influence how you handle sudden stock market moves.

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What Is a Recession and How Will It Affect Your Finances?

Right now there’s a swath of the population (those under age 30) that is experiencing economic turmoil for the first time in their adult lives. And even if this isn’t your first rodeo, coming off more than a decade of economic growth can lull anyone into a false sense of security.

With the “R” word — recession — making the rounds, what’s important to remember is that recessions are a natural part of how economies operate.

Recession defined

A recession is a decline in economic performance that goes on for many months — technically two or more consecutive quarters where there’s negative growth in Gross Domestic Product (GDP). The National Bureau of Economic Research (NBER) is the group that officially declares a recession.

The last one — the Great Recession — lasted from 2007 to 2009 and is deemed the longest recession in the United States. It was the country’s worst financial crisis since The Great Depression in 1929. 

Not all recessions play out the exact same way. And right now we have the added complexity of dealing with the Coronavirus. If this is the first time you’ve experienced this economic cycle, here’s what you can expect to happen in the coming months. 

What’s happening right now

Economies go through four phases as part of the economic cycle — the expansion, peak, contraction and then the trough. The length of time it takes to experience these cycles vary, but historically we’ve seen this phenomenon play out the same way over and over again.

Expansion is the phase that marks a growing economy — GDP is healthy, unemployment is low (in the 3% to 4.5% range), inflation is normal — around 2% — and the stock market posts regular gains. Eventually the markets and all other economic indicators hit a peak. And it’s all downhill from there. 

When exuberance over the economy’s good health overheats — when everyone expects the good times to go on forever — reality sets in and we experience a contraction. This phase which we’re in right now happens quickly, driving down GDP, stock market returns (as investors start selling) and causing the unemployment rate to eventually rise as companies are forced to lay off employees. 

When GDP growth has turned negative two quarters in a row, that’s when economists say we’re in a recession. Next, we enter the final stage of the cycle, the trough, which marks the worst that the economy can get. Eventually the roller coaster starts ticking up once again to kick off the next phase of expansion.

Investments will be volatile

The last recession came in the wake of a subprime mortgage crisis. The one before that came from the dot-com bust followed by 9/11. Both of these brought down the stock market for a period of time. Right now it’s the Coronavirus causing the markets to be exceptionally volatile. 

What’s good to remember is that investing in the stock market is made for the long haul. The best thing you can do is weather the storm. Expect that the market will drastically fluctuate and leave your money where it is. If you’re closer to retirement and need your money sooner, you could put it away in a high-yield savings account. But even those are experiencing drops in APYs. 

While you won’t lose money in a high-yield savings account, you won’t gain as much as you would investing in the stock market after the recession ends.

Unemployment will go up

Concerts, sporting events, conferences and other gatherings are getting cancelled or postponed. Restaurants, daycares and schools are temporarily closing or experiencing a drop in clientele. Many businesses don’t have the capacity to pay rent or even basic operational costs without money coming in. This means they’ll have to start making staff cuts, even if it’s only to stop the financial bleeding for the time being.

While unemployment has never been higher than it was during the Great Depression — almost 25% — recessions cause a spike in people losing jobs. In a healthy economy unemployment is around 3.5% to 4.5%. Right now it’s at 3.5%. In 2009, near the end of the last recession, it went as high as 9.9%.

Some people in your community will lose their jobs — permanently or temporarily — without access to severance pay, paid time off, or other benefits to make sure they don’t fall behind on bills. 

Keep in mind that side-hustle work will likely also see a dramatic shift. As fewer people travel, Uber and Lyft drivers will see less demand. On the flip side, services like Shipt, Instacart or Postmates for food or groceries may experience an uptick.

Access to healthcare may get spotty

This is less an effect of a recession than it is of the Coronavirus pandemic. Hospitals and clinics are getting ready to handle a higher volume of patients. If you have an elective procedure on the calendar, you may be asked to postpone. And if some other healthcare issue arises, you might not be able to get into a doctor’s office for days, weeks, or even months at a time, depending on where you live. Also keep in mind that some doctors might not be taking on new patients. The best thing you can do right now is to follow guidelines — hand washing, social distancing — designed to keep you and your family healthy.

Reduced goods, services, and travel

Already we’re seeing supply and demand affected. Consumers drive the U.S. economy and our confidence about spending is waning. In some cases we simply can’t buy the goods and services we need. For example, the current European travel ban has many families re-evaluating vacation plans. With restaurants closing or limiting staff — and people stocking up on goods to cook at home — you can expect to see a drop available food options as well. And when it’s safe to gather in groups again, some of your favorite family restaurants may not be around anymore.

Education (and productivity) will drop

Once again, due to Coronavirus, as schools close, parents are faced with limited childcare options. This means that even if they were able to adjust their schedules to work from home (or are forced to do so), they do so without help. This also means that their children are behind on their schooling due to the lapse in attendance.

Some teachers, schools, and districts are working on ways to offer students online resources while schools are closed. But that still means parents might still be required to limit their workload as they care for their children. And there are other risks for students: Many rely on school breakfast and lunch as their only meals of the day. If schools are closed, some students could end up going hungry.

When will things go back to normal?

The things we’re experiencing due to the Coronavirus are evolving daily. As far as the economy and the stock market goes, no one can accurately predict when we’ll be at the bottom of the trough. We can get some perspective by looking at how long past recessions lasted:

How Long Do Recessions Last?

Knowing that recessions are a normal part of how business and the economy works doesn’t make it easier to stomach the daily ups and downs. Just remember: Recoveries are also a normal part of economic cycles, too. 

For more on how to get through these rough waters, see the related articles below. 

With additional reporting by Dayana Yochim

MORE ON HERMONEY:

  • Dips, Crashes, Corrections Oh My! Some Perspective On Stock Market Shocks
  • What To Do With the Federal Reserve’s Latest Interest Rate Cut
  • How to Deal With a Market Dip if You’re About to Retire
  • If a Recession Comes, Here’s How to Manage

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Looking to Refinance Your Mortgage? Here’s Everything You Need to Know

Mortgage rates have fallen to the lowest level in nearly 50 years — less than 3.3% for a 30-year fixed-rate mortgage — making now a good time for many homeowners to refinance.

Why Refinance Your Mortgage?

Refinancing is not a simple edit to your existing mortgage. It’s a completely new mortgage that takes the place of your old one. You’ll get a new rate, new monthly payment, and, oftentimes, a new term. And it’s not for the faint of heart. There are a lot of steps, oodles of paperwork and associated costs in the thousands of dollars. 

So why do people decide to refinance? Here are the four most common reasons: 

  • To take advantage of lower interest rates.
  • To shorten their mortgage term.
  • To convert from an adjustable-rate mortgage to a fixed-rate mortgage.
  • To access equity (i.e., pull out some cash value) from their home.

Interest rates are so low right now that the Mortgage Bankers Association (MBA) reports that applications to refinance a mortgage were 104% higher in September 2019 than they were a year ago. If you’ve been considering a refinance, there are some important factors to consider before you jump right in. 

Checking The Score  

“From a lender’s perspective, the perfect refinance candidate has their proverbial financial house in order,” says Cheryl Young, senior economist at Zillow. “They have high credit scores, at least 20% equity in their home, and little other outstanding debt.”  

Your credit score is probably the biggest factor in whether or not your application to refinance is approved, says Keith Gumbinger, vice president of HSH.com, a mortgage-resource website.  The good news is that if your credit score has dramatically improved since you closed on your original loan, you may have the opportunity to get a much better interest rate through refinancing.

In order to qualify for the very best rates, you need a score above 740. It’s not unusual for scores to be dragged down by faulty information on your credit report,  so before you even apply to refinance your mortgage, pull your credit report from all three credit bureaus, suggests Greg McBride, chief financial analyst at Bankrate.com. “You’re entitled to a free credit report [from each bureau, Equifax, Experian and TransUnion] every 12 months. This way, you can make sure your report is correct and you can fix any errors before moving forward.”

Investigating The Cost 

Refinancing your mortgage isn’t cheap. You have to pay for many of the same things you’d be responsible for if you were taking out a brand-new mortgage (which, in fact, you are), including closing costs an application fee, an appraisal and a title search. “To find out what you can realistically expect to spend on your refinance, pull out your old mortgage documents,” Gumbinger suggests. “These are the actual fees you paid for the property you are refinancing, and they should give you a solid basis for what costs should be.” Gumbinger suggests budgeting about 2-3% for closing costs. For example, for a $200,000 mortgage, be prepared to pay roughly $4,000 to $6,000. 

How do you know if it’s worth it? Run the numbers. Take the costs involved in closing your loan and divide by the monthly savings. “If it costs you $3,000 to refinance and you save $100 a month, it will take you two-and-a-half years to recoup your spend,” McBride says. A typical or “good” break-even period is around two to three years. If you do the math and yours is any longer than that, McBride suggests shopping around for a better rate. 

Do Your Research

Young, Gumbinger and McBride all stress the importance of shopping around for the very best rate. Including your current lender in your search is a good idea; they already have all of your information and may be willing to work with you in order to keep your business. McBride suggests researching lenders and requesting quotes from a few so you can compare and contrast.

Remember, each lender has an application fee, which can run between $350 and $500, so don’t apply until you’re ready to pull the trigger. “You could run through a bunch of cash by applying all over town,” Gumbinger says. He suggests diligently shopping around, and actually applying to as few as possible. 

Refinancing is a big decision that shouldn’t be taken lightly. But the benefits can save you, quite literally, thousands of dollars. While the process might seem daunting, think about it this way: It’s another great reason to get your financial house in order. Pulling together all these documents will mean you have a crystal clear picture of where you stand financially, and if everything works out, you could find yourself enjoying a lower mortgage payment for years to come. Good luck! 

More on HerMoney:

  • Should You Prepay Your Mortgage?
  • Yes, Renting Is Still Cheaper Than Buying, But Is It the Best Decision Long-Term?
  • HerMoney Podcast: Bonus Mailbag: Home Buying and Real Estate

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Grab Extra (Tax) Credits and Deductions for Education Expenses on Your 2019 Tax Return

If you had education-related expenses — student loans, tuition, enrollment fees — or received a hand through scholarships or grants to cover some costs, your stack of tax-related paperwork is probably a little taller this year.  

Here’s what to do with the information on those 1098-Es and 1098-Ts to squeeze out a bigger tax refund. 

Student loan interest deduction

If you made student loan payments in 2019, tax season is your opportunity to get a little relief. Although it may pale in comparison to the total payments you made on your loans last year, taxpayers who qualify can deduct up to $2,500 in student loan interest on your income tax return.

The student loan interest deduction is an above-the-line deduction, which means that it is a deduction before you arrive at your adjusted gross income (AGI). Even if you do not itemize deductions, you can still deduct it.  

Eligibility: The student loan interest deduction is only available if your modified adjusted gross income (MAGI) — which is typically your adjusted gross income less any student loan interest deduction — isn’t too high. For 2019 if your MAGI is greater than $85,000 (if filing single) or $170,000 (if you’re married filing jointly), unfortunately you don’t qualify for the deduction.

How to get it: You’ll receive Form 1098-E for each account in which you held a student loan. Add up the amounts from Box 1 and include the total deduction on your tax return. 

Tuition and fees credits 

The IRS also provides tax credits on education-related expenses. This one’s for you if you paid tuition, fees, course materials and anything required for a student to attend or be enrolled at an eligible educational institution. FYI: “An eligible educational institution” isn’t just a four-year college or university, either. Vocational schools and other post-secondary education institutions, such as community college, also count. 

There are two education credits: 

  • The American Opportunity Tax Credit: A partially refundable tax credit up to $2,500 annually for four years.
  • The Lifetime Learning Credit: A non-refundable tax credit up to $2,000 annually with no time limit. 

Eligibility: Depending on your MAGI, you may be eligible for an education tax credit or the tuition and fees deduction. Word to the wise: if you are claiming a dependent, and that dependent paid his/her own tuition, YOU still get to claim the education tax credit. (If your dependent says that seems unfair, tell them to take it up with your local Congressperson!)

How to get it: You’ll receive Form 1098-T from the eligible educational institution where you are paying tuition. Enter the tuition payments (from Box 1) on your return.

If you took out student loans to pay for tuition, you better make sure that you’re able to get any deductions or credits that you can. 

Tuition and fees deductions

Like the student loan interest deduction, the tuition and fees deduction is an above-the-line deduction of up to $4,000. Although this education-related tax break was set to expire, The Taxpayer Certainty and Disaster Tax Relief Act of 2019 extended it through Dec. 31, 2020. 

Here’s the catch: You’re not allowed to claim both the tuition and fees deduction and one of the two education tax credits outlined above. Your tax preparer or tax preparation software typically optimizes to see which is more advantageous for you (as in gets you a bigger refund).

Scholarships and fellowship grants

Along with tuition payments you made, scholarships and grants you received are also reported on Form 1098-T. Whether or not these will be taxed is based on how you (or your dependent) used the money.

If it went to pay for qualified education expenses (tuition, books, and other supplies needed for a specific course), your scholarship or fellowship grant is not taxable.

It’s a different story if there was any work requirement to receive the grant. For example, let’s say that Tony Stark received a $5,000 fellowship grant that required him to teach part-time. The university that awarded the grant considers $1,500 of it as income for teaching for which he receives a W-2. As he prepares his taxes, Tony is only able to exclude potentially up to $3,500 of the grant from his taxable income.

Make sure you take all the breaks you’re allowed

Optimizing your education deductions and credits usually means delving a little deeper into the details rather than simply entering the info from a tax form from your university, 

More tax prep help on HerMoney:

  • Does Your Child Have to File a Tax Return?
  • Use This List to Save Money on Tax Prep This Year
  • When to Keep and When to Throw Away Financial Documents

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Top 5 Money Trade-Offs (And How to Tame Them)

“I have all the money I need” (said no one ever). Let’s face it, my fellow non-Kardashians. Competing financial claims are a fact of life, right up there with death and taxes, and there’s often no right answer as to the best place to put our precious limited funds. If you’re waffling on where your money should go, take a look at these five tame-able trade-offs for some inspiration. 

Trade-off No. 1: Pay Student Loans or Build an Emergency Fund?

Nearly 45 million Americans are shackled to $1.56 trillion in college loan debt. If that Godzilla-size stat doesn’t scare you, consider this trade-off within a trade-off: To land a top-paying job, you need a degree, but you may spend decades paying for it — with cash that won’t be available for saving or investing.

“In your 20s and 30s, your biggest asset is your ability to earn money,” says Melissa Joy, CFP, CDFA, president of Pearl Planning. “Paying off college loans is vital, but if you’re too aggressive and don’t have any cash left at the end of the month, you risk piling fresh debt onto high-interest credit cards.” 

Throw at least the monthly minimum on your loans, but don’t stop there. Joy also urges recent grads to build that emergency fund: “Start small,” she explains. “Save $1,000, then set a goal of three—ideally 12—months of savings. That way, if you lose your job or need a new transmission, you can ride it out without going deeper into debt.”

The best advice? Choose both: Pay down your loans, while you pump as much into your emergency fund as you can. This is easier said than done, but even small deposits into your savings account will add up over time.

Trade-off No. 2: Ditch Credit Card Debt or Save for a Home?

Ironically, rising earnings can pave a slippery slope into Debt Valley. New Yorkers Haley O’Sullivan and husband Jim Oleskewicz have conquered their college debt, but O’Sullivan admits, “Between apps, credit cards and Starbucks on every corner, we’re constantly tempted to make the wrong trade-off.” 

Social media doesn’t help. On Planet Instagram, “everyone” (except you!) is swilling Cristal or taking exotic vacations. “Friends with tens of thousands of dollars of student debt will stay at a $3,000-per-night safari lodge but complain they can’t afford to move out of their rented studio apartment,” O’Sullivan says.

What’s up with that? Blame your parents (natch).

According to clinical psychologist Dr. Christyn Sieve, “As children, if we never learn to make meaningful choices between needs and wants, we can develop a distorted relationship with money. If we’re raised to believe that material goods increase happiness, we’re more likely to buy ‘stuff’ to fill an emotional hole, even if having everything you want when you want it is not actually a formula for happiness.”

The best advice? Master your plastic first then start saving for that down payment on a home. The financial payoff from paying down a 19.9% Visa far exceeds even the 2% you’ll earn in high yield savings. And repeat after me: The best things in life aren’t things.

Trade-off No. 3: Retirement Savings or College Funding?

This is an issue Joy says represents a big struggle for her clients. We’ve all heard the advice to prioritize retirement, because you can’t borrow for retirement, but you can borrow for college.  That said, I have yet to meet a parent who is satisfied with the thought of putting their own financial future so far ahead of that of their children—particularly with mountains of debt many recent college grads are facing. 

The best advice? Put your retirement first—but not exclusively. While grabbing every last matching dollar possible and trying to max out your tax-advantaged retirement saving eligibility (IRAs all the way!), open a 529 college savings plan for your kids and start contributing small amounts each month. Tell grandparents, aunts, uncles and other interested relatives that these accounts exist and you’d appreciate contributions instead of gifts throughout your kids lives. And join UPromise, which will kick in money if you shop through their portal. Over time, it all adds up. If saving the full cost of tuition sounds daunting, then make it your goal to save for one-third of college, then when college rolls around, consider funding another one-third out of current cash flow and have your child borrow the remainder. 

Trade-off No. 4: Play the Market or Play it Safe?

Your investment goals are on track, but market spikes and swoons are making you nervous. Sure, you could move to conservative CDs or bonds—if you’re dreaming of a Very Ramen Retirement. So what to do—or not do?

“In your ‘50s, you need to get serious about retirement,” Joy says. “Put your foot on the savings accelerator. This is make-or-break time. Bailing out of investing is rarely an option, and will only reinforce bad behavior and difficult decisions in the future.”

The best advice? Women are more guilty than men of leaving too great a portion of their money in cash. It’s important to both be invested and stay invested if you want to reach your long term goals. To make sure your assets are appropriately allocated, either choose a target-date fund that does the work for you—or take 110 and subtract your age. The answer is about the percentage of your overall portfolio that you want in stocks.  Then, when the markets get rocky, turn off the news or make an appointment with a financial adviser who will hold your hand. The only sure portfolio killer is selling. 

BLOOOM: 401ks are complicated. Blooom isnt. Link blooom to your retirement account for smart, simple optimization.

Trade-off No. 5: Take Social Security Sooner or Later?

Just because you can take Social Security at age 62 doesn’t mean you should. Delaying until your full retirement age may be better for your financial situation. Each year you delay collecting, Uncle Sam adds 8% more to your check—a guaranteed “raise” that’s virtually impossible to beat anywhere else in the market. Still not sure? Crunch the numbers on your options here and calculate your estimated benefit here.

The best advice? Wait until full retirement age to collect Social Security benefits. Only collect early if you absolutely must. 

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Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. This post contains references and links to products from our partners. Learn more about how we make money.

How To Use 0% APR Deals to Your Advantage

Got a big purchase on your radar (hello, refrigerator!) or some small necessities that you won’t be able to pay off all at once? A credit card with a 0% APR offer or a 0% deferred-interest deal can be really enticing. Handled carefully, these promotional offers can help you save some serious money. But one wrong move and you could find yourself in a financial bind.

We asked credit card experts to explain the ins and outs of 0% interest card deals. Here’s what you need to know to come out ahead. 

1. Know which type of offer you’re dealing with

Take your time and read all the details. “People make bad financial choices when they’re rushed and that’s what happens a lot of time with these deals,” says Matt Schulz, chief industry analyst at CompareCards.com.

There are two main types of 0% APR offers: 

0% deferred interest offer: These offers are often found with retail credit cards — e.g. at a home improvement store — and pitched as “special financing” deals or “no interest if paid in full” promotions. You spend a minimum amount to qualify for the special offer and for a specified amount of time (6, 12, 18 months) you pay no interest on that amount. 

With a deferred-interest offer, if you fail to pay off the entire purchase amount within the stated period you will be charged the interest you would have accrued from the date of your purchase, Schulz says. 

0% introductory APR on all purchases offer: With this type of promotion — mostly seen on general-purpose credit cards — you open a new credit card and all purchases made within an introductory period (typically 12 to 18 months) are not subject to interest. If you still have a balance on the card after the introductory period, you’ll pay interest on just that amount moving forward.

But, Schulz warns, it’s important to be absolutely sure that you won’t be charged retroactive interest. Be sure you have a firm idea of how long the introductory period is and whether you will owe interest on the whole purchase or just the remaining balance when it is over. “The last thing you want to have happen is getting hit with an unexpected bill when you thought you were not going to have any,” he says. 

Bill Hardekopf, CEO of LowCards.com, says another thing to consider before signing up for an introductory APR credit card is the post-promotion interest rate. If the interest rate after the fact is higher than another card you already have, this may end up costing you more money in the long run if you typically carry a balance, and it may not be worth it. You have to look at the numbers and decide.

2. Don’t use this as an excuse for bad credit behavior

Say it with me now. Write this on your mirror. Put it on your phone. Tattoo it on your forehead. This is very important to you and your credit score: Do not be late on a credit card payment for either type of offer above. 

“Ideally, during that promotional period, make all your payments on time and only buy the things you can afford to pay off during that intro period,” says Hardekopf. He warns that these offers should not be a reason to go wild, buying all the things that will cause you to have a minimum payment you can’t afford each month.  

Being late or missing a payment altogether have particularly brutal consequences when it comes these 0% interest offers: Both flubs will typically cause the 0% deal to be revoked early, and your balance may be subject to a penalty APR (double digit interest rates) and buy you a hefty late-payment penalty fee.

3. Pay off your balance in full and on time

The way to beat the system, so to speak, is to have a zero balance when the introductory period is over. “Special financing deals can be really good if you know that you’ll be able to pay the balance off in full during that period,” says Schulz. 

If you want to reap the full rewards of a 0% APR financing offer, it’s important not to spend more than you know you’ll be able to pay off in the promotional timeframe. 

If you aren’t able to pay off the balance for whatever reason, it’s important to keep in mind the specifics of the offer — whether interest is deferred and what the post-promotion rate will be — and plan accordingly. 

The bottom line 

With careful management, 0% offers can give you some extra purchasing power when you need it most. “Zero percent APR cards where you truly don’t have to pay interest for that introductory time period are a wonderful opportunity to save money,” Hardekopf says. “They can be advantageous to the consumer if they’re used properly, but can be hurtful, too, if they’re not.” 

Just take your time to know what you are getting into on the front end, be diligent about making all your payments on time, don’t go overboard on the total, and aim to have a zero-dollar balance by the time the promotional period ends.

COMPARE: Personal loan offers for debt consolidation from our partner Fiona.


More from HerMoney

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  • How to Strategically Manage Your Debt
  • Avoid These 9 Credit Card Mistakes to Keep More of Your Money

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Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. This post contains references and links to products from our partners. Learn more about how we make money.

People Who Have a Credit Score Under 700 Should Make These 5 Moves ASAP

Yup — you’ve got some algorithm spitting out a three-digit number that’s basically controlling your entire life. We get it: It’s frustrating.

Don’t give up just yet, though! These five moves just might be the kickstart you need to finally get your credit score moving in the right direction.

Best of all? You can do all these things by the end of this week.

1. Write a Love Letter

… to your creditors.

If you generally have a pretty solid credit history, save for a few missteps, then sending a well-executed goodwill letter to those you owe could help get you back in good graces with them and improve your credit score.

You’ll want your letter to cover the following bases:

  • Explain why and how long you’ve been a loyal customer of the creditor.
  • Take responsibility for the mistakes that led to the blemishes on your credit history.
  • Describe the steps you’re taking to ensure these mistakes don’t happen again.
  • Appeal to your their sense of empathy. Show that you want forgiveness but also that you are determined to do better going forward. Show them you deserve this!
  • Keep your letter clear and to the point.

Don’t forget to include important information, like your account number and the date and amount of the missed payment you want removed from your credit history. Once you’ve written your goodwill letter, address it using the information on the creditor’s website.

2. Let This Site Show You Exactly How to Improve Your Score

Your credit score is like your financial fingerprint. Everyone’s is different and for different reasons. One person’s credit score might be under 700 because they have an error on their report. Another person’s credit score might be under 700 because they have a bill in collections.

That means everyone’s strategy to improve their credit score will look different… but how in the world are you supposed to know where to start?

Thankfully, a free website called Credit Sesame will take a look at your credit report and let you know exactly what you need to do to improve your score.

Take, for example, James Cooper. He didn’t know anything about credit, but Credit Sesame showed him the exact steps he needed to take to improve his score — from a 524 to 801.

Then there are people like Salome Buitureria, a working mom in Louisiana who, in using Credit Sesame, found a major error on her report. The site helped her fix the mistake and take additional steps to raise her credit score nearly 200 points.

Want Credit Sesame to show you exactly how to finally get your score over that 700 hump? It takes 90 seconds to sign up and get started.

3. Ask This Website to Pay Your Credit Card Bill This Month

No, like… the whole bill. All of it.

Chances are, your credit card company is ripping you off with insane rates, and it’s getting rich off of you. But there are other, nicer companies that’ll help you out, including a website called Fiona.

Here’s how it works: If you have a credit score of at least 620, Fiona will help match you with a low-interest loan (up to $100,000) you can use to pay off every credit card balance you have. The benefit? You’re left with just one bill to pay every month, and because the interest rate is so much lower, you can get out of debt so much faster. Plus, no credit card payment this month.

Fiona won’t make you stand in line or call a bank. And if you’re worried you won’t qualify, it’s free to check online. It takes just two minutes, and it could save you thousands of dollars. Totally worth it.

Now you can finally start effectively chipping away at your debt — and watch your credit score reap the benefits.

4. Let This Company Handle The Complicated Stuff

Now it’s time to take a look at everything you haven’t been able to address in the first three steps. And you might need to call in reinforcements for this one — especially if debt collectors are involved. 

If you’ve been getting phone calls and mail from debt collectors, look into Collection Shield 360, a free service that helps people clean up their credit reports and deal with collection agencies. (There’s also a premium service, which is free for two months then $9.48 a month after.)

Collection Shield 360 will contact your debt collectors on your behalf and negotiate to get marks on your credit report removed, plus other steps to improving your credit.

It helped 31-year-old server Tabatha Pankop deal with lingering bills from T-Mobile, Bright House Networks and Verizon. Her credit score jumped up nearly 200 points in just a few months. See how much it can help you improve your credit here.

5. Pay off Debt by Saying Goodbye to Your Car Insurer

When you’re trying to raise your credit score, paying off debt is one of the most impactful things you can do. It might feel like you’ve already cut every enjoyable thing out of your budget, but the truth is, one of the simplest expenses you can cut is car insurance.

If you really want to get the best price on car insurance, experts say you should be shopping twice a year. OK, we can hear you laughing from here. Who has time to do all that?

But seriously, insurance companies take a lot of factors into consideration, and they change all the time. Ipso facto — you’re paying too much.

Thankfully, a free website called The Zebra will do the shopping for you — in just two minutes.

All you have to do is enter basic information about your car and driving history, then The Zebra compares prices from more than 100 companies to find you the best price.

The Zebra says it saves its users up to $670 a year. If you find a policy you like, you can sign up online instantly.

Who’s laughing now?

Now you’ve got five tactics you can use to get your credit score right where you want it. Good luck — you’ve got this!

This story was provided by The Penny Hoarder.

Root Insurance is available in Arizona, Arkansas, Delaware, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Mississippi, Missouri, Montana, New Mexico, Nebraska, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Texas and Utah.

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. This post contains references and links to products from our partners. Learn more about how we make money.

The Best Financial Advice I Wish I Could Give My 22-Year-Old Self

On a hot summer day after my freshman year in college, I went to a local bank to open my first account. As the bank teller took my information and set up my account, my eyes glazed over as she discussed interest rates and bank fees. At the time, I remember thinking that she was a grown up and that 20-year-olds couldn’t possibly be expected to understand the intricacies of banking. That, and I pretty much told her I wanted a checking account simply because I wanted personalized Looney Tunes checks.

The truth was, though, I was too embarrassed to admit to the bank teller that I didn’t understand a word coming out of her mouth. 

During my college years, as I wrote checks emblazoned with Tweety Bird and the Tasmanian Devil for my BMG music subscription, phone bill, and other college expenses, I didn’t have the first clue how to balance my checkbook or manage my finances. In fact, when my now husband and I combined finances before we got married, I’m pretty sure he almost dropped dead when I said, “I’ve never balanced that thing in my life.” 

I’m not proud of my early days of personal financial management, but over the years, my financial mistakes have helped me grow into a financially secure 40-something woman.

While I still stumble on concepts like compound interest, amortization, and interest rates, I have learned to ask questions until I understand the financial decisions in front of me … and I no longer have Looney Tunes checks, much to my husband’s relief. 

Recently, one of our younger HerMoney staffers delightedly told me she is moving into her first apartment. She’s 22 and poised to set out on her own for the first time. Though I’m excited for her, a part of me was protective as she described her new apartment: I wanted to save her from making some of the mistakes I made at her age when it came to finances. Because those first few years on your own are scary when it comes to finances.

Even our own Jean Chatzky has advice for her 22-year old self (yes, really!). “I wish my 22-year-old self knew that it’s not so hard to save and plan for your future. I shied away from better management and understanding of money. I thought there was a secret behind a wall that wasn’t meant for me,” she says.

I posed the question, “What financial advice would you tell your 22-year-old self now?” to the women in our HerMoney Facebook group. And, the money-savvy women in our group delivered a treasure trove of advice. Read on to see what they would tell their younger selves and do differently when it comes to money.

On Retirement:

Lauren H.– “I would tell my 22 yo self to put money into a retirement account of my very own from day 1, even if it’s not employer sponsored or matched. Set it and forget it, and reap the rewards later.”

Anne M. –“Save at least 10% in a retirement account, and start investing (apart from retirement) sooner.”

Ellen R.–Understand your retirement accounts. I work for the state and didn’t realize I needed to sign up to convert my first two years of service from the 401(k).”

On Budgeting:

Maygan A.– “Some of the best advice I’ve gotten is to make a list of all the things you think will make you happy (e.g., buying that new dress, a vacation) and to make a list of things have actually made you happy (e.g., spending time with friends, having a night in, cooking a healthy meal) and compare the lists. Or set goals and reflect on them a year later. Reflection will usually show you that what you need to be actually happy isn’t something you can buy.”

On Saving:

Lisa D.– “Me (60) to my 22-year-old self. Don’t EVER cash out a retirement fund. And also, all your savings will add up to freedom to walk away from a job that doesn’t feel right. You will thank yourself in the future.”

Vicky A.– “Get in the habit of saving. Even if it’s $5 a week, if you make it part of your plan early, it will be easier later when you have more to contribute.”

Cathy H.– “I’m grateful for my parents’ guidance in starting an IRA. I wish I had contributed even $10 at the time as opposed to waiting until I felt like I could contribute, so I could reap those compounding interest benefits.”

On Your First Job:

Laura B.–”Understand your value and negotiate your salary every single time you get a new job. Then, pay yourself first by saving.”

On Moving Out/Your First Place:

Joanna W.–Staying with mom and dad will be worth it!! I moved in with my parents right after college, even after getting my first job. Not only was it quality time with them (my dad and I carpooled and took the Metro into the city together), but I saved A LOT and was able to establish a solid financial footing that laid the foundation for the net worth I have today.”

On 401(k)s:

Sara S.–”With your first job out of school, max out your 401(k) annually. You weren’t used to having money in college so you won’t miss it. And you will be amazed how it grows!”

Nancy A.I started saving for retirement at my first job (401k) but only 10-15% which is not bad, but I wish I would have known that I could save more!!!”

Heather B.–”Never pass up a 401(k) match! It’s free money. I got too focused on debt payoff (good thing) but feel like I missed the 401k match/growth opportunity.”

And our hats off to:

Alison D.– who commented, “Twenty-year-old here! I’ll be debt-free in about 11 months. Since 22 is the future for me, I hope by then I’ll be married, have a fully funded emergency fund, and saving for a house. We have a pretty solid plan, with wiggle room for anything that comes our way.” Here’s a HerMoney high five, Alison!

Sure, we all have regrets about our finances and it’s easy to get bogged down in the “if I had only” mentality but Chatzky reminds us even if we didn’t start saving when we were young, we can make up for lost savings time now.

“One of my Money Rules states that you can make up time by saving more,” she says. If you have savings ground to make up, Chatzky says to be honest about your financial numbers and figure out just how much money you need to save. “And then set your life up to accommodate your new financial goals. You can do it, I promise.”

Get behind-the-scenes financial insights from “Today” show Financial Editor Jean Chatzky. Subscribe today.

Here’s How You Can Turn Around Your Credit Score This Winter

Ladies — winter does not only mean fuzzy sweaters and candy hearts. Let’s turn this season into a productive one and raise our credit scores. Yes, credit scores and, yes, I can hear your groans from my office. But, that’s the whole point! I promise that credit cards have more worth than just giving you the ability to satisfyingly swipe for that new pair of boots when payday is still a week-and-a-half away. 

Every time you purchase something with your credit card, you are essentially taking out a loan that you will repay (in full, please!) at the end of each billing cycle (usually one month). Your credit activity, like how often, how much, and how responsibly you adhere to that model — along with a bunch of other factors — is analyzed and turned into, tada!, your credit score. This score lets the bank know how reliable you are and how much money they should loan you when you want to buy something big, like a house or a car. The higher the score, the more likely you are to get what you want from the bank, so you want that score to be as high as possible. Make sense?

Let’s start at the beginning by checking our scores. Head to any of the free online sources that give you an estimate of your score based on all of the lines of credit you have open, like Credit Karma. Unless you are at that perfect 850 mark, keep reading to figure out how to get there. 

CREDIT KARMA: Your credit scores should be free. And now they are.

As if you haven’t heard it enough already, the single most important thing you can do to raise your credit score is to pay your credit card balances in full and on time, says Bruce McClary, Vice President of Communications for NFCC. More than a third of your score is based on this fact alone. If you’re notoriously forgetful, set up a recurring automatic payment, or at least a monthly alarm to remind you to pay the bill, Stefanie O’Connell, nationally recognized personal finance author and speaker, suggests. 

You might want to hone those detective skills to uncover what is making your credit score decline. Take a look at your credit report to see what is negatively impacting the number, McClary says. It could even be fraudulent activity, which can be weeded out by looking through the report and taking action, too.  

You may feel like you’re doing all the right things and your mediocre score just won’t climb. If that’s the case, be aware of how much you’re spending each month. Spending more than your credit limit (or going into debt) is not the only way spending can hurt your score. Actually, you only want to spend around 30% — at most — of the credit you have available to you. If you are getting too close to spending all you have allotted, your score will be impacted negatively, says McClary. Requesting a credit limit increase could help you, says O’Connell. But that’s only if your spending stays the same. 

Another thing that could be hurting your score is how often you apply for lines of credit. It’s never smart to take out loans and apply for multiple credit cards at the same time, since each inquiry negatively impacts your score, says McClary. All those requests at once could make your score come crashing down, so really consider your offers before sending in a credit card application, and spread out your credit requests over time. 

Turning around your credit score is hard work, and it won’t happen overnight, says O’Connell. There are things you can do to expedite the process, like utilizing Experian Boost, but the most effective way to get your needle in the green is to diligently work day-by-day to apply these best practices to your credit life. 

We’re changing our relationships with money—one woman at a time. Subscribe to HerMoney today!

Editor’s note: We maintain a strict editorial policy and a judgment-free zone for our community, and we also strive to remain transparent in everything we do. This post contains references and links to products from our partners. Learn more about how we make money.

HerMoney Podcast Bonus Mailbag #18: Credit, Credit Cards and Debt

In honor of a very happy holiday season, we’re celebrating with our HerMoney family with five special Mailbag-focused episodes! Our listeners submit THE BEST questions all year long (to mailbag@hermoney.com), and we wanted to get as many as possible answered before 2020 rolls around.

In this episode, Jean and Kathryn dive into your questions around credit, credit cards, and debt. Jean answers a question about how business credit cards can impact your personal credit, and what it means for your credit score when you close a business account.

We also dive into a question about adding a child to your credit card as an authorized user to help them build credit. (Note: Not every credit card company reports credit history of authorized users.)

Jean also guides a listener who is wondering if she should claim bankruptcy, see a credit counselor, get a side gig, or cash out a retirement annuity in order to get back on track. Lastly, we advise a woman who is looking to pay down debt with personal loans, while also working to improve her credit score, and to stay motivated to pay down her debt.

From everyone on the HerMoney team, thank you so much for listening to us in 2019. We can’t wait to spend more quality time together in the New Year!