Car incentives nearly vanished during the past several years, thanks to pandemic-driven supply chain issues for auto manufacturers. As vehicle inventories dwindled and consumer demand outweighed supply, automakers had no reason to offer incentives like rebates or low-rate financing. The good news is that auto incentives, while still below prepandemic levels, are starting to return.
According to Kelley Blue Book, a Cox Automotive company, auto incentives — as a percentage of the average new-vehicle price buyers paid — reached 5.9% in February 2024. That’s compared with a general range of 10% to 11% before COVID-19 hit and 2% in fall 2022. In February, auto manufacturers spent an average of $2,808 per vehicle in incentives, up 88% from a year ago.
With inventories returning to normal and some auto manufacturers again sweetening deals to move vehicles, here’s how you can find and possibly save with car incentives.
Tips for saving with auto incentives
Although new car prices have declined since peaking in late 2022, the average price a buyer pays remains around $47,000. Incentives are one way to whittle down that price tag, and certain strategies can help maximize savings.
Be flexible about the vehicle you buy
Traditionally, auto dealers strive to have 60 selling days’ worth of cars in stock. As auto production has returned, some manufacturers — like Toyota — remain well below the 60-day mark, while others — including Ford, Nissan and Buick — are overstocked and more likely to offer incentives and discounts to move cars.
“The key right now is to be flexible about which vehicle you consider,” says Sean Tucker, senior editor for data company Cox Automotive. “If you had your heart set on something from Toyota, you’re probably not going to find a great deal. They just don’t have trouble selling cars right now.”
Auto manufacturer websites are a good place to research auto deals and incentives — including cash rebates, low-rate financing and lease deals — that are available for various makes and models. Such incentives often vary regionally, so you can usually narrow a search by ZIP code. Also, auto research companies like Edmunds maintain webpages with current car deals and incentives by carmaker.
Tucker suggests that incentives for leasing and electric vehicles are both good sources for saving in the current market. Auto dealerships are trying to restore the leasing cycle that feeds the used car market, so many dealerships are offering lease deals.
“It’s actually relatively easy right now to get a good lease on an EV,” Tucker says. “And that might even be a good idea just from a technology standpoint, because three years from now, when your lease is likely coming up, there may be far better EVs on the market.”
Know what incentives you qualify for
To ensure you receive every incentive available to you, know exactly which incentives you qualify for before engaging with a car dealer. Joseph Yoon, consumer insights analyst at Edmunds, recommends telling the dealer upfront what you expect in the way of incentives.
“The dealer is not going to offer it to you unless they’re deeply desperate to get the deal done,” Yoon says.
As part of your research, be aware of the different types of incentives available, because in some cases they can be combined.
Auto rebates provide a certain dollar amount to reduce your overall cost of buying, financing or leasing a vehicle. The rebate reduction should be on top of any other discount you’ve negotiated.
Low-rate financing is an incentive offered by automaker captive lenders — although you’ll need to have good or excellent credit to qualify and may be limited on loan length. As of March 5, 2024, Cox Automotive reported that 14.2% of new vehicle financing transactions had an APR of 3% or less. Only 3.2% of transactions had a 0% APR. While low-rate offers are available, they aren’t plentiful.
Loyalty incentives may be available if you have a certain car brand and want to buy or lease another one from the same manufacturer.
Demographic-focused incentives — for example, if you’re a recent college graduate, military member or educator — are also offered by some auto manufacturers and dealers.
Stacking more than one incentive, when possible, can help you take advantage of every dollar available to you. If you have to choose between multiple incentives, for example, either a rebate or low rate from the same manufacturer, use an auto loan calculator to run each scenario and see which will save you the most money in the long run. Also, consider whether taking a cash rebate at the dealer and financing elsewhere could save you even more.
About EVs, Yoon says auto manufacturers and dealers are motivated right now to offer savings on top of the federal incentive, because “there’s still a little bit of inventory left from 2023 that they really, really, really want to get rid of as the 2024 models [are starting to] hit.”
Plan to negotiate and comparison shop
If you know you qualify for a $1,500 car rebate, don’t assume that’s the best you can do — even if the dealer tells you it is. The ability to negotiate car prices for some models has also reappeared, and incentives should be in addition to any amount you negotiate off the manufacturer’s suggested retail price. You can use valuation tools on car-buying sites to see what people are paying for the car you want and whether negotiating a lower price is realistic.
Finally, if you can find more than one dealership with the vehicle you want, present the deal you expect to each and let them compete for your business. Dealers receive factory-to-dealer discounts to help move certain vehicles, usually slower-selling ones. They can choose whether to pass these savings on to you and may be more motivated to do so if they know you’re shopping for the same car elsewhere.
Yoon says if a dealership isn’t willing to “play ball,” you shouldn’t hesitate to walk away. “Cars cost literally more than they have ever cost the consumer, and so you should, rightfully so, fight for every dollar that you can save.”
If you find yourself in a bad financial situation, making an early withdrawal from your 401(k) may sound tempting. But early withdrawals from your 401(k) come with hefty fines and can put your retirement at risk. So, before you do this, you should be sure that it’s truly a financial necessity.
That being said, there are situations when it makes sense, and occasionally, you can find ways to get the fees waived. This article will review everything you need to know before making an early 401(k) withdrawal.
Early 401(k) Withdrawal Options
Wondering if you can tap into your 401(k) funds ahead of schedule? The ability to make an early withdrawal from your 401(k) hinges on several factors, including your employer’s policies, the specifics of your plan, and your current employment status. Here’s a straightforward guide to understanding your options.
Checking With Your Employer
Your first step should be to get in touch with your human resources department. Not every employer permits early withdrawals from their 401(k) plans, and those that do may have specific criteria and procedures you’ll need to follow. The ease of starting this process and the options available to you will depend on various factors, such as your age and the specific rules of your plan.
For Former Employees
If you’re no longer employed with the company that holds your original 401(k), reaching out to the plan’s administrator is your next move. The administrator can provide you with the necessary steps and documentation required to initiate an early withdrawal. They’ll guide you through the process, ensuring you understand any implications or penalties associated with accessing your funds prematurely.
For Current Employees
Still working for the company where you’ve built your 401(k)? There might be restrictions on your ability to make early withdrawals. But don’t lose hope; you might have the option to borrow against your 401(k) instead.
Taking a 401(k) loan can be a viable alternative, offering a way to access your funds without the penalties associated with early withdrawals. We’ll delve into the specifics of 401(k) loans and how they work later on, providing you with all the information you need to make an informed decision.
401(k) Early Withdrawal Penalties
When it comes to pulling money from your 401(k) before reaching the age of 59 ½, the Internal Revenue Service (IRS) doesn’t give you a free pass. Let’s break down what this really means for your wallet. You’re not just facing a flat fee; it’s a combination of penalties and taxes that can significantly reduce the amount you end up with.
The 10% Penalty Explained
If you dip into your 401(k) early, the IRS imposes a 10% penalty on the amount you withdraw. This is their way of discouraging people from using their retirement savings prematurely. For example, if you withdraw $10,000, you owe $1,000 right off the bat to the IRS as a penalty.
Tackling the Tax Implications
But the financial impact doesn’t stop there. Since 401(k) contributions are made pre-tax, when you take money out, it’s considered taxable income. This means the amount you withdraw will be added to your total income for the year, potentially pushing you into a higher tax bracket.
To illustrate, let’s say you’re in the 22% tax bracket. On a $10,000 withdrawal, you’ll owe $2,200 in income taxes, in addition to the $1,000 penalty. So, from your $10,000, you’re down $3,200, leaving you with $6,800.
Real-World Example for Clarity
Imagine John, who decides to withdraw $10,000 from his 401(k) to cover an unexpected expense. John is in the 22% tax bracket. Here’s how his withdrawal breaks down:
10% early withdrawal penalty: $1,000
Income tax (22%): $2,200
Total deductions: $3,200
Amount John receives: $6,800
This example highlights the importance of considering the combined effect of penalties and taxes on early 401(k) withdrawals. It’s not just about the immediate need for cash but understanding the long-term impact on your retirement savings.
Tax Planning Strategies for Early 401(k) Withdrawals
Making an early withdrawal from your 401(k) can have significant tax implications. However, with careful planning, you can manage these impacts more effectively. Here are strategies to consider:
Spread Out Withdrawals
If possible, spreading out your withdrawals over several years can help manage your tax bracket. Large withdrawals can push you into a higher tax bracket, increasing your overall tax liability. By taking smaller amounts over time, you may stay within a lower tax bracket, reducing the amount of taxes owed.
State Tax Considerations
Remember that state taxes can also apply to 401(k) withdrawals. Tax rates and regulations vary by state, so it’s essential to understand the rules in your state and plan accordingly. Some states offer tax breaks or exemptions for retirement income, which could influence your withdrawal strategy.
Reinvesting Withdrawn Funds
If you must make an early withdrawal but don’t need the funds immediately for expenses, consider reinvesting them in a tax-advantaged account. This could be a Roth IRA, where withdrawals in retirement are tax-free, or a health savings account (HSA), if eligible. These moves can help mitigate the tax impact and potentially grow your investment tax-free.
Implementing these tax planning strategies can help you navigate the complexities of early 401(k) withdrawals, minimizing the tax bite and keeping your retirement goals on track. Consulting with a tax professional or financial advisor can provide personalized advice based on your individual situation and financial goals.
Hardship Withdrawal Eligibility and Requirements
When life throws you a financial curveball, tapping into your 401(k) through a hardship withdrawal might seem like a viable option. This choice allows you to access your retirement funds early without the standard 10% penalty, under specific conditions. Let’s explore what qualifies as a hardship withdrawal, the documentation you’ll need, and how to prove your need effectively.
Qualifying Conditions for Hardship Withdrawals
Hardship withdrawals are not given out for just any reason. The IRS defines specific scenarios where these withdrawals are permitted. These include:
Unreimbursed medical expenses: Significant out-of-pocket medical costs for you, your spouse, or dependents.
Home purchase: Down payment and closing costs for buying your primary residence.
Tuition and education fees: Tuition, related educational fees, and room and board expenses for the next 12 months of postsecondary education for you, your spouse, children, or dependents.
Prevention of eviction or foreclosure: Amounts necessary to prevent eviction from or foreclosure on your primary residence.
Funeral expenses: Costs related to the death of a family member.
Repair of damage to primary residence: Costs for repairs to your home that would qualify for the casualty deduction under IRS rules.
Documentation Requirements
To successfully apply for a hardship withdrawal, you’ll need to provide substantial proof that your situation matches one of the qualifying conditions. This might include:
Unreimbursed medical expenses: Bills and statements from healthcare providers, showing the costs not covered by insurance.
Home purchase: Mortgage documents or contracts that highlight the purchase of a primary residence.
Tuition and education fees: Invoices from the educational institution for tuition, along with documentation for related expenses.
Prevention of eviction or foreclosure: Notice of eviction or foreclosure proceedings against your primary residence.
Funeral expenses: Funeral home invoices or other documentation of related expenses.
Repair of damage to primary residence: Estimates or receipts for repairs necessary due to damage that qualifies for a casualty deduction.
The Process of Proving Hardship
Proving hardship is more than just submitting documents. You’ll need to:
Contact your plan administrator: Start by reaching out to your plan’s administrator. They can guide you through the specific requirements and process for your plan.
Gather your documentation: Collect all relevant documents that substantiate your claim. This may require obtaining records from various sources, so it’s wise to start this step as soon as possible.
Complete the application: Fill out the necessary application forms provided by your plan. Ensure all information is accurate and attach your supporting documentation.
Await approval: After submitting your application, there will be a review process. During this time, your plan administrator may request additional information or clarification.
While a hardship withdrawal can offer a lifeline during financial distress, it’s crucial to approach this option with a full understanding of the qualifications and process. Remember, these withdrawals can impact your retirement savings, so consider all alternatives before proceeding.
Should you consider a 401(k) loan instead?
Considering a 401(k) loan instead of an early withdrawal might be a strategic move under certain circumstances. Below, we will clarify the nuances of 401(k) loans, including repayment conditions, interest rates, and when it’s advantageous to choose this option over withdrawing funds directly.
The Basics of 401(k) Loans
A 401(k) loan allows you to borrow against the savings in your retirement accounts without incurring the penalties and taxes associated with an early withdrawal. It’s a feature many plans offer, providing a way to access your funds for immediate needs while still keeping your retirement goals on track.
Repayment Terms
Repayment terms for 401(k) loans vary by plan, but typically, you’re expected to repay the loan within five years. Payments are usually set up on a monthly basis and are deducted directly from your paycheck, making the repayment process straightforward and manageable.
Interest Rates
The interest rate on a 401(k) loan is often comparable to or slightly higher than current market rates, but significantly lower than the rates associated with credit card debt or personal loans. The interest you pay goes back into your 401(k) account, essentially paying yourself back with interest, which can make this option particularly appealing.
When to Consider a 401(k) Loan
Choosing a 401(k) loan over a direct withdrawal or other financial avenues can be wise in several scenarios:
Avoiding penalties and taxes: If you need access to funds but want to avoid the penalties and taxes associated with an early 401(k) withdrawal.
Debt consolidation: When looking to consolidate high-interest debt under a lower interest rate, thus saving money in the long term.
Major expenses: For significant expenses, such as home repairs or medical bills, where using a 401(k) loan can provide a financially responsible solution.
Before opting for a 401(k) loan, consider the impact on your retirement savings. While you’re repaying the loan, the borrowed amount is not invested, potentially missing out on market gains. Additionally, if you leave your job, the loan may become due in full much sooner than the original five-year term.
Substantially Equal Periodic Payments (SEPP): A Closer Look
When considering accessing your 401(k) or IRA funds before the typical retirement age without facing penalties, the Substantially Equal Periodic Payments (SEPP) program can be a lifeline. This strategy requires a commitment to taking consistent withdrawals for a significant period. Let’s dive deeper into how SEPP works, how to calculate your payments, and when this approach might be particularly beneficial or risky.
How to Calculate SEPP Payments
Calculating your SEPP involves choosing from one of three IRS-approved methods: the Required Minimum Distribution (RMD) method, the Fixed Amortization method, and the Fixed Annuitization method. Each method uses your current account balance and life expectancy factors to determine annual withdrawal amounts, but they vary in flexibility and payment amounts.
RMD method: This method recalculates your payment each year based on the current account balance and your life expectancy.
Fixed amortization method: This calculates a fixed annual payment based on your life expectancy and account balance at the start of the SEPP plan.
Fixed annuitization method: This uses an annuity factor to determine annual payments, resulting in fixed payments for the duration of the SEPP period.
Scenarios Where SEPP Might Be Advantageous
SEPP plans can be particularly useful in several situations:
Early retirement: If you plan to retire early and need a steady income stream, SEPP allows you to access your retirement funds without the 10% early withdrawal penalty.
Bridge income gap: For those who need to bridge an income gap until other retirement benefits kick in, such as Social Security or pensions.
Financial emergencies: In cases where there are substantial financial needs before reaching 59 ½, SEPP provides a structured way to access funds.
Potential Pitfalls and Considerations
While SEPP offers a way to access retirement funds early, there are important considerations to keep in mind:
Commitment: Once you start SEPP, you must continue the withdrawals for at least five years or until you reach age 59 ½, whichever is longer. Deviating from the schedule can result in retroactive penalties.
Market risk: Your account is still subject to market fluctuations, which can impact your balance and, potentially, your withdrawal amounts if you’re using the RMD method.
Locking in losses: If you withdraw money during market downturns, it can lock in losses, potentially jeopardizing the longevity of your retirement funds.
SEPP can be a strategic tool for managing retirement funds before reaching the traditional retirement age. However, it’s crucial to carefully assess your financial situation, consider the long-term implications of starting SEPP, and consult with a financial advisor to ensure this strategy aligns with your overall retirement planning goals.
Alternatives to Early 401(k) Withdrawals
Accessing your 401(k) early can come with significant financial repercussions, including penalties and taxes that diminish your retirement savings. Fortunately, there are several other strategies you can consider to meet your financial needs without tapping into your retirement funds prematurely. Let’s delve into some of these alternatives and how they might serve as viable solutions.
Borrow from Family or Friends
One of the most straightforward alternatives is to seek a loan from family or friends. This option can offer more flexible repayment terms and potentially lower (or no) interest rates. However, it’s essential to approach this solution with clear communication and, ideally, a formal agreement to avoid any misunderstandings or strain on your relationships.
Sell Personal Assets
Another strategy is to evaluate your personal assets for items that you can sell. This could range from high-value items like a second car or recreational vehicles to smaller, valuable assets such as electronics or collectibles. Selling assets can provide a quick influx of cash without the need to worry about interest rates or penalties.
Explore Government and Non-Profit Assistance
For those facing financial hardship, various government and non-profit programs offer financial assistance. These programs can provide support for a range of needs, including housing, utilities, food, and medical expenses. Researching and applying to these programs can offer a way to bridge your financial gap without compromising your retirement savings.
Consider Home Equity Loans and HELOCs
If you have equity in your home, tapping into it through a home equity loan or a home equity line of credit (HELOC) might be a strategic alternative to early 401(k) withdrawals. Both options can offer more favorable interest rates than a personal loan or credit cards, but with distinct differences in how you access and repay the funds.
Home Equity Loans
Home equity loans provide a lump sum at a fixed interest rate, making it an excellent choice for one-time, significant expenses. The predictable repayment schedule helps with budgeting but requires you to take out a precise amount from the start.
HELOCs
HELOCs, in contrast, offer a flexible credit line, similar to a credit card, but with lower interest rates. This option allows you to borrow as needed over a draw period, usually with variable interest rates. The flexibility is ideal for ongoing expenses, but it’s vital to manage this responsibly due to the fluctuating payments.
Personal Loans and Credit Options
Personal loans from banks or credit unions, as well as low-interest or 0% APR credit card offers, can also provide temporary relief. These options may come with higher interest rates than a HELOC but don’t require collateral. When choosing this route, it’s vital to compare offers and understand the terms to ensure they align with your financial recovery plan.
Conclusion
When faced with financial needs, deciding whether to access your 401(k) early is a significant choice. It’s crucial to weigh the immediate benefits against the long-term impact on your retirement savings. As we’ve explored, alternatives like borrowing from family or friends, selling personal assets, or tapping into home equity through loans or HELOCs can provide the necessary funds without the drawbacks of early withdrawal penalties and taxes.
For those considering a 401(k) loan or Substantially Equal Periodic Payments (SEPP), these options offer ways to access your funds while minimizing the negative effects on your retirement account. However, each choice comes with its own set of considerations and potential impacts on your financial future.
Ultimately, the decision should align with your overall financial strategy and long-term goals. Consulting with a financial advisor can provide personalized advice, helping you to make an informed choice that balances your immediate needs with your retirement aspirations. Remember, the goal is to ensure financial stability now without compromising your future well-being.
The Rooms to Go Credit Card is meant for financing purchases at Rooms to Go, a furniture store with locations in 10 states in the South. With the card, you can pay down purchases interest-free for a set period of time, and Rooms to Go offers several repayment time frames.
As with other store cards designed for financing, the Rooms to Go Credit Card, issued by Synchrony Bank, can be used in-store only and isn’t meant for other purchases.
Here are five things to know about the Rooms to Go Credit Card.
1. The card’s sole purpose is financing
The Rooms to Go Credit Card does not earn rewards, but it does allow you to pay off your purchase in monthly installments over a predetermined number of months without interest charges. Outside of any no-interest promotions, the Rooms to Go Credit Card charges an APR of nearly 30% as of this writing.
Currently, you have three options for interest-free financing with this card:
55 months for purchases of $975 or more.
36 months.
24 months.
2. Prequalify without affecting your credit scores
Applying for a new credit card can temporarily lower your credit scores, but some cards, including the Rooms to Go Credit Card, will prequalify you without this consequence. If after that point the card issuer determines that you’re indeed eligible for the card and you proceed with the application, then you’ll be subject to a hard credit pull and your credit scores may be affected.
3. It can’t be used for a down payment
For the 55- and 36-month financing options, you must make a down payment equal to sales tax and delivery fees. However, you may not use the Rooms to Go Credit Card to cover the down payment.
(The 24-month financing option doesn’t require a down payment.)
4. You’re required to make equal monthly payments
The no-interest promotions on the Rooms to Go Credit Card are different from the usual deferred-interest plans other store cards offer. With those, you’re charged 0% APR for a set time frame, and if you don’t pay off your total balance by the end, you’ll owe interest on the total amount you originally borrowed.
Rooms to Go’s financing plans split your payments into equal monthly payments by dividing the total cost by the number of months in the promotional period. Payments are rounded up to the nearest whole dollar, so as you get closer to paying your balance down entirely, what you owe each month may actually get lower since the rounding essentially made you “overpay” earlier on.
5. Other pay-over-time options are available
In addition to financing a purchase with the Rooms to Go Credit Card, you can pay over time with Klarna and Affirm, two “buy now, pay later” services that allow you to split your purchase into four interest-free payments.
If you scan through mortgage programs and lender rate sheets you may have come across mortgage lingo such as “pay rate” or “teaser rate”.
Though the two terms are sometimes used interchangeably by loan officers, mortgage lenders, and mortgage brokers, they are actually very different. Allow me explain why.
What Is a Pay Rate?
A payment option offered on certain home loans
That allows you to pay less than the note rate
But this typically means the interest isn’t paid in full
Which results in negative amortization
A “pay rate” is essentially an option to make a mortgage payment that is lower than the actual note rate (mortgage rate) associated with the home loan.
In other words, if you only make the pay rate payment, which is usually referred to as the minimum payment, negative amortization will likely occur.
This means you aren’t paying enough each month to cover the total amount of interest due, and the unpaid portion will be tacked onto the existing loan balance.
For example, if you owe $1,000 in interest in a given month, but the lender gives you the option to only pay $800, that $200 shortfall would be added to the outstanding balance going forward.
So you don’t actually get a discount, you get a payment deferment, which will actually cost you because the loan balance will grow, resulting in more interest on subsequent payments.
Of course, it can serve a meaningful purpose if you have cash flow issues, or if you simply want to allocate your liquidity elsewhere.
But don’t be fooled into thinking the pay rate is a low introductory rate like those you see with 0% APR credit cards.
If you find yourself with a pay rate loan, make sure you know how payments are applied and what happens with the shortfall.
Tip: Pay rates are usually associated with those 1% option-arm loans everyone is angry about.
How Is a Pay Rate Different Than a Teaser Rate?
A teaser rate actually provides a discount for a set amount of time
Typically during the beginning of the loan term
The discounted interest rate means less interest is due
But that payments are still made in full each month during the promotional period
On the other hand, a teaser rate actually allows homeowners to pay less interest for a set period of time without accruing additional interest.
Teaser rates are typically seen on home equity loans, mostly as an incentive to open one. You may see an ad for a home equity line offering “prime minus 2% for the first six months!” Or something similar.
What this means is that you’re actual mortgage rate will be reduced for the first six months of the loan term, and will then adjust to the standard interest rate agreed upon.
You could also argue that the starting rate on products like the 5/1 ARM have a teaser rate attached because it’s offered for an initial period before the loan can adjust higher.
But technically, an ARM loan can also adjust down or simply remain flat, so it’s not necessarily a true teaser rate, it’s more like a fixed start rate.
Regardless, teaser rates can save you money, but don’t choose a loan program just because it offers a special low start rate.
Make sure you factor in other important aspects, such as how long you intend to keep the loan, how you plan to pay it back, and what the alternatives are.
It might be in your best interest to go with a fixed mortgage instead, even if the rate is higher at the outset. You won’t have to worry about rate adjustments in a rising interest rate environment.
And watch out for loan officers and brokers who use these two terms loosely. Over the last few years, many unscrupulous and/or uneducated loan officers were selling the pay rate as if it was a teaser rate, causing a lot of headaches, missed mortgage payments, and even foreclosures.
Inside: Are you looking to maximize your rewards and credit card hacks? This guide will teach you the most effective methods for using your hacking, signing up for bonus rewards, and making efficient card purchases.
Credit card use extends beyond just making purchases. Savvy credit card users understand that with the right set of hacks and optimal usage, there’s a world of rewards that are ripe for the picking.
Money saved can be money earned, and this simple philosophy forms the cornerstone of these 25 credit card hacks you’ll be learning about today.
Why do credit card hacks matter? Well, I just received a $700 check for credit card rewards. That is enough to pay for a weekend trip away.
What are Credit Card Hacks?
Credit card hacks are creative strategies employed by credit card users to maximize the benefits and rewards offered by their credit cards while also potentially saving more money.
This trend has become more popular in recent years due to the rise in premium travel and cashback cards that offer lucrative ongoing rewards programs. Users who learn about these hacks can save you money on travel or just put cold hard cash back in your wallet.
With strategic approaches, these hacks provide an avenue to optimize rewards and navigate the financial landscape more effectively.
Proven Credit Card Hacks to Maximize Rewards
Tip #1 – Utilize sign-up bonuses
One of the most attractive features of credit cards is the sign-up bonuses they offer, which are essentially rewards that cardholders can earn after meeting a certain spending threshold within a specified timeframe. The bonuses can range from hundreds to even thousands of points, miles, or cash – favorably impacting your rewards balance.
To illustrate, if you take the Chase Sapphire Preferred® credit card, both partners in a household can get up to 50,000 extra points each as part of the sign-up bonus.
Bonus tip: Stagger your applications, so once one person gets the bonus after meeting the spending requirement, the other person can then apply and achieve the next round of bonuses.
Tip #2 – Increase credit limit
The principle behind this is simply buffering your “credit utilization ratio”, which is how much of your total available credit you are utilizing.
To illustrate how a credit limit increase will work, let’s consider an example: with a credit limit of $10,000 and a credit usage of $3,000, your utilization ratio stands at 30%. But once your credit limit increases to $15,000 with the same credit usage, your utilization ratio drops to 20% – which is a noticeable improvement.
Remember, when requesting a credit limit increase, some card issuers might execute a hard inquiry on your credit report, which could temporarily decrease your score. Hence, you should try to find out beforehand whether your issuer is likely to perform a hard or soft credit pull. Soft inquiries won’t affect your credit score, making them the preferable approach.
Tip #3 – Master balance transfers
A balance transfer, executed proficiently, can be an effective way to handle significant credit card debt. By focusing on reducing the cost of debt through lower interest rates, balance transfer can accelerate your debt repayment process while saving you considerable money over time.
This is what one of my clients did and the date when the 0% interest ended was very motivating to pay off their debt.
This process entails the shuffling of debt from one card (usually one with a high interest rate) to another card—preferably with a 0% promotional APR offer. With this interest-free period, you can focus on repaying the principal balance, hence clearing your debt faster.
As a finance expert, make sure balance transfers are only beneficial if you’re mindful of the terms, like how long your 0% rate will last and what fees are involved in the transfer to the new card.
Tip #4 – Purchase prepaid cards with credit
Need a way to spend a certain dollar amount by a certain deadline? Then, look at purchasing prepaid cards with a credit card as a strategy to earn extra rewards points. This method entails buying prepaid cards or gift cards using your credit card, and later using these prepaid cards to cover those expenses you typically will use.
In other cases, customers have reported that their credit card companies have clawed back rewards points that were initially given for gift card purchases. Double check their terms and conditions, many issuers, including American Express, explicitly exclude such transactions from earning rewards. 1
Tip #5 – Harnessing the 15/3 Methodology
The 15/3 Methodology is a credit card hack that intends to optimize your credit utilization ratio—one of the significant factors that impact your credit score.
Here’s how it works: You pay off a majority of your card’s balance 15 days before your statement date, and then pay off the remaining balance three days before the statement date. By doing this, you create the illusion of a lower balance, which can positively impact your credit score.
There is still a debate about whether or not this strategy improves your credit card score. Paying your bill on time will definitely improve your score.
Tip #6 – Strategies to earn additional rewards through third-party programs
An often overlooked but highly effective credit card hack is utilizing third-party apps and websites that offer additional rewards when you shop at participating retailers and restaurants. These rewards are additional to the cash back, miles, or points awarded by your credit card.
One such app is Dosh, a cashback app. By linking your credit card to your Dosh account, you can earn up to 10% cash back from participating retailers on top of the rewards earned from your credit card. Similarly, apps like Drop and Bumped give users points for every dollar spent, and these points can be redeemed for gift cards.
Furthermore, many airlines and hotels participate in dining rewards programs where you’ll earn extra rewards at select restaurants. Airlines like United, Southwest, Delta, and hospitality giant companies like Marriott and Hilton actively participate in such programs.
Tip #7 – Earn a credit card sign-up bonus then canceling the card right away
Also known as credit card flipping or churning, the tactic of earning a credit card sign-up bonus and then canceling the card right away has been employed by some savvy credit card users to maximize rewards.
However, this practice isn’t as easy or beneficial as it appears. While it sounds like an accessible system to generate easy money, it comes with several potential pitfalls that could make it a risky move.
Firstly, numerous card issuers have, over the years, implemented stricter rules to deter this practice. Chase, for instance, has the 5/24 rule indicating you can have only five new credit cards within the last 24 months. 2
Repeatedly opening and closing the same card can result in a declined application or rescinded bonus and hurt your credit score-perceived as credit misbehavior by the issuer.
It can also be viewed as unethical and potentially lead to you being barred from opening accounts with that issuer in the future.
Churning can negatively affect your ability to get approved for future credit cards and loans because lenders may think you’re a risky borrower.”
Tip #8 – Develop a multi-card system
This method aims to cover all your spending by using different cards that offer elevated rewards for certain purchase categories.
For instance, we have one card that pays an unlimited flat rate of 2% on all purchases. Then, another rewards card offering increased category rewards, with travel and gas. Then a there card that rotates through various categories each quarter.
Diversifying your spending amongst several credit cards can help you to earn the maximum possible rewards. However, endowing yourself with several credit cards is not for everyone as it requires careful financial management. In some cases, the potential of overspending can outweigh the benefits.
Tip #9 – Transfer points between multiple cards
Transferring points between cards (provided they are from the same issuer) is another useful strategy whereby you can redeem them at their maximum possible value.
The goal is to make your spending work for you and maximize the rewards you can earn from daily expenses. However, people should employ this strategy responsibly and ensure they’re not overspending just to earn rewards.
In such a strategy, points on traditional cashback cards can be transferred to airline and hotel partners when you also have a transferable points card like the Sapphire Reserve or Sapphire Preferred. So, not only are you earning cashback on your purchases, but you’re also accumulating lucrative points that can be redeemed for travel.
Tip #10 – Don’t use cash
In the world of credit card rewards, cash is no longer king. Whenever feasible, you should consider using your credit cards instead of cash or debit to pay for everyday purchases. This allows you to earn rewards on purchases you’re making anyway.
The best way to implement this is for you to bills with their credit cards instead of cash or debit and set this up on autopay. This serves a dual purpose of potentially earning rewards on these payments whilst also conveying a positive message to the banks about your money management skills, leading to possible credit score improvements.
However, this method works best when your spending doesn’t increase as a result. Only use your credit card for expenses that you’d normally pay in cash and for which you already have the money set aside to pay.
Tip #11: Time your purchasing
Being strategic about when you make your credit card purchases can help you wring out some extra benefits.
One way to optimize your earning potential and maintain a healthy credit score is to plan your large purchases around your credit card’s billing cycle. Making your most significant purchases immediately after your statement date ensures that you have the longest possible repayment period, effectively offering you a short-term, interest-free loan.
Furthermore, if your issuer has a rewards cut-off at the end of a calendar year, you can make larger purchases ahead of time to push yourself into a higher rewards bracket.
Tip #12 – Make Micropayments
Rather than making one full payment, consider making multiple payments over the billing cycle, commonly referred to as ‘micropayments.’ This helps keep your running balance low and, in turn, your credit utilization ratio – the percentage of your available credit limit you’re using – also low, positively impacting your credit score.
Plus it helps to keep your checking account at a more accurate level.
Tip #13: Have your spouse apply for the same credit card
Known informally as the “two-player mode” amongst credit card hacking enthusiasts, having your spouse or partner apply for the same credit card can be an effective strategy to earn double the sign-up bonus. This approach is based on the idea that instead of just adding your spouse or partner as an authorized user to your card, they should apply separately.
For instance, if a card like the Chase Sapphire Preferred® offers a 50,000 points bonus on sign-up, both partners can potentially earn up to 100,000 points collectively, essentially doubling the bonus.
But remember, this hack should be used strategically – you should stagger your card applications and ensure each of you fulfills the spending criteria to qualify for the bonus.
Tip #14 – Importance of prompt payment
Quite possibly the hack with the most significant impact on both your credit score and your pocket, prompt payment of your credit card bill cannot be overstated.
Making on-time payments can drastically improve your credit score since your payment history is the most heavily-weighted factor that credit scoring models consider.
Plus paying your balance in full each month can help you avoid interest charges and penalties, effectively saving you money in the long run.
Tip #15 – Know What Rewards you Want
Rewards such as travel miles, discounts at partnered retailers, cashback, or access to premium experiences like airport lounges or concert tickets are available, depending on your card.
By understanding and leveraging these varied rewards, you can get the most excellent value out of your credit card expenses.
Cautionary Advice on Credit Card Hacks
While credit card hacks can undoubtedly offer substantial benefits when done right, pitfalls can ensue if one isn’t careful.
Pitfall #1 – Overspending
For starters, these hacks can inadvertently lead to overspending or unnecessary purchases. Be wary of making purchases you don’t need or can’t afford in an attempt to earn more rewards or meet the spend necessary for a sign-up bonus.
Consequently, the pursuit of credit card rewards could also lead to accumulated debt if you’re not diligent about paying off your balance in full each month. The interest that you need to pay on balances carried over can easily eat up the value of any rewards earned.
Pitfall #2 – Impact on your Credit Score
Applying for multiple cards can lead to hard inquiries on your credit report, which can temporarily lower your credit score. Similarly, canceling cards after acquiring the sign-up bonus could harm your credit utilization ratio and your length of credit history, both key factors in your credit score calculation.
Additionally, irresponsible habits like ‘credit card churning’ and ‘paying for everything with credit’ may risk your relationship with card issuers. Some companies might close accounts or even ban individuals from opening new ones if they’re perceived as abusing the system.
While some of the top-tier reward and travel credit cards often come with hefty annual fees, not all of them are worth paying. This is especially true when a card’s annual fees outstrip the value of the rewards earned.
Before you sign up for a credit card with an annual fee, it’s advised to read the fine print and estimate what you can earn from it. You should evaluate whether the perks, bonuses, rewards, and credits offered offset the annual fee cost.
Personally, I don’t use any cards that have an annual fee.
Pitfall #4 – Paying interest
Credit card interest can significantly impact your overall financial health if you’re not careful. The money invested toward paying it off could be better used elsewhere – for saving, investing, or spending on your needs and desires. Hence, one of the best “credit card hacks” out there is to simply stop paying interest.
You want to focus on debt free living.
Pitfall #5 – Avoiding counterproductive habits like “balance surfing”
Balance surfing is a strategy where you continually move credit card debt from one card with an ending 0% APR promotion to another card with a new 0% APR offer. While this approach can potentially delay interest payments, it can become a dangerous cycle if you find yourself simply transferring debt instead of reducing it.
Meanwhile, the total debt remains the same. Without a consistent debt repayment strategy, this method can lead to an endless cycle of balance surfing.
What are some of the best credit card rewards and hacks for 2024?
As we venture into the new year, some credit card reward strategies remain timeless while others evolve in response to new credit card offers and updated reward programs. In 2024, here are some of the best credit card hacks worth considering:
Take Advantage of Updated Card Offers: Credit card issuers frequently update their card offers and rewards programs. Ensure you stay updated on these changes to maximize your card benefits.
Focus on Cards with Flexible Reward Categories: Some cards, like the Bank of America® Customized Cash Rewards credit card, allow you to choose your highest cash-back category (like online shopping, dining, or grocery stores). These flexible category cards can be more advantageous as you can adapt them to your spending habits.
Leverage Rotating Categories: Cards like the Chase Freedom Flex℠ and Discover it® Cash Back offer 5% cash back on up to $1,500 in purchases in various categories that rotate each quarter, once you activate. Plan your spending in advance to leverage these rotating categories optimally.
Remain Alert on Loyalty Program Partnerships: Many credit cards and airlines have partnerships with other brands. This can mean increased rewards when shopping with those brands, so always watch for new partnerships or promotions.
Revisiting Annual Fees: If your credit card perks no longer justify its annual fee due to changes in lifestyle or spending habits, consider downgrading to a no-fee card from the same issuer. This way, you can save on annual fees without closing your account which could potentially harm your credit score.
Diversify Your Rewards: While it may be tempting to concentrate all your spending on a single card, diversifying your rewards can make you earn more. Consider employing a multi-card system to maximize rewards across different spending categories.
Your credit card should be a tool to enhance your financial flexibility, not a burden that leads to financial stress.
Frequently Asked Questions (FAQs)
Deciding whether to focus on paying off a single card or distributing payments over several cards can seem complicated, but there are a couple of methodologies to strategize your payoff.
The Debt Avalanche method suggests focusing on the card with the highest interest rate first. Once you’ve paid this card off in its entirety, you then move on to the card with the next highest interest rate. This can potentially save you more money in the long term as it targets high-interest debt first.
Alternatively, the Debt Snowball method, proposed by financial guru Dave Ramsey, recommends paying off the card with the smallest balance first, then moving on to the card with the second-smallest balance. While you may not save as much money in interest compared to the debt avalanche method, the psychological motivation of paying off a credit card balance entirely may be more important for maintaining consistent repayment.
Either method requires you to make minimum payments promptly on all cards to avoid late fees and possible credit score damage.
Getting credit card points without spending any additional money may seem like wishful thinking, but there are certain strategies that you can employ to achieve this. Strategically managing your credit cards can turn your everyday spending into reward points, miles, or cash back.
Referral Bonuses: Many credit card companies offer referral bonuses to their existing cardholders who refer friends or family members. If the person you referred gets approved for the card, you can earn bonus points.
Cardholder Perks: Credit card companies often run promotions offering bonus points for certain activities. These can range from enrolling in paperless billing, adding authorized users to your account, or completing an online financial education course. Check with your card issuer to view any current promotions.
Shopping Portals: Many credit card issuers, and even airline and hotel rewards programs, have their own online shopping portals where you can earn additional bonus points for every dollar spent. If you were already planning on making an online purchase, consider making it through these portals to earn extra rewards.
Sign-up Bonuses: Some cards offer sizeable sign-up bonuses for new cardholders who meet a required minimum spend within the first few months. Although this technically requires spending money, it doesn’t require spending more money if you use your card for purchases you were already planning to make.
While implementing certain credit card strategies can potentially earn you higher rewards or save money, they can also unintentionally harm your credit score if not executed responsibly.
Several factors can contribute to this potential downfall:
Opening and Closing Accounts: A high frequency of card applications can lead to multiple hard inquiries on your credit report, which might lower your score in the short term. Closing credit cards, especially older ones, can affect both your credit utilization ratio and the age of your credit history, two significant factors in your credit score calculation.
Carrying a Balance: Maintaining a high credit utilization ratio—i.e., carrying a large balance relative to your credit limit—can negatively impact your credit score.
Late Payments: If these deadlines are not strictly adhered to, they could result in late payments, which can seriously harm your credit score.
Excessive Spending: Some tactics lead to unnecessary spending to earn more reward points or meet an initial spend required for a sign-up bonus. Not only can this increase your credit utilization ratio and potentially lower your credit score, it can lead to debt if these balances are not paid off in time.
While both rewards cards and travel rewards cards offer perks to their users in return for spending, the primary difference lies in the kind of rewards they offer and their target user base.
A Rewards Card generally offers cash back, points, or miles for every dollar spent, redeemable in a variety of ways. This is the type of card I prefer. For example, you may redeem your accumulated rewards as cash back into your account, use them to purchase products or services, or exchange them for gift cards. The flexibility of rewards makes these cards are suitable for people with varied spending habits and prefer a variety of redemption options.
A Travel Rewards Card, on the other hand, is designed specifically for frequent travelers. These cards earn you points or miles on specific travel-related expenses, like booking flights or hotel stays. The redeemed rewards are typically used towards further travel-related expenses like airfare, hotel stays, or car rentals. Travel Rewards Cards often offer additional travel-centric perks like free checked bags, priority boarding, airport lounge access, and more.
Consider your spending habits, lifestyle, travel frequency, and preference in terms of reward redemption.
Protecting yourself from credit card fraud is an important aspect of managing your credit card usage effectively.
Monitor Your Accounts Regularly: Keep a thorough watch on your credit card statements for any unauthorized or suspicious charges. Report them to your credit card issuer as soon as possible.
Use Secure Networks: When making online purchases, only shop on secure websites (look for “https” in the web address), and avoid using public Wi-Fi networks for transactions.
Keep Your Personal Information Safe: It’s important to dispose of old credit card statements properly, and avoid giving out credit card information over the phone unless you initiated the call and you trust the recipient.
Protect Your PIN and Password: Don’t share these with anyone, and avoid using easily guessable combinations like birth dates or the last four digits of your social security number.
Enable Account Alerts: Most banks now offer optional security alerts that can be sent via text message or email whenever a charge above a certain amount gets made to your account.
Protect Your Computer and Phone: Make sure your devices are equipped with up-to-date antivirus software and that your phone is locked with a secure password or fingerprint identification.
In case you become a victim of credit card fraud, know the steps to protect yourself – report it to your bank or credit card company immediately, file a report with the Federal Trade Commission, and report it to the three major credit bureaus, requesting them to put a fraud alert or a credit freeze on your account.
Also remember, credit cards don’t have routing numbers.
Making the Most of Credit Card Hacking
When used wisely, credit card hacks and reward strategies can play a significant role in stretching your budget and rewarding your spending. These secrets of savvy credit card use — from aligning your card to your spending habits, making the most of sign-up bonuses and reward categories, to understanding the ins and outs of your credit card’s rewards structure — can help maximize your potential rewards and save money.
Personally, we use all of our credit card rewards to pay for our travel expenses.
However, it’s paramount to remember that these tips and tactics should not encourage unnecessary spending or carrying a balance. Only spend within your means, ensure you pay off your balances each month to avoid interest charges and remember to safeguard your credit score by handling credit card applications and closures cautiously.
Ultimately, credit card hacks and rewards should fit within your overall financial plan and goals, adding value to your everyday spending habits and rewarding you for well-managed financial practices.
Remember your goal is to reach your FI number.
Source
Reddit. “American Express Clawing Back Points Earned From Gift Card Purchases.” https://www.reddit.com/r/AmexPlatinum/comments/14hywaq/american_express_clawing_back_points_earned_from/. Accessed January 19, 2024.
CNN. “What is the Chase 5/24 rule?” https://www.cnn.com/cnn-underscored/money/chase-5-24-rule#:~:text=The%205%2F24%20rule%20is,your%20approval%20odds%20with%20Chase. Accessed January 19, 2024.
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Credit card debt is an unfortunate reality for many today. Americans owe over $1 trillion in credit card debt, according to recent data from the Federal Reserve Bank of New York. And with steep interest rates and a high cost of living, the end of the road with debt can seem far away.
If you’ve been attacking debt with little progress, some small strategic steps can potentially shorten the journey.
Here’s what you can do to start digging your way out.
Understand your goals — and get motivated
Get clear on why you want to tackle debt and the opportunities that open up without it, says Gabbi Cerezo, a certified financial planner and accredited financial counselor.
Write down the reason and post it somewhere visible as a daily reminder, she says. It can also help to tape a note to your credit card, too.
Before diving right into the numbers — what you owe, and to whom — Cerezo also recommends looking to social media for inspiration.
“By getting familiar with how other people have overcome the burden of credit card debt and seeing all the methods that there are out there, it starts to become more of a possibility in your mind,” she says.
Be sure to watch out for misinformation online, even from those who have successfully paid off debt. If a strategy catches your eye, research it across reputable personal finance websites to get the experts’ take on it.
Once you’ve got a healthy dose of inspiration, refer to your credit card statements to tally up debt, interest rates and the monthly costs.
Explore options to lower interest rates
Now that you have a goal and some numbers on paper, you can start to comparison shop for low-interest options. Depending on your credit, some of those options may include:
Negotiating a lower interest rate. With a good payment history and promotional mail offers as leverage, call credit card issuers to see whether you might qualify for a reduction.
Using a balance transfer credit card. You can accelerate progress by transferring high-interest debt onto a new credit card with no annual fee and a 0% introductory APR. Look for one with a balance transfer fee of 3% or lower.
Getting a personal loan. A balance transfer credit card comes with its own credit limit, which may not be enough to handle all of your debt. In that case, a personal loan can make sense. It allows you to consolidate debts into one lower-interest fixed payment.
Creating a debt management plan. Regardless of your credit, if payments or everyday costs are becoming difficult to manage, consider consulting an expert at a nonprofit credit counseling agency. That expert can determine whether you qualify for a debt management plan that consolidates credit card debt into one single payment with a lower interest rate.
Many of these options have costs or fees attached, so calculate whether they’re cheaper than the interest you’ll otherwise pay over time on your debt. To make more of an impact, stop using credit cards and, if possible, pay more than the minimum amount due each month.
Nicole Reed, a senior budget analyst and content creator based in Virginia, used two 0% APR balance transfer credit cards to pay off around $31,000 in credit card debt in 2023.
“I sat down with those minimum balances that those cards had established and I knew I wanted to pay more,” she says.
By also applying windfalls like tax refunds, bonuses and additional income, she reached her debt-payoff goal in nine months.
Make smart money moves
Look through debit and credit card statements and eliminate unnecessary expenses, and switch to cheaper alternatives. Reed, for instance, cut back on coffee, dining out and traveling.
“You have to prioritize what’s more important to you,” she says. “Would you rather get out of the debt or would you rather have that thing?”
If you’ve exhausted these options and there still isn’t enough money to go around, consider a larger change that can supplement your income or help it go further: adding a roommate, searching for a new job, taking on a side hustle or seeking a raise.
Resolve to put any savings from your revamped budget toward the debt, an emergency fund or both. A small emergency fund can keep you from falling further into debt when an unexpected expense arises.
Work your way up to saving your first $1,000, Cerezo says. It’s hard to do, but it can prevent reliance on credit cards if money runs out, she says.
Choose your target
With multiple credit cards, all payments must be met — but you can determine which debt to prioritize. The avalanche method is the most cost-effective, as you’ll tackle the debt with the highest interest rates first. But the snowball method — in which you attack smaller debt amounts first — may work better for those seeking immediate motivation.
Set a deadline
Unless you’ve been assigned a deadline through newly negotiated terms (see above), do the math to determine how much you’ll need to pay each month to eliminate your debt.
Plan to celebrate milestones along the way with an experience or prize that won’t break the bank, Cerezo says.
Tracking progress visually can also help you stay connected to goals, and scheduling regular check-ins with your budget can offer a realistic view of any advancement or setbacks.
A credit card balance transfer is the practice of moving debt from one credit card account to another. Typically, this is done to obtain better interest rates.
Reports show that the average credit card debt is nearly $8,000. This amount may seem impossible to pay off, especially if you have high interest rates or your debt is spread across several cards. One way consumers pay down this debt is through a credit card balance transfer. But what is a credit card balance transfer?
A credit card balance transfer is the practice of moving debt from one credit card account to another. Typically, this is done to obtain better interest rates.
For example, many balance transfer credit cards offer an introductory period with APR rates as low as 0% for a set period. This introductory period typically lasts anywhere from six to 18 months. However, you may incur a balance transfer fee of 3% to 5% based on the specific card details. Despite this fact, you still may be able to save money by transferring your balance to one of these specialized cards.
Before you consider transferring your balance, it’s important to understand how balance transfer credit cards work, as well as the advantages and disadvantages of this option.
Advantages and Disadvantages of a Credit Card Balance Transfer
Before deciding if a credit card balance transfer is right for your specific situation, it’s important to explore the advantages and disadvantages of this type of transaction.
Pros
There are a number of great advantages to transferring your debt to a balance transfer credit card.
Transferring your current credit card balances to one with interest rates as low as 0% APR during the introductory period can help you save money over time.
Obtaining a balance transfer credit card can help you consolidate several smaller credit card balances into one convenient card.
If you make on-time monthly payments, you can take advantage of the 0% APR to pay your debt down faster.
Cons
There are also a few disadvantages you should consider before opening a new balance transfer credit card.
Many balance transfer credit cards charge a balance transfer fee that typically ranges from 3% to 5%. While this may seem like a small amount, it could equate to $30 to $50 per $1,000 you transfer. However, the benefits of lower interest rates could easily outweigh this extra fee.
Once the introductory period is over, your APR will revert to the higher standard rate. It’s important to compare this rate to your current interest rates before transferring your balance. If you’re not careful, you could end up with higher rates for future purchases or any unpaid balance at the end of the introductory period.
Due to the benefits of balance transfer credit cards, many credit card companies require applicants to have good to excellent credit.
How Do Credit Card Balance Transfers Work?
Before you can transfer your credit card balance, you must apply and be approved for a new balance transfer credit card. Many credit card companies require applicants to have very good or excellent credit scores to qualify. You can use Credit.com’s Free Credit Score tool to check your credit score to ensure you meet the company’s credit requirements.
Be sure to compare your options to determine which balance transfer credit card option is right for you. When making this comparison, there are a few factors you should consider:
Length of introductory period
Balance transfer fees
Standard APR rates
Annual fees
Other costs and fees
Credit limit
Once you choose the right card, you must take steps to transfer one or more of your current credit card balances. Some credit cards provide convenience checks to make it easier to transfer your balances to your new account. If this is the case, you can simply use these checks to pay off your current balances and the amount will automatically transfer to your new account.
Before using these checks, make sure they are specifically for balance transfers. Otherwise, these funds may not transfer correctly.
You can also handle the balance transfer process online using your credit card app or by contacting your new credit card company by phone. When making this transfer, you must have all the relevant information about your current account, such as issuer name, account number and amount to transfer. It could take a few weeks to finalize this transfer.
Things to Consider About Balance Transfer Credit Cards
While balance transfer credit cards certainly have their advantages, there are several factors you should consider when making this decision.
First, once you transfer your balance to your new credit card, it’s crucial to make on-time payments and meet all other conditions. Failure to do so could jeopardize your low introductory APR. Additionally, late credit card payments could negatively impact your overall credit health.
Secondly, keep in mind that your credit card company won’t alert you when your introductory period is coming to an end. If you’re not careful, the standard interest rates could take effect before you have time to pay down your balance.
Finally, you may want to compare credit card balance transfers with other viable options. For instance, if you can’t pay off your current credit card balance within the introductory period, it may make more sense to obtain a personal loan.
Now that you know what a credit card balance transfer is, you can more easily decide if this is the right option for you. Before you make any decision, you may want to get a better understanding of your current financial status. Use Credit.com’s Free Credit Report Card to get a full view of the factors most affecting your credit score.
Home renovations can be expensive. But the good news is that you don’t have to pay out of pocket.
Home improvement loans let you finance the cost of upgrades and repairs to your home.
Some — like the FHA 203(k) mortgage — are specialized for home renovation projects, while second mortgage options — like home equity loans and HELOCs — can provide cash for a remodel or any other purpose. Your best financing option for home improvements depends on your needs. Here’s what you should know.
Check home improvement loan options and rates. Start here
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What is a home improvement loan?
A home improvement loan is a financial tool that allows you to borrow money for various home projects, such as repairs, renovations, or upgrades.
Unlike a secured loan like a second mortgage, home improvement loans are often unsecured personal loans, meaning you don’t have to put up your home as collateral. You get the money in a lump sum and pay it back over a predetermined period, which can range from one to seven years.
Now, you might be wondering how this is different from a home renovation loan. While the terms are often used interchangeably, there can be subtle differences.
Home improvement loans are generally more flexible and can be used for any type of home project, from installing a new roof to landscaping. Home renovation loans, on the other hand, are often more specific and may require you to use the funds for particular types of renovations, like kitchen or bathroom remodels.
How does a home improvement loan work?
So, you’ve decided to spruce up your home, and you’re considering a home improvement loan. But how does it work? Once you’re approved, the lender will give you the money in a lump sum. You start repaying the loan almost immediately, usually in fixed monthly installments. The interest rate you’ll pay depends on various factors, including your credit score and the lender’s terms.
Be mindful of additional costs like origination fees, which can range from 1% to 8% of the loan amount. Unlike a credit card, where you can keep using the available credit as you pay it off, the loan amount is fixed. If you find that you need more money for your project, you’ll have to apply for another loan, which could affect your credit score.
Home improvement loan rates
Interest rates for home improvement loans can vary widely, generally ranging from 5% to 36%. Your credit score plays a significant role in determining your rate—the better your credit, the more favorable your rate. Some lenders even offer an autopay discount if you link a bank account for automatic payments.
You can also prequalify to check your likely interest rate without affecting your credit score, making it easier to plan for the loan purpose, whether it’s a new kitchen or fixing a leaky roof.
So, whether you’re dreaming of solar panels or finally fixing up your master bedroom, a home improvement loan can be a practical way to finance your projects. Just make sure to read the fine print and understand all the terms, including any potential autopay discounts and bank account requirements, before you apply.
Types of home improvement loans
1. Home equity loan
A home equity loan (HEL) is a financial instrument that lets you borrow money using the equity you’ve built up in your home as collateral. The equity is determined by subtracting your existing mortgage loan balance from your current home value. Unlike a cash-out refinance, a home equity loan “issues loan funding as a single payment upfront. It’s similar to a second mortgage,” says Bruce Ailion, Realtor and real estate attorney. “You would continue making payments on your original mortgage while repaying the home equity loan.”
Check home equity loan options and rates. Start here
This kind of loan is particularly useful for big, one-time expenditures like home remodeling. It offers a fixed interest rate, and the loan terms can range from five to 30 years. You could potentially borrow up to 100% of your home’s equity.
However, there are some cons to consider. Since you’re essentially taking on a second loan, you’ll have an additional monthly payment if you still have a balance on your original mortgage. Also, the lender will usually charge closing costs ranging from 2% to 5% of the loan balance, as well as potential origination fees. Because the loan provides a lump-sum payment, careful budgeting is necessary to ensure the funds are used effectively.
As a bonus, “a home equity loan, or HELOC, may also be tax-deductible,” says Doug Leever with Tropical Financial Credit Union, member FDIC. “Check with your CPA or tax advisor to be sure.”
2. HELOC (home equity line of credit)
A Home Equity Line of Credit (HELOC) is another option for tapping into your home’s equity without going through the process of a full refinance. Unlike a standard home equity loan that provides a lump sum upfront, a HELOC functions more like a credit card. You’re given a pre-approved limit and can borrow against that limit as you need, paying interest only on the amount you’ve actually borrowed.
Check your HELOC options. Start here
While there’s more flexibility because you don’t have to borrow the entire amount at once, be aware that by the end of the term, “the loan must be paid in full. Or the HELOC can convert to an amortizing loan,” says Ailion. “Note that the lender can be permitted to change the terms over the loan’s life. This can reduce the amount you can borrow if, for instance, your credit goes down.”
The pros of a HELOC include minimal or potentially no closing costs, and loan payments that vary according to how much you’ve borrowed. It offers a revolving balance, which means you can re-use the funds after repayment. This kind of financial instrument may be ideal for ongoing or long-term projects that don’t require a large sum upfront.
“HELOCs offer flexibility, and you only pull money out when needed, within the maximum loan amount. And the credit line is available for up to 10 years, which is your repayment period.” Leever says.
3. Cash-out refinance
A cash-out refinance is a viable option if you’re considering home improvements or other significant financial needs. When opting for a cash-out refinance, you essentially take on a new, larger mortgage than your existing one and then pocket the difference in cash.
This cash comes from your home’s value and can be used for various purposes, including home improvement projects like finishing a basement or remodeling a kitchen. However, the money can also be used for other things, like paying off high-interest debt, covering education expenses, or even buying a second home. Importantly, a cash-out refinance is most beneficial when current market rates are lower than your existing mortgage rate.
Check your eligibility for a cash-out refinance. Start here
The advantages of going for a cash-out refinance include the opportunity to reduce your mortgage rate or loan term, which could potentially result in paying off your home earlier. For instance, if you initially had a 30-year mortgage with 20 years remaining, you could refinance to a 15-year loan, effectively paying off your home five years ahead of schedule. Plus, you only have to worry about one mortgage payment.
However, there are downsides. Cash-out refinances tend to have higher closing costs that apply to the entire loan amount, not just the cash you’re taking out. The new loan will also have a larger balance than your current mortgage, and refinancing effectively restarts your loan term length.
4. FHA 203(k) rehab loan
The FHA 203(k) rehab loan is backed by the Federal Housing Administration that consolidates the cost of a home mortgage and home improvements into a single loan, which makes it particularly useful for those buying fixer-uppers.
Check your eligibility for an FHA 203(k) loan. Start here
With this program, you don’t need to apply for two different loans or pay closing costs twice; you finance both the house purchase and the necessary renovations at the same time. The loan comes with several benefits like a low down payment requirement of just 3.5% and a minimum credit score requirement of 620, making it accessible even if you don’t have perfect credit. Additionally, first-time home buyer status is not a requirement for this loan.
However, there are some limitations and downsides to be aware of. The FHA 203(k) loan is specifically designed for older homes in need of repairs, rather than new properties. The loan also includes both upfront and ongoing monthly mortgage insurance premiums. Renovation costs have to be at least $5,000, and the loan restricts the use of funds to certain approved home improvement projects.
According to Jon Meyer, a loan expert at The Mortgage Reports, “FHA 203(k) loans can be drawn out and difficult to get approved. If you go this route, it’s important to choose a lender and loan officer familiar with the 203(k) process.”
5. Unsecured personal loan
If you’re looking to finance home improvements but don’t have sufficient home equity, a personal loan could be a viable option. Unlike home equity lines of credit (HELOCs), personal loans are unsecured, meaning your home is not used as collateral. This feature often allows for a speedy approval process, sometimes getting you funds on the next business day or even the same day.
Check home improvement loan options and rates. Start here
The repayment terms for personal loans are less flexible, usually ranging between two and five years. Although you’ll most likely face closing costs, personal loans can be easier to access for those who don’t have much home equity to borrow against. They can also be a good choice for emergency repairs, such as a broken water heater or HVAC system that needs immediate replacement.
However, there are notable downsides to consider. Unsecured personal loans generally have higher interest rates compared to HELOCs and lower borrowing limits. The short repayment terms could put financial strain on your budget. Additionally, you may encounter prepayment penalties and expensive late fees. Financial expert Meyer describes personal loans as the “least advisable” option for homeowners, suggesting that they should be considered carefully and perhaps as a last resort.
6. Credit cards
Using a credit card can be the fastest and most straightforward way to finance your home improvement projects, eliminating the need for a lengthy loan application. However, you’ll need to be cautious about credit limits, especially if your renovation costs are high.
You might need a card with a higher limit or even multiple cards to cover the costs. The interest rates are generally higher compared to home improvement loans, but some cards offer an introductory 0% annual percentage rate (APR) for up to 18 months, which can be a good deal if you’re sure you can repay the balance within that time frame.
Check home improvement loan options and rates. Start here
Credit cards might make sense in emergency situations where you need immediate funding. For longer-term financing, though, they’re not recommended. If you do opt for credit card financing initially, you can still get a secured loan later on to clear the credit card debt, thus potentially saving on high-interest payments.
How do you choose the best home improvement loan for you?
The best home improvement loan will match your specific lifestyle needs and unique financial situation. So let’s narrow down your options with a few questions.
Check your home improvement loan options. Start here
Do you have home equity available?
If so, you can access the lowest rates by borrowing against the equity in your home with a cash-out refinance, a home equity loan, or a home equity line of credit.
Here are a few tips for choosing between a HELOC, home equity loan, or cash-out refi:
Can you get a lower interest rate? If so, a cash-out refinance could save money on your current mortgage and your home improvement loan simultaneously
Are you doing a big, single project like a home remodel? Consider a simple home equity loan to tap into your equity at a fixed rate
Do you have a series of remodeling projects coming up? When you plan to remodel your home room by room or project by project, a home equity line of credit (HELOC) is convenient and worth the higher loan rate compared to a simple home equity loan
Are you buying a fixer-upper?
If so, check out the FHA 203(k) program. This is the only loan on our list that bundles home improvement costs with your home purchase loan. Just review the guidelines with your loan officer to ensure you understand the disbursement of funds rules.
Taking out just one mortgage to cover both needs will save you money on closing costs and is ultimately a more straightforward process.
“The only time I’d recommend the FHA203(k) program is when buying a fixer-upper,” says Meyer. “But I would still advise homeowners to explore other loan options as well.”
Do you need funds immediately?
When you need an emergency home repair and don’t have time for a loan application, you may have to consider a personal loan or even a credit card.
Which is better?
Can you get a credit card with an introductory 0% APR? If your credit history is strong enough to qualify you for this type of card, you can use it to finance emergency repairs. But keep in mind that if you’re applying for a new credit card, it can take up to 10 business days to arrive in the mail. Later, before the 0% APR promotion expires, you can get a home equity loan or a personal loan to avoid paying the card’s variable-rate APR
Would you prefer an installment loan with a fixed rate? If so, apply for a personal loan, especially if you have excellent credit
Just remember that these options have significantly higher rates than secured loans. So you’ll want to reign in the amount you’re borrowing as much as possible and stay on top of your payments.
How to get a home improvement loan
Getting a home improvement loan is similar to getting a mortgage. You’ll want to compare rates and monthly payments, prepare your financial documentation, and then apply for the loan.
Check home improvement loan options and rates. Start here
1. Check your financial situation
Check your credit score and debt-to-income ratio. Lenders use your credit report to establish your creditworthiness. Generally speaking, lower rates go to those with higher credit scores. You’ll also want to understand your debt-to-income ratio (DTI). It tells lenders how much money you can comfortably borrow.
2. Compare lenders and loan types
Gather loan offers from multiple lenders and compare costs and terms with other types of financing. Look for any benefits, such as rate discounts, a lender might provide for enrolling in autopay. Also, keep an eye out for disadvantages, including minimum loan amounts or expensive late payment fees.
3. Gather your loan documents
Be prepared to verify your income and financial information with documentation. This includes pay stubs, W-2s (or 1099s if you’re self-employed), and bank statements, to name a few.
4. Complete the loan application process
Depending on the lender you choose, you may have a fully online loan application, one that is conducted via phone and email, or even one that is conducted in person at a local branch. In some cases, your mortgage application could be a mix of these options. Your lender will review your application and likely order a home appraisal, depending on the type of loan. You’ll get approved and receive funding if your finances are in good shape.
Get started on your home improvement loan. Start here
Home improvement loan lenders
When considering a home improvement loan, it’s necessary to explore various lending options to find the one that best suits your needs. The lending landscape for home improvement is diverse, featuring traditional banks, credit unions, and online lenders. Each type of lender offers different interest rates, loan terms, and eligibility criteria.
It’s advisable to prequalify with multiple lenders to get an estimate of your loan rates, which generally doesn’t affect your credit score. This way, you can compare offers and choose the most favorable terms for your renovation project.
Among the popular choices in the market, Sofi and LightStream stand out for their competitive rates, easy online application, and customer-friendly terms. Both are equal housing lenders, ensuring they adhere to federal anti-discrimination laws. In addition to these, other lenders like Wells Fargo and LendingClub also offer home improvement loans with varying terms and conditions.
How can I use the money from a home improvement loan?
When you do a cash-out refinance, a home equity line of credit, or a home equity loan, you can use the proceeds on anything — even putting the cash into your checking account. You could pay off credit card debt, buy a new car, pay off student loans, or even fund a two-week vacation. But should you?
It’s your money, and you get to decide. But spending home equity on improving your home is often the best idea because you can increase the value of your home. Spending $40,000 on a new kitchen remodel or $20,000 on finishing your basement could add significant value to your home. And that investment would be appreciated along with your home.
That said, if you’re paying tons of interest on credit card debt, using your home equity to pay that off would make sense, too.
Average costs of home renovations
Home renovations can vary widely in cost depending on the scope of the project, the quality of the materials used, and the region where you live. However, here’s a general idea of what you might expect to pay for various types of home renovations.
Renovation Type
Average Cost Range
Kitchen Remodel
$10,000 – $50,000
Bathroom Remodel
$5,000 – $25,000
Master Bedroom Remodel
$1,500 – $10,000
New Roof
$5,000 – $11,000
Exterior Paint
$6,000 – $20,000
Interior Paint
$1,500 – $10,000
New Deck
$15,000 – $40,000
Solar Panel Installation
$15,000 – $25,000
Window Replacement
$5,000 – $15,000
The information is based on data from HomeGuide.com and is current as of August 2023.
Please note that these are just average figures, and the actual costs can vary. For instance, a high-end kitchen remodel could cost significantly more, especially if you’re planning to use custom cabinetry and high-end appliances. Similarly, the cost of a new deck can vary depending on the size and type of materials used.
Home improvement loans FAQ
Check home improvement loan options and rates. Start here
What type of loan is best for home improvements?
The best loan for home improvements depends on your finances. If you have accumulated a lot of equity in your home, a HELOC, or home equity loan, might be suitable. Or, you might use a cash-out refinance for home improvements if you can also lower your interest rate or shorten the current loan term. Those without equity or refinance options might use a personal loan or credit cards to fund home improvements instead.
Should I get a personal loan for home improvements?
That depends. We’d recommend looking at your options for a refinance or home equity-based loan before using a personal loan for home improvements. That’s because interest rates on personal loans are often much higher. But if you don’t have a lot of equity to borrow from, using a personal loan for home improvements might be the right move.
What credit score is needed for a home improvement loan?
The credit score requirements for a home improvement loan depend on the loan type. With an FHA 203(k) rehab loan, you likely need a good credit score of 620 or higher. Cash-out refinancing typically requires at least 620. If you use a HELOC, or home equity loan, for home improvements, you’ll need a FICO score of 680–700 or higher. For a personal loan or credit card, aim for a score in the low-to-mid 700s. These have higher interest rates than home improvement loans, but a stronger credit profile will help lower your rate.
What is the best renovation loan
If you’re buying a fixer-upper or renovating an older home, the best renovation loan might be the FHA 203(k) mortgage. The 203(k) rehab loan lets you finance (or refinance) the home and renovation costs into a single loan, so you avoid paying double closing costs and interest rates. If your home is newer or of higher value, the best renovation loan is often a cash-out refinance. This lets you tap the equity in your current home and refinance into a lower mortgage rate at the same time.
Is a home improvement loan tax deductible?
Home improvement loans are generally not tax-deductible. However, if you finance your home improvement using a refinance or home equity loan, some of the costs might be tax-deductible.
Disclaimer: The Mortgage Reports do not provide tax advice. Be sure to consult a tax professional if you have any questions about your taxes.
Shop around for your best home improvement loan
As with anything in life, it pays to compare all your options. So don’t just settle on the first loan offer you find.
Compare lenders, mortgage types, rates, and terms carefully to find the best loan for home improvements.
Time to make a move? Let us find the right mortgage for you
Most people in the US have at least one credit card. These cards are a popular, convenient way to pay for items as you go about your day, tapping and swiping. They can also allow you to buy items that you can’t afford to pay for in one fell swoop, such as airfare to Hawaii or a new laptop.
But they have downsides, too; perhaps most notably, their high interest rates. At the end of 2023, one analysis found that the average interest rate was nudging close to 25%; two years earlier, the rate was hovering around 15%. That’s a considerable increase.
Here, you’ll learn more about how and why credit card payments can balloon as interest rates rise. You’ll also read advice on keeping your credit card in check, which can benefit your financial wellness.
How Interest Is Calculated
If you’re confused by all of the fine print that accompanies a credit card offer or the thought of an annual percentage rate (APR) calculation makes you wince, you probably aren’t the only one. To understand how rising rates can affect your credit card payment, it helps to understand a bit about how credit card interest is calculated.
• First, there are two types of consumer loans: installment loans and revolving credit. A mortgage, student loan, or car loan are all examples of installment loans. With an installment loan, the borrower is loaned an amount of money (called the principal), plus interest to be paid back over a designated amount of time.
• Revolving credit, on the other hand, is not a loan disbursed in one lump sum, but is a certain amount of credit to be used by the borrower continuously, up to a designated limit. A credit card is revolving credit. A borrower’s monthly payment is determined by how much of the available credit they are using at any given time; therefore, minimum payments may change from month to month.
Installment credit is sometimes easier than revolving credit to understand and calculate. First, installment loans often come with fixed rates, which means that the interest rate doesn’t change (unless you miss payments). For example, the rate on a federal student loan or a 30-year fixed mortgage won’t change, even if government-set interest rates shoot to the sun.
Revolving credit almost often has a variable rate, which means that the interest rate applied to the credit balance fluctuates.
The average rate on credit cards is quoted as an annual percentage rate, or an APR. The APR is the approximate interest rate that a borrower will pay in one year. Why approximate? The prime rate could fluctuate based on when the Fed changes the federal fund target rate. 💡 Quick Tip: Need help covering the cost of a wedding, honeymoon, or new baby? A SoFi personal loan can help you fund major life events — without the high interest rates of credit cards.
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How Credit Card Interest Rates Change
Generally, when the Fed raises the federal funds rate, it can slow economic growth because it dissuades banks from lending money — and discourages consumers from borrowing at a subsequently higher interest rate. Raising rates is also used as a technique to combat rising inflation.
While this may be a normal and natural part of an economic cycle, rising rates can be frustrating for anyone who is currently carrying a credit card balance.
Credit card interest rates have risen as a result of 11 rate hikes enacted by the Federal Reserve (the Fed) since March 2022. Although the Fed does not control interest rates on credit cards directly, credit card interest rates are often pegged against the prime rate, which changes with the federal funds rate.
What Does a Rising Prime Rate Mean for Credit Card Holders?
A change in interest rates is likely to impact anyone with a variable rate on their credit card balance. When the Fed raises federal funds interest rates, it can be expected that credit card interest rates may follow.
How much would your credit card interest rate increase? It depends on your credit card. Generally, credit cards move in sync with rate hikes, which usually happen in quarter-percent increments.
However, the Fed has said, as of the end of 2023, that they don’t plan to raise rates further in the immediate future.
How to Combat a High Credit Card Bill
Here are some ideas for battling a high credit card bill and potentially paying less in interest over time:
1. Pay More Than the Minimum Payment
If at all possible, pay off as much of your credit card balance as you can each month. Making payments greater than the minimum amount due can help reduce your balance. The faster you can work on reducing the actual principal balance on your credit card, the less interest you’ll likely pay. If you only pay your credit card’s minimum payment, you may wind up in debt longer and paying more interest in the long run.
2. Switch to a Balance Transfer Card
Balance transfer credit cards typically have 0% APR introductory offers lasting for several months to a couple of years. If you’re serious about getting rid of your debt, you could transfer your debt over to one of these cards and then actively work on paying off the debt while you’re not paying interest.
If you do this, make sure to look for a card that has no transfer fee. Beware: If the root of the problem is actually overspending, this will not be a good long-term solution. Sometimes, 0% APR cards have interest rates that jump up dramatically after the trial period is over. And the 0% APR may no longer apply if you make a new purchase on the card.
3. Negotiate a Lower Rate
You might be surprised to find out that a credit card rate can be negotiable. It may be worth giving your credit card company a call and seeing whether they can reduce your rate.
When talking to the person on the other end of the line, explain your situation, be kind to them, and see what happens. Again, this isn’t a permanent solution or a guaranteed outcome, but it could help give you a leg-up on the payback journey.
4. Sign up for Credit Counseling
You might benefit from professional credit counseling to help with your credit card debt. The National Foundation for Credit Counseling (NFCC) is a nonprofit organization that offers free and affordable advice for people who are struggling to manage debt on their own. If you’re unable to envision a path to paying down debt, it could be a good idea to ask for assistance.
5. Consider a Personal Loan
One tactic to consider in an environment where prime interest rates are rising is paying off credit card balances with a fixed-rate unsecured personal loan.
These are sometimes referred to as “debt consolidation loans” and allow a qualified borrower to pay off high-interest debt, such as credit cards, with this lower-rate personal loan. With a fixed-rate personal loan, the rate never changes (as long as payments are made on time), and it helps provide the borrower with a defined plan to pay off the debt.
If you decide to go this route, it’s a good idea to shop around to ensure that you’re getting a fair rate. You can get a personal or debt consolidation loan from banks, credit unions, and online lenders.
To compare estimated personal loan interest charges to credit card interest charges, you can use a tool like a personal loan calculator.
Shopping for a Personal Loan
Each lender sets its own terms for making these types of loans, so be sure to ask lots of questions about rates, terms, and fees.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Advertiser Disclosure: Credit.com has partnered with CardRatings for our coverage of credit card products. Credit.com and CardRatings may receive a commission from card issuers.
Editorial Disclosure:Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.
Snapshot: Provided that you’re a student, you can gain access to fantastic cash back rates (anywhere from 1% – 10%, depending on the category), even if you have no prior credit. Did we also mention the annual_fees annual fee?
Pros
Cons
annual_fees annual fee
This card allows balance transfers but there’s no introductory APR for them
3% cash back on dining, select streaming services, entertainment and grocery store purchases
Potentially higher APR
A potential for relatively low APR for a student credit card
bonus_miles_full
Like what you see? Learn how to apply for the Capital One SavorOne Student Cash Rewards Card
Capital One SavorOne Cash Rewards Card – which you generally have to have at least a good credit score to qualify for (and it has a higher regular APR)*.
You get access to amazing cash back rates on dining and grocery shopping – which are common expenses – in addition to a flat 1% cash back on everything else. This card does have a relatively high APR (see how it compares to other cards) but no annual fee, so as long as you pay your statement on time, you won’t have to worry about interest. (Paying your credit card bill on time will also help you build good credit in preparation for your next card, auto loan, or apartment application, after you graduate).
When you’re just starting out on your own having no credit or bad credit can be a barrier to many things you need in adulthood, like an apartment lease, a car loan or a halfway decent credit card. You need credit to get credit, and most of the time the options aren’t great.
This card is great (actually). Like we said before, many of this card’s benefits are very similar to the card_name. But where you need great credit to qualify for that card, you can qualify for the same benefits by being in school.
So if you’re worried about a low credit score, or maybe you’ve just turned 18 and are starting out on your own and have no credit, provided that you’re a student (among other qualifying factors) this is a great credit card to apply for.
Great Rewards for Dining
If you’re cramming for a test and just don’t have the time to plan out meals and need to Uber Eats some food to keep the study session going uninterrupted, at least you’ll be making a whopping 10% (10%!) cash back on your splurge (through 11/14/2024). 3% cash back on grocery store purchases (excluding superstores like Walmart® and Target®) is also great – not only are groceries a regular expense, but 3% is a decently high rate for a cash back category.
Whether you’re the kind of shopper who loves spending time researching a great deal, or you don’t have the mental energy to pay attention to such things, this card has you covered. Not only does it have great cash back rates, but it also has a varied enough mix of rewards categories that you can earn cash back without having to go out of your way to make unusual purchases.
Like what you see? Learn how to apply for the Capital One SavorOne Student Cash Rewards Card
The Drawbacks
No Introductory APR
If you’re looking for a 0% APR offer, you won’t find it with this card. That means you can’t use this card to make a major purchase you can pay off over a year or two without accruing interest. That’s certainly not a deal breaker for most students, but it’s something to consider.
Potentially High APR
It’s hard to say what ongoing APR you will get when you apply for this card, the quoted range is quite wide at reg_apr,reg_apr_type. If you qualify for a lower APR, great! But if you end up paying a higher APR, that could be a drawback. Especially if you want to rely on this card to help you cover larger purchases.
Is It Worth It?
For students who eat out or grab coffee on the go a lot, this card may be a good option. It lets you earn decent cash back perks, and as long as you pay off your statement every month, that’s cash in your pocket.
What Are The Credit Limits For Capital One SavorOne Student Cash Rewards Card (Minimum and Maximum)?
Your credit limit is determined by your credit history and factors such as income. From what we’ve seen other users report, credit limits may range from $300 to $700 (at least initially), though approvals could certainly fall outside those ranges.
How Soon Can I Increase My Credit Limit After Being Approved For A Capital One SavorOne Student Cash Rewards Card?
Capital One may let you request a credit limit increase after 6 months, though approval of the increase is not guaranteed. During that time you will need to demonstrate that you can handle your credit responsibly, which means both using and paying off your bill on-time.
How Good Is A Capital One SavorOne Student Cash Rewards Card For Building Credit?
This is an excellent card for building credit because you don’t necessarily need great credit to get it. Capital One is a well-recognized credit card provider that typically reports payment history to the credit bureaus. That helps you build a stronger credit profile.
Learn more about how to apply for the Capital One SavorOne Student Cash Rewards Card here:
Advertiser Disclosure: Credit.com has partnered with CardRatings for our coverage of credit card products. Credit.com and CardRatings may receive a commission from card issuers.