finances Archives - Hanover Mortgages

May 8, 2021

Cash Management Account – What It Is, Pros & Cons of Saving This Way

A cash management account is a type of financial account that combines many of the features of checking, savings, and investment accounts into one product.

You get the safety and interest-earning capability of a savings account, the flexibility of a checking account, and the ability to buy and sell securities with an investment account.

Cash management accounts are typically offered by nonbank financial companies, such as brokerage companies. Although each cash management account will differ in its specific terms and features, they share a number of characteristics.

How Do Cash Management Accounts Work?

Cash management accounts combine many of the features of different financial accounts, so it can be hard to understand exactly how they operate.

Store & Protect Large Amounts of Cash

Cash management accounts are designed for people who have a lot of cash to deposit. Like a savings account, they help you keep your money in one place and keep it safe.

The way that cash management accounts do this is through Federal Deposit Insurance Corporation (FDIC) insurance. The FDIC offers up to $250,000 per depositor, per account type, at covered banks. That means if your bank fails and is unable to return your money, the FDIC will reimburse you for up to $250,000 in lost money.

Cash management accounts often have much higher insurance limits. For example, SoFi Money cash management account offers coverage for up to $1.50 million. That’s because SoFi automatically splits your deposits between six different banks, handling all of the management of these accounts on your behalf. You only ever have to work with SoFi when you want to access your money or make a deposit.

Use Your Money When You Need It

Cash management accounts also give you the flexibility of a checking account. Most offer checkbooks or debit cards you can use to make payments or withdrawals from your cash management account.

Depending on the account provider you choose, you may be able to completely replace a checking account with a cash management account. If you get a debit card, checkbook, and the option to make bill payments using your account funds, you’re covered for all of your checking account needs.

Earn Interest

Cash management accounts are able to pay interest like savings accounts do. Most offer interest rates on par with the best savings accounts in the market.

Cash management accounts pay these high rates because they are mostly offered by online financial companies. By avoiding the need to operate physical locations, online companies save a lot of money on overhead costs. That lets them pass more interest on to their customers.

Low Fees

Another benefit of cash management accounts being offered by online financial companies is they have lower fees than traditional bank accounts do. Many have no monthly maintenance fees at all, leaving you free to worry about using your money instead of fees.

Invest Your Funds

Many cash management accounts are offered by investment companies or brokerages. Although they’re usually separate from your brokerage account, it’s easy to link the two accounts. In some cases, there is no separation.

You can submit purchase orders for investments and have the funds deducted from your cash management account. Similarly, proceeds from any sales you make get deposited directly to the account.

This makes your cash management account the hub of your financial life and keeps managing your money easy. You’ll have just one account to monitor with all of your income and expenses flowing through it.

How Does a Cash Management Account Differ From a Checking or Savings Account?

Cash management accounts are neither checking nor savings accounts. They work like a mix of the two, offering the interest of a savings account with the flexibility of a checking account. For day-to-day use, you won’t notice much difference between a cash management account and a traditional bank account.

The big difference is behind the scenes. The company that offers your cash management account opens checking or savings accounts on your behalf at its partner banks. It then handles the management of these accounts for you, moving money in and out of those accounts as needed.

Essential Features of a Cash Management Account

If you’re thinking about opening a cash management account, these are the factors you should compare when looking at your options.

Ease of Access

Cash management accounts are meant to give you the flexibility of a checking account. That means it should be easy to access your money when you need it.

Look for accounts that make it easy to use your money. That includes providing a checkbook, debit card, and online bill payment.

For accounts that offer a debit card, don’t forget to look at the restrictions. Some cash management accounts limit the amount you can withdraw in a day.

You’ll also want to make sure the debit card works on the ATM network you prefer. Some cash management accounts reimburse ATM fees, leaving you free to use any ATM you come across.

Fees

With any financial account, you should keep an eye on the fees you’ll have to pay. There’s no reason to pay a fee when you don’t have to.

Before opening a cash management account, check to see if it has any monthly maintenance fees or minimum balances. Also take a moment to look for other fees might wind up paying, such out-of-network ATM fees.

Interest Rates

Cash management accounts are able to pay interest rates on par with the best savings accounts on the market, but that doesn’t mean they all pay the same rate. Compare the interest rates each account offers. Some will vary with your account balance, while others will be the same regardless of how much you deposit.

If it doesn’t cost you anything and you won’t lose any features that you need, opt for the account with the higher interest rate.

FDIC Insurance Limits

Cash management accounts let you protect your money by splitting your balance among multiple banks. This gives you more than the standard $250,000 insurance offered by the FDIC.

If you have a large balance to deposit to your cash management account, check to see how much of it will be insured by the accounts you’re considering. Some cash management accounts offer more protection than others.

If you’re worried about keeping large sums of cash, look for an account that offers enough insurance to protect your full balance.

Pros of Cash Management Accounts

There are a few reasons you should consider opening a cash management account.

They Make Money Management Simple. With a cash management account, you don’t need a checking or savings account. Many cash management accounts also link to your brokerage account. That makes it easy to keep all of your money in one place for easy management.
They Provide Protection. Cash management accounts keep your money safe with FDIC insurance, which is something investment accounts and money market funds cannot do.
They Have Higher Interest Rates Than Checking Accounts. You’ll earn more interest than you would from a checking account while maintaining the same level of flexibility with your funds.

Cons of Cash Management Accounts

Cash management accounts aren’t without their flaws, and you should be aware of them before opening one.

They Don’t Offer the Best Returns. Many investments, such as stocks, bonds, and mutual funds. offer great returns. There are also certificates of deposit (CDs) and some savings accounts that offer better rates than cash management accounts.
Face-to-Face Customer Service Might Not Be Available. Most cash management accounts are offered by online financial companies. If you need help, you have to call customer support or participate in an online chat. This can be difficult for people who prefer getting help in person or for complicated situations.
You Might Not Get All of the Features You Need. Cash management accounts are meant to combine the features of checking and savings accounts, but some cannot fully replace those dedicated accounts. For example, you might not have the option to make online bill payments from a cash management account, even though that’s a standard feature of checking accounts.

Who Needs a Cash Management Account?

Cash management accounts are a good choice for a few different groups of people.

The first group is people who have a large amount of cash they want to keep liquid but protected. If you have a few hundred thousand dollars you need to have easy access to, you don’t want to tie it up in investments. You also don’t want it sitting in a checking account, slowly losing value to inflation.

And if you exceed the $250,000 FDIC insurance limit, you’ll have to split it between multiple banks if you want all of your money to be insured.

Cash management accounts let you earn a reasonable rate of interest on your cash while maintaining its FDIC protection. You also don’t have to worry about splitting your money between multiple banks.

Cash management accounts are also great for people who want simplicity. All your money is in one place. You don’t have to maintain a separate checking and savings account. If you get your cash management account from the same company you use for your brokerage account, you can keep all of your finances in one place.

Anyone who likes online banking can make good use of a cash management account. If you’re already accustomed to doing your banking through a computer or phone rather than in-person, you’re ready to start using a cash management account.

Where Can I Get a Cash Management Account?

You can get a cash management account from a number of companies.

The first place you should look is your brokerage company. Why not keep all of your money in one place? Many financial firms offer cash management accounts, and your brokerage may even offer perks for customers who maintain a large balance, so using your brokerage for your cash management needs can help you reach balance thresholds.

If your brokerage doesn’t offer a cash management account, you have plenty of alternatives. Many robo-advisors and online investing platforms offer cash management accounts.

For example, Robinhood offers a cash management account you can link to your brokerage account. SoFi Money and Betterment offer both cash management and checking account options.

Alternatives to a Cash Management Account

If you don’t think a cash management account is right for you, you have other options.

If you’re considering a cash management account because you want to combine the features of a checking and savings account, a money market account can help you do that.

Most banks offer money market accounts, which provide the interest rates of a savings account with the check-writing capabilities of a checking account.

The downside is your ability to make withdrawals from the account is limited to six transactions per month. Money market accounts also have higher fees and minimums than cash management accounts.

If you want a cash management account for the safety and returns they offer, you can open a CD. CDs pay more interest than savings accounts and are fully insured by the FDIC up to the $250,000 limit.

The only drawback is you have to commit your deposit to the account for a set period of time. If you make an early withdrawal, you have to pay a fee.

If returns are your primary concern, you should open an investment account instead. You won’t have the safety of FDIC insurance, but you can earn far more money by investing your cash in stocks, bonds, or mutual funds.

Final Word

Cash management accounts offer safety, simplicity, and a solid return on your cash. They’re a great choice for anyone who wants to make managing their money easier, but they don’t have all of the features of dedicated checking and savings accounts.

If you’re looking to store and protect a large sum of cash, whether in anticipation of putting a down payment on a home or keeping it as an emergency fund, a cash management account could be a great option that provides you with the best features of checking, savings, and investment accounts all in one place.

Source: moneycrashers.com

May 7, 2021

Investing during a recession – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

When things get lean, it’s natural to want to tighten your belt and save money wherever possible. But should you stop investing completely? It’s an entirely personal decision. Get some facts and insights about investing during a recession below to help you determine what will work for you.

Is It a Good Idea to Invest During a Recession?

It depends on a few factors, including what you’re referring to when you say “investing.” If you’re talking about funding a 401(k), you probably want to continue doing so unless you would be unable to pay your necessary bills and living expenses.

But if investing means the stock market or other similar options, you should seriously consider your financial situation. If you already have emergency savings and have disposable income to risk, investing can be an option. This is especially true if you won’t be touching your portfolio for a while, so you have time to weather the ups and downs associated with a recession economy.

But you do want to be aware of the bear market trap so you don’t fall into it. Bear traps occur when a lot of investors have bought into certain stock. This increases the selling pressure, which just means that there are buyers for the stock but not a lot of stock to be had.

Institutions that want the stock to move higher may push prices lower via short sales or other strategies, making it appear as if the prices are falling. That can scare people into selling the stock. In the long run, however, the stock maintains its price or increases in value, so selling early can mean losing out on future gains. This is just one reason you might want to work with a professional advisor when investing.

7 Tips for Investing During a Recession

1. Be Patient and Think Long-Term

Buying and selling stocks rapidly to turn huge profits is mostly an event seen in movies and television. And while it’s not impossible for pros to luck into a big win, this is not typically how individuals should look at investing. It may take time for your investments to pay off, especially if the economy as a whole is struggling, so it’s important to avoid being guided by emotions and rely on logic and sound financial advice.

2. Commit to a Personal Investment Plan

A personal investment plan is a written document that includes your financial goals and what types of limitations you might have, such as what you can afford to spend on investing. Creating such a document ensures you have a logical, well-thought-out guide to turn to when things do get tricky. If you feel tempted by a seemingly perfect investment, for example, your plan can remind you what you can realistically put into this new investment.

3. Use the Dollar-Cost Averaging Strategy

Dollar-cost averaging is a strategy used by many investors, including some professionals. Its goal is to potentially reduce the volatile nature of a single purchase. The DCA strategy works like this:

You decide how much you’re going to invest in certain assets within a set period
You divide that budget over that time and make periodic purchases of the asset
You do this despite the price of the asset at any given time

The goal is to build up the investment for a long-term gain strategy. This is actually how most 401(k) investments are managed.

4. Focus on Quality Over Quantity

But don’t think that you have to buy tons of assets to be investing for the future. If you have limited funds to invest with, it can be tempting to buy up stock that is cheap just to get some quantity. But cheap stock isn’t always a great investment, and it might be better to buy a smaller number of shares in a well-trusted company with a history of strong stock performance.

5. Consider Funds Instead of Individual Stocks

Another option is to consider funds, which spread your investment over numerous stocks. You’ve probably heard that you have to diversify your portfolio. That just means investing in numerous types of assets so that if one doesn’t perform well, you have other gains to make up for the loss.

A mutual fund is an investment option that’s already diversified, for example. Plus, it’s a convenient way to add numerous assets to your equity portfolio without buying and managing numerous stocks yourself.

6. Rebalance When Necessary

While investing is a long-term strategy, active investing can’t be a set-and-forget strategy. You have to make efforts to rebalance your portfolio—or ensure someone is doing that for you—from time to time.

Rebalancing just means aligning your assets with your target goals. For example, you might have a goal of 60% in stocks and 40% in other assets. But if your stocks gain rapidly during a few years, outpacing the gains of your other assets, you could have a 70/30 split. If your goal is still 60/40, you would rebalance by selling stock, purchasing other assets or both.

7. Invest in Recession-Resistant Industries

Recession-resistant industries are those that don’t tend to succumb to downturns in the economy, often because they’re necessary. Examples of industries that have historically weathered recessions well include healthcare, technology, beauty, retail, construction and pet products.

Note that because a company is in a recession-resistant industry doesn’t mean that company itself is necessarily resistant. It’s always important to be discerning about which stocks you invest in. For example, if the company doesn’t have strong financial leadership or has known money problems, it may not matter what industry it’s in.

Review Your Finances and Decide What’s Best for You

Ultimately, only you can decide whether investing during a recession is right for you. Start by reviewing your own finances. Some things you might want to look at include:

What kind of savings you have. Having emergency savings is important, especially in a recession. Before you start investing, you may want to build yours.
Your income and expenses. You need disposable income before you can invest. That means that your income should be more than your expenses.
Your credit history. Buying stocks and investing typically doesn’t rely on you having good credit. But before you start building wealth, get a good look at your credit reports to ensure there’s nothing lurking that you might need to attend to. If you find any surprises, consider reaching out to Lexington Law for help disputing inaccurate items and working to make a positive impact on your credit.

And if you do decide to invest—during a recession or otherwise—consider working with a financial advisor to help you navigate the complexities of managing your portfolio.

Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

May 6, 2021

The Ultimate College Senior Checklist

Earning a college degree is no easy feat. Think countless late-night cram sessions, tedious loan applications, heavy textbooks to haul around. For some college seniors, June cannot come fast enough, and it’s understandable why senioritis kicks in. That said, there’s still a lot of important work to do before crossing that graduation stage.

From jumping through the logistical hoops of making it to graduation day to launching a job search and addressing student loan payments, there are a lot of important pre-graduation to-do’s that may require prompt attention.

Here’s a comprehensive checklist that will help college seniors be prepared to graduate and enter the working world.

Dotting I’s and Crossing T’s

Ideally, before senior year begins (or sooner for those planning to graduate early), students should meet with their guidance counselor to make sure they have all of their ducks in a row in order to graduate. Switching majors, studying abroad, or misunderstanding degree requirements can lead to confusion about which classes must be taken to graduate.

Before setting a class schedule for the year, it can’t hurt to double-check with a college counselor that all requirements are being met. Some schools even have a certain amount of community service or chapel hours required in order to graduate, so again, it’s smart to confirm that everything is moving along as it should be.

Preparing for the graduation ceremony needs to be done in advance. Colleges and universities often require students to apply to graduate and register their planned attendance at the ceremony well ahead of the actual day.

To streamline the process, many schools have grad fairs where students can pick up their commencement tickets; buy a cap and gown, class rings and commencement announcements; and ask questions about the logistics of graduation day.

Transcripts can come in handy when applying for jobs and graduate school programs, so picking up a few copies while still on campus can save time down the road. And don’t forget to turn in those library books! No one will want to trek back to campus after graduation to pay late fees.

Getting a Jumpstart on a Job Search

It’s no secret that college graduates flood the job market each June, so getting ahead of the pack can make job searching a little easier. Applying for jobs earlier in the spring can lessen the competition and give seniors confidence that they have a job lined up when they graduate.

If launching a full-blown job search during school isn’t possible, college seniors can at least take steps toward preparing for the job search.

Stop by the career center and see what resources it can provide. Schools have a career center for a reason! Most are ready to help students prepare their resumes and perfect their cover letters, and they typically have job postings from companies looking to hire recent graduates.

Some career centers may offer mock interviews so students can hone those skills, or they may provide support when issues arise during a job search. Popping by between classes to see what services are offered will only take a few minutes.

At the very least, college seniors can poke around online job boards and research local companies to see what opportunities are out there.

Making Connections

As a student, it may feel like having a professional network is unattainable, but many build one while in school without realizing it. One easy way to get a head start on a job search, without doing too much work during a hectic final year of school, is to focus on building relationships and requesting references.

Professors, employers, and intern supervisors can all provide references that can strengthen a job search. Finding that first job out of college can be tricky, when resumes are on the shorter side, so a handful of strong references can make all the difference.

While requesting references, college seniors should tell their connections what career path they’re hoping to pursue. One never knows where the next opportunity might come from.

Paying Back Student Loans

Preparing to navigate life after college can be overwhelming, especially when it comes to finances. No one wants to think about student loan payments, but it can be helpful to start making repayment plans before graduation day.

Try beginning the planning process by simply looking up the current balance for each student loan held, including both federal and private loans. Then note when the grace period ends for each loan and when the lender expects payment. It’s important to plan to make loan payments on time each month, as that can boost a credit score.

Lenders usually provide repayment information during the grace period, including repayment options. Many federal student loans qualify for a minimum of one income-driven or income-based repayment plan.

Federal student loans may qualify for a variety of repayment plans, such as the Standard Repayment Plan, Graduated Repayment Plan, Extended Repayment Plans, Revised Pay As You Earn Repayment Plan, Income-Based Repayment Plan, Income-Contingent Repayment Plan, and Income-Sensitive Repayment Plan. It is important to carefully research each payment plan before choosing one.

For private student loan repayment, it is best to speak directly with the loan originator about repayment options. Many private student loans require payments while the borrower is still in school, but some offer deferred repayment. After the grace period, the borrower will have to make principal and interest payments. Some lenders offer repayment programs with budget flexibility.

Whether students or their parents chose to take out federal or private student loans (or both), reviewing all possible repayment plan options can provide choices. And who doesn’t like choices?

One Loan, One Monthly Payment

Some graduates may want to consider refinancing or consolidating their student debt.

Borrowers who have federal student loans may qualify for a Direct Consolidation Loan after they graduate, leave school, or drop below half-time enrollment.

Consolidating multiple federal loans into one allows borrowers to make just one loan payment each month. In some cases, the repayment schedule may be extended, resulting in lower payments, after consolidating (but increasing the period of time to repay loans usually means making more payments and paying more total interest).

Refinancing allows the borrower to convert multiple loans—federal and/or private—into one new private loan with a new interest rate, repayment term, and monthly payment. The goal is a lower interest rate. (It’s worth noting that refinancing a federal loan into a private loan can lead to losing benefits only available through federal lenders, such as public service forgiveness and economic hardship programs.)

Refinancing can be a good solution for working graduates who have high-interest, unsubsidized Direct Loans, Graduate PLUS loans, and/or private loans.

If that sounds like a good fit, SoFi offers student loan refinancing with zero origination fees or prepayment penalties. Getting prequalified online is quick and easy.

Learn more about SoFi Student Loan Refinancing options and benefits.

SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE FOR MORE INFORMATION.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
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.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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Source: sofi.com

May 6, 2021

Joint credit cards: 6 perks and pitfalls – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

“For richer and for poorer”—it’s the vow millions of couples across the nation make every year. Every day, partners navigate money issues, from saving and budgeting to managing debt. Joint credit cards offer a great opportunity for couples to build credit and manage their finances together, but they require substantial teamwork and communication.

To better understand how couples navigate their financial journeys together, Lexington Law ran multiple surveys over the past two years. Below are some key takeaways to help you better understand joint credit health:

Approximately 30 percent of couples talk about finances on a daily basis. (source)
One in five couples fight at least half of the time they talk about money. (source)
Half of Americans share debts with their partner. (source)

Half of Americans share debt with their partner.

Couples who make consistent, respectful communication a habit may have no problem with joint credit cards, and they may take full advantage of their benefits. However, credit health is something to take very seriously, and joint credit cards also have the potential to cause problems if not managed properly. Here, we will discuss the benefits, dangers and alternatives to joint credit—and provide actionable tips for success.

Two Ways to Share a Credit Card

If you’re recently married, you may wonder how it affects your credit score—and what the best way to share credit accounts is. First, it is important to understand that you are only directly responsible for your spouse’s credit if you apply for joint lines of credit—like a mortgage, another loan or a joint credit card.

Contrary to popular belief, being an authorized user is not the same thing as having a joint credit card. Here, we will detail the differences.

Authorized User

Adding an authorized user means that your partner will be able to make purchases with your credit card, and the positive payment history will appear on their credit report. It can be a fairly safe way to boost their credit by allowing them to benefit from your positive credit history.

Be careful when adding anyone as an authorized user on your card. No matter how much they use the card, you will ultimately be the one legally responsible for paying the balance—not them. If you are considering adding your partner, have an open and honest discussion about your credit limit and how much you’re comfortable with them charging each month.

Joint Credit Card

With a joint credit card, both people apply for the account together. Both credit reports will be considered during the application process, and this will result in a hard inquiry for you both. Unlike being an authorized user, both people are equally responsible for making payments—and the consequences of success or failure will affect both credit scores.

Potential Perks of Joint Credit Cards

Just like regular credit cards, joint credit cards can offer some wonderful benefits if properly managed. However, there can also be some serious consequences of miscommunication and lack of responsibility that can harm both cardholders. Before applying, make sure you’re aware of all the perks and pitfalls.

Streamline Your Finances

When it comes to budgeting, joint accounts—both checking and credit—help simplify your finances. That’s because both people’s transactions are now under one account instead of separate ones. A joint account can help you both get a view of your financial health as a couple and manage your money as a team.

Potential pitfall: If either person abuses their card privileges, they may add stress and even resentment to the relationship. Additionally, if a couple needs to separate or divorce, dealing with joint credit cards can be complicated.

Tip: Maintain open and honest communication about card use, especially large purchases. This will help you stay on track with your budget and financial goals as a couple.

Pool Your Rewards

A joint credit card gives you the ability to amplify your cash back rewards by pooling them in the same account, rather than scattering them among multiple credit cards. Additionally, since the account is being used by two people, the card may see higher use than a singularly owned one, which will rack up the rewards faster.

Potential pitfall: Options for joint credit cards are very limited, so it may be tricky to find a rewards program that fits your lifestyle and needs.

Tip: Thoroughly research the annual fees, incentives and cash back percentages before applying for a joint credit card. We detail the three most common options in a later section of this article.

Improve Your Score

Joint credit cards have the potential to boost both of your credit scores, as long as you make on-time payments each month. Additionally, if one person does not have good enough credit to apply for a card on their own, they can leverage the other person’s better credit to score a joint credit card with better interest rates and terms.

Potential pitfall: Just as joint credit cards have the potential to increase your score, they also have the potential to harm your credit score—even if it is not directly your fault. If your partner fails to uphold their payment agreement or charges enough on the card to push you past a 30 percent credit utilization rate, your score will likely take a dip.

Tip: Make an agreement on how payments will be made each month to ensure no payments are late or missed. Consider setting up automatic monthly payments to ensure each person contributes to paying off the balance.

3 potential benefits of joint credit cards: pool your rewards, streamline your finances, improve your score.

Frequently Asked Questions About Joint Credit Cards

Once you have decided to apply for a joint credit card, you may be wondering what’s next. After reading your card’s terms and conditions, you may have additional questions such as the ones below:

How Do I Get My Name Off a Joint Credit Card?

Unlike an authorized user credit card—which is easy to remove yourself from—it is impossible to remove yourself from a joint credit card without completely closing the account. To do this, both parties must agree to pay off the entire balance before closing the account. Keep in mind that this may temporarily lower your credit score, as it will cause your credit utilization rate to increase.

What Happens to a Joint Credit Card When Someone Dies?

Notify your credit card issuer immediately in the event that someone on your joint credit card passes away. Ask if they had set up any recurring charges on the card, and see that they are canceled. You should then be able to continue using the card normally, as the sole cardholder. Keep in mind that you will still be responsible for paying off the balance, regardless of who charged it.

Does a Joint Credit Card Build Credit?

Yes—you may be able to build your credit if the account is managed properly. Just like a regular credit card, consistent, on-time payments will have a positive impact on your credit score—no matter which person pays. In your journey of building credit, remember to check your credit report regularly, as errors are all too common. If you spot any questionable negative items, Lexington Law can help you dispute them. Removing these from your report can typically help you repair your credit and reach your financial goals.

Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Cynthia Thaxton has been with Lexington Law Firm since 2014. She attended The College of William and Mary in Williamsburg, Virginia where she graduated summa cum laude with a degree in International Relations and a minor in Arabic. Cynthia then attended law school at George Mason University School of Law, where she served as Senior Articles Editor of the George Mason Law Review and graduated cum laude. Cynthia is licensed to practice law in Utah and North Carolina.

Source: lexingtonlaw.com

May 6, 2021

Hidden Costs to Watch Out For

Getting a loan? Whether it’s for a new home, car, or something else, don’t make the mistake of focusing solely on the monthly fee. There are many hidden costs out there that can trip you up and make you spend more than you intended over the long run. Here are three of the most common ones to watch out for.

Discount Points on Home Mortgages

When getting home mortgage, you’ll likely be offered the option to pay “discount points.” This is the option to pay a certain fee up front to lower the interest rate throughout the loan’s lifetime. In a sense, it’s “pre-paid interest,” and on average every 1% of the total loan amount you pay up front will lower the interest rate by about 0.125%.

Here’s the thing about discount points: They’re only beneficial if you break even on the up front payment eventually. That only happens when you hold on to the house long enough. Otherwise, you end up paying more than if you simply kept the interest rate where it was.

The key to getting the most out of home mortgage discount points is to decide ahead of time how long you’ll keep the house. If you’re planning to keep it for 10 years or more, then paying for discount points is a smart move. Otherwise, skip them.

Admin/Underwriting Fees

These fees are only supposed to apply when you get your loan from a bank or other lending agency. You don’t need to pay admin/underwriting fees when you get your loan from a broker – simply because they don’t do any underwriting. The lender does.

It pays to know this little bit of trivia, because a fair number of unscrupulous brokers use this technique to pad their bottom line. Don’t be fooled!

Cost of Ownership

Cost of ownership is not a “hidden cost” per se, but it’s definitely unexpected for many individuals. But more importantly, not factoring it in may cost you thousands of dollars in the long run.

Cost of ownership is basically those other costs that come with owning a new asset. For instance, if you’re getting a new home, cost of ownership will include paying property taxes, insurance, furniture, landscaping, etc. If you’re getting a new car, you’ll have to fork over some cash for insurance and the sales tax.

Our advice: If you’re getting a loan that’s right at your financial limit, you’re likely heading for trouble. You may need to dial back a bit, or postpone taking that loan until you’re better prepared for the costs of ownership.

One Final Tip

Even if you’re not planning to take out a loan anytime soon, work on your credit score as early as now. Bring it up to 760 or more, so that any loan you take out in the future will be met with the lowest interest rates. And, perhaps more importantly, working on your credit score trains you to handle your finances better, so you’ll make smarter decisions on money matters moving forward.

Source: creditabsolute.com

May 6, 2021

Investing during a recession

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Is It a Good Idea to Invest During a Recession?

7 Tips for Investing During a Recession

1. Be Patient and Think Long-Term

2. Commit to a Personal Investment Plan

3. Use the Dollar-Cost Averaging Strategy

Dollar-cost averaging is a strategy used by many investors, including some professionals. Its goal is to potentially reduce the volatile nature of a single purchase. The DCA strategy works like this:

You decide how much you’re going to invest in certain assets within a set period
You divide that budget over that time and make periodic purchases of the asset
You do this despite the price of the asset at any given time

The goal is to build up the investment for a long-term gain strategy. This is actually how most 401(k) investments are managed.

4. Focus on Quality Over Quantity

5. Consider Funds Instead of Individual Stocks

6. Rebalance When Necessary

7. Invest in Recession-Resistant Industries

Review Your Finances and Decide What’s Best for You

Ultimately, only you can decide whether investing during a recession is right for you. Start by reviewing your own finances. Some things you might want to look at include:

What kind of savings you have. Having emergency savings is important, especially in a recession. Before you start investing, you may want to build yours.
Your income and expenses. You need disposable income before you can invest. That means that your income should be more than your expenses.
Your credit history. Buying stocks and investing typically doesn’t rely on you having good credit. But before you start building wealth, get a good look at your credit reports to ensure there’s nothing lurking that you might need to attend to. If you find any surprises, consider reaching out to Lexington Law for help disputing inaccurate items and working to make a positive impact on your credit.

And if you do decide to invest—during a recession or otherwise—consider working with a financial advisor to help you navigate the complexities of managing your portfolio.

Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Source: lexingtonlaw.com

May 6, 2021

The 5 Best Business Checking Accounts in 2021

Starting a business is an opportunity to be your own boss, make money and grow your skill set.

There are also the not-so-great, somewhat messy and complicated parts about operating a business. If you start off solo or small, you’ll be tackling a lot of tasks yourself.

But don’t worry. In this article, we’re going to address something relatively simple in the business world: the best business checking accounts.

We’ll go into why you need one, what you should look for and several of the best ones available, both in-person and online-only.

Wait, Do I Really Need a Business Checking Account?

The purpose of a business checking account is to keep your business finances separate from your personal finances.

Technically, you might not need one depending on the legal structure of your business.

For example, if you’re a freelance writer who established a sole proprietorship and is starting slowly, you could use your personal checking account to get off the ground. But you’ll want to be extremely organized about keeping track of your business money for tax time. (Nothing will damper your momentum like getting audited.)

The type of business you’re running makes a difference here. If it’s transaction-heavy — or a particular legal structure, like a limited liability company — you might need a business checking account, full stop.

But if you’re starting any kind of business, it’s probably in your best interest to open one.

Business checking accounts make it easier to track profits, expenses and deductions, and help establish your operation if you file for business credit cards or loans down the line.

What You Need to Open a Business Checking Account

To open an account, you’ll typically need the following:

Social security number (SSN) or employee identification number (EIN)
Valid driver’s license or state ID
An initial deposit

How easy it is to open a business checking account will depend on your business. If you’re a sole proprietor, the process might feel similar to opening a personal checking account. If you have a different legal business structure, you’ll likely have to provide additional documentation (like your articles of incorporation). Requirements will vary from bank to bank.

What You Should Look for in a Business Checking Account

Before you peruse accounts, get a handle on your business needs and wants. For instance, do you make a lot of transactions? Do you want a business credit card ASAP? Do you prefer a big bank where you can pop into a different branch every half mile?

There are other considerations. Do you want your bank, credit union or financial institution to…

Offer free bank statements?
Have an app?
Offer free online banking and/or bill pay?
Have in-person locations?
Offer comprehensive customer service, i.e., allow you to talk to someone online and on the phone 24/7?
Have integration with tools, like invoicing software?
Offer multiple products, such as business credit cards, small-business loans, etc.?

There are lots of banks for small businesses to choose from, but you want one that will give you the most options. And ideally, save you some money and headaches in the process.

To choose the best business checking accounts, we focused on accounts that:

Require a low minimum initial deposit ($1,000 or less — most require only $25).
Offer a certain number of transactions for free.
Either have no monthly service fee or make it easy to have the fee waived.

We also focused on checking accounts for small and medium businesses. If you’re looking for accounts to manage a higher volume, many of the traditional institutions on our list have them, too.

Pro Tip

Check out our current list of bank promotions for a chance to gain a monetary bonus when signing up for a new business checking account.

The 5 Best Business Checking Accounts for May 2021

We chose five institutions and a couple of different checking account options for each where available.

1. Chase: Best for 24/7 Customer Service and Overall Accessibility

Chase is a well-known brand with many physical branches and flexible options for business owners. It’s a good choice if you want to be able to find a chain easily and talk to someone in person. Chase also offers 24/7 support, so you can call and email them anytime of day. From personal experience, if you send them a secured online message, they typically follow up within 24 hours. To learn more, read our Chase Bank review.

Number of branches: Approximately 4,700
Number of ATMs: 16,000

Here’s the lowdown on Chase Business Complete Banking and Chase Performance Business Checking.

Chase Business Complete Banking

Chase Business Complete Banking (for small businesses) at a glance:

Sign-up bonus: $300 for new customers who meet certain criteria

Minimum initial deposit: $25

Monthly service fee: $15; waived if you maintain a minimum daily balance of $2,000 or link a qualifying Chase account

Cash deposits per month: Up to $5,000 without an additional fee

Free transactions per month: 100

Other benefits:

Access to Chase online and mobile banking
Get same-day deposits  on card payments at  no additional cost

Chase Performance Business Checking

Chase Performance Business Checking (for medium-sized businesses) at a glance:

Sign-up bonus: None specified

Minimum initial deposit: $25

Monthly service fee: $30; waived if you maintain a minimum daily balance of $35,000 or more in qualifying accounts

Cash deposits per month: Up to $20,000 without an additional fee

Free transactions per month: 250

Other benefits:

No charge for all incoming wires and two outgoing domestic wires per statement cycle

Interest-bearing option availableChase has business saving account, lending and credit card options, too. Chase offers several small-business credit cards, all with new card member bonuses, which include $750 cash back to 100,000 bonus points depending on the card.

A man rides a bike past Wells Fargo in St. Petersburg, Fla. — Tina Russell/The Penny Hoarder

2. Wells Fargo: Best for Small Business Owners Just Getting Started

Wells Fargo is another strong choice for your business checking account needs. It has many branch locations and you can call them 24/7. Its website is also easy to navigate and lets you find answers to your questions without clicking on a ton of links. Check out our Wells Fargo Bank review for more information.

Number of branches: Approximately 7,200
Number of ATMs: Over 13,000

Wells Fargo Initiate Business Checking

Initiate Business Checking (for new and small businesses) at a glance:

Sign-up bonus: None specified

Minimum initial deposit: $25

Monthly service fee: $10; waived by having a minimum daily balance of $500

Cash deposits per month: Up to $5,000 for free

Free transactions per month: 100

Other benefits:

Customized business debit card
24/7 fraud monitoring
Mobile deposit

If you’re just getting started with your small business and don’t expect to scale right away, Initiate Business Checking is a solid, affordable account to open.

Wells Fargo Navigate Business Checking

Navigate Business Checking (for small- to medium-sized businesses) at a glance:

Sign-up bonus: None specified

Minimum initial deposit: $25

Monthly service fee: $25; waived by having a minimum daily balance of $10,000 or an average combined business deposit balance of $15,000

Cash deposits per month: Up to $20,000 for free

Free transactions per month: 250

Other benefits:

Customized business debit card
24/7 fraud monitoring
Mobile deposit

Wells Fargo also offers small-business lending and credit card options.

3. U.S. Bank: Best for Simple, Fee-Free Banking

While primarily located in the Midwest, this chain has lots of locations across the country. That’s great news if you’re a small-business owner looking for a simple checking account.

U.S. Bank has no monthly service fees for its Silver account, so no worries about meeting certain criteria to have the fee waived. You can also go to its website and take a short quiz to determine which account would work best for your needs.

Number of branches: 3,106
Number of ATMs: 4,842

U.S. Bank offers Silver, Gold, Platinum and Premium business checking accounts, and we’re going to outline the first two.

U.S. Bank Silver Business Checking

Silver Business Checking (best for newer or smaller businesses) at a glance:

Sign-up bonus: None specified

Minimum initial deposit: $100

Monthly service fee: $0

Cash deposits per month: 25 for free

Free transactions per month: 120 per statement cycle; 50 cents per excess transaction

U.S. Bank will charge you $5 for paper statements, so stick with online ones to save money and the planet.

Other benefits:

Online and mobile banking
Discount on first check order
Small Business Visa credit card
Card payment processing

U.S. Bank Gold Business Checking

Gold Business Checking (for businesses with moderate transaction levels) at a glance:

Sign-up bonus: None specified

Minimum initial deposit: $100

Monthly service fee: $20; waived by satisfying one of several criteria listed on its website

Cash deposits per month: 100 for free

Free transactions per month: 300 per statement cycle; 45 cents per excess transaction

Other benefits:

Online and mobile banking
Remote check deposits
Discount on first check order
Small Business Visa credit card
Card payment processing

Silver and Gold are good options for small businesses looking for free business checking accounts (as long as you stay within the limits). And in general, Chase, Wells Fargo and U.S. Bank are all good options for an LLC.

4. BlueVine: Best for Fee-Free, Online-Only Banking

Want to open an account on your phone and manage it entirely online? Welcome to 2021… and to BlueVine.

BlueVine boasts no hidden fees and unlimited transactions. Members can pay vendors, schedule one-time and recurring payments, and earn an impressive 1.0% on their checking account balance up to $100,000. Deposits are FDIC-insured (up to $250,000) through The Bancorp Bank.

Number of branches: 0
Number of ATMs: Users can withdraw cash fee-free at over 38,000 MoneyPass® locations in the U.S.

BlueVine at a glance:

Sign-up bonus: None specified

Minimum initial deposit: $0

Monthly service fee: $0

Cash deposits per month: Unlimited. You can deposit cash at close to 100,000 retail locations through a partnership with Green Dot. A $4.95 fee, per deposit, applies.

Free transactions per month: Unlimited

Other benefits:

A BlueVine Business Debit Mastercard®
Access to a business line of credit
Two free checkbooks
Phone and email customer support

A black man with a bald head looks forward while working on his laptop. — Getty Images

5. Axos Bank: Best for Business Interest Checking

Axos Bank is another online-only bank. In addition to business checking accounts that earn interest, customers can take advantage of surcharge-free ATMs across the U.S.

Number of branches: 0
Number of ATMs: You can use any ATM in the U.S. and you’ll be reimbursed for the fees

Axos Bank offers Basic Business Checking, Business Interest Checking and Analyzed Business Checking. We’re going to look at the first two.

Axos Basic Business Checking

Basic Business Checking at a glance:

Sign-up bonus: $!00 if you incorporated after June 1, 2020

Minimum initial deposit: $1,000

Monthly service fee: $0

Cash deposits per month: Up to 60 items with remote deposit

Free transactions per month: 200; afterward, 30 cents each

Other benefits:

Pay bills with no charge through the app
First set of 50 checks is free
Compatible with QuickBooks

Axos Business Interest Checking

Business Interest Checking at a glance:

Sign-up bonus: $100 if you incorporated after June 1, 2020

Minimum initial deposit: $100

Monthly service fee: $10; waived if there’s an average daily balance of $5,000

Cash deposits per month: Up to 60 with remote deposit

Free transactions per month: 50; afterward, 50 cents each

Other benefits:

Earn up to 0.81% APY
First set of 50 checks for free

Axos Bank also offers saving accounts and Business CDs, but no credit cards.

Regional Business Checking Account Options

Here’s a glance at three smaller, regional options for business checking accounts. If your area isn’t listed, you can research credit unions and banks near you.

America First Credit Union

This institution has branches in Nevada and Utah. America First offers four types of business checking accounts: Basic, Premier, High-Yield and Non-Profit.

The Basic Business Checking offers 250 free monthly transactions, free online bill pay, access to money market savings, lines of credit and Business Visa credit card.

First Horizon

This bank has branches in Tennessee, Florida, North Carolina, South Carolina, Virginia and Texas. First Horizon offers BizEssentials Checking (Value, Basic, Standard and Interest) and Business Interest Checking Account, which combines the benefits of a checking and interest-earning savings account.

The Business Interest Checking Account has no minimum balance requirements, plus you’ll earn interest on your balance and have access to a Visa Business debit card.

SunTrust, Now Truist

This bank has branches in Alabama, Arkansas, Washington, D.C., Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee and Virginia. SunTrust offers three types of business checking accounts: Simple Business Checking, SunTrust Primary Business Checking and SunTrust Business Advantage Plus Checking.

SunTrust Primary Business Checking has a $15 monthly fee that’s waived in the first two statement cycles and after that when you have a $1,000 minimum daily balance. Each month, you’ll get 150 free transactions and $5,000 cash processing.

What’s the Right Business Checking Account for You?

The best business checking account for you will depend on your business and needs. Whether you’re just starting out or looking to level up, there are plenty of options out there, online and off. Start your search now, so your future self — and CPA, come tax time — will thank you later.

Contributor Kathleen Garvin (@itskgarvin) is a personal finance writer based in St. Petersburg, Florida, and former editor and marketer at The Penny Hoarder. She owns a content-writing business and her work has appeared in U.S. News, Clark.com and Well Kept Wallet.

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Source: thepennyhoarder.com

May 5, 2021

Paying taxes as a freelancer

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Paying taxes as a freelancer can be a bit more involved—and expensive—than paying taxes as a W-2 employee. When you’re a freelancer, you’re the boss. That’s great if you want some flexibility, but it also means you’re self-employed, so you are responsible for both the employer and employee parts of employment taxes.

When you work for someone else, your paycheck amount is your pay minus all appropriate deductions. That includes deductions for federal and state income taxes as well as Medicare and Social Security contributions.

But what you might not realize is that your employer covers part of the Medicare and Social Security amounts. As a self-employed individual, you have to pay the total amount yourself. That’s 12.4 percent for Social Security and 2.9 percent for Medicare—a total of 15.3 percent of your taxable earnings, not including federal and other income taxes.

When Do I Have to Start Paying Taxes as a Freelancer?

According to the Internal Revenue Service, if you earn $400 or more in a year via self-employment or contract work, you must claim the income and pay taxes on it. The threshold is even lower if you earn the money for church work. If you earn more than $108.28 as a church employee and the church employer doesn’t withhold and pay employment taxes, you must do so.

What Tax Forms Should I Know About?

Freelancers report their income to the IRS using a Form 1040, but they may need to include a variety of Schedule attachments, including:

Schedule A, which lists itemized deductions
Schedule C, which reports profits or losses from their freelancer business
Schedule SE, which calculates self-employment tax

These are only some of the forms that might be relevant to a freelancer filing federal taxes. Freelancers must also file a tax form for the state in which they live as well as with any local governments that require income tax payments.

If you’re planning to do your taxes on your own as a freelancer, it might be helpful to invest in DIY tax software. Look for options that cater specifically to home and business or self-employment situations. These software programs typically walk you through a series of questions designed to determine which forms you need to file and help you complete those forms correctly.

Six Tips for Doing Your Taxes as a Freelancer

As a freelancer, chances are you spend a lot of your time attending to clients and getting production work done. You may not have a lot of time for business organization tasks such as accounting. But a proactive approach to paying taxes as a freelancer can help you prepare to do your taxes and pay what can be a surprisingly big bill each year.

Here are six tips for handling taxes as a freelancer.

1. Keep Track of Your Income

Track your income so you know how much you may need to pay in taxes every year. Keeping track of your numbers also helps you understand whether your business is profitable and how you’re doing with income compared to past years.

You can track your income in a number of ways. Apps and software programs such as QuickBooks and Wave let you manage your freelance invoices and track income and expenses. Some also help you generate financial reports that might be helpful come tax time.

Alternatively, you can track your income in an Excel spreadsheet or even a notebook, as long as you’re consistent with writing everything down.

2. Set Money Aside in Advance

It’s tempting to count every dollar that comes in as money you can use. But it’s wiser to set money aside for taxes in advance. Depending on how much you earn as a freelancer, you could owe thousands in federal and state taxes by the end of the year, and if you didn’t plan ahead, you might not have the money to cover the tax bill.

That can lead to tax debt that comes with pretty stiff penalties and interest—and the potential for a tax lien if you can’t pay the bill.

3. Determine Your Business Structure

Make sure you know what your business structure is. Many freelancers operate as sole proprietorships. But you might be able to get a tax break if you operate as an LLC or a corporation. Talk to legal and tax professionals as you set up your business to find out about the pros and cons of each type of organization.

4. Know About Relevant Deductions

As a freelancer, you may be able to take certain federal tax deductions to save yourself some money. Tax deductions reduce how much of your income is considered taxable, which, in turn, reduces how much you owe in taxes. Here are a few common deductions that might be relevant to you as a freelancer.

Home Office

You can take the home office deduction if you’ve set aside a certain area of your home for use by the business. The IRS does have a couple of stipulations.

First, you have to regularly use the space for your business, and it can’t be something you use regularly for other purposes. For example, you can’t claim your dining room as a home office just because you sometimes work from that location.

Second, the home has to be your principal place of business, which means it’s where you do most business activity. You can’t claim the deduction if you normally work outside the home but sometimes answer work emails while you’re in the living room.

Equipment and Supplies

You can also deduct the cost of equipment and supplies that you buy for your business. That includes software purchases and relevant subscriptions, such as if you pay monthly for Microsoft 365 or annually for a domain name.

Make sure you have backup documentation for any business expenses you deduct. That means keeping receipts that show what you purchased so you can prove that the expenses were for business. You also have to be careful to keep business and personal expenses separate—art supplies for your child’s school project, for example, wouldn’t typically be considered valid business expenses.

Travel and Meals

Meals and travel expenses that are related to your business may be tax deductible. If you stay in a hotel, book a flight or incur other travel expenses that are necessary for the running of your business, you can claim them as a deduction. The same is true for 50 percent of the value of meals and beverages that you pay for as a necessity when doing business.

The IRS does set an “ordinary and necessary” rule here. For example, if you’re traveling to meet with a client and you need to eat lunch, that is likely to be considered necessary. But if you opt for a very lavish meal for no other purpose than to do so, it might not be allowed under the “ordinary” part of the rule.

Business Insurance

If you carry liability or similar insurance for your business, you can deduct it as a cost of doing business. You may also be able to deduct the cost of other insurance policies if they are necessary for your trade.

5. Estimate Your Taxes Quarterly

The IRS offers provisions for estimating your employment taxes on a quarterly basis. Self-employed individuals, including freelancers, can make these estimated tax payments, too. Paying as you go means you won’t owe a large sum every April, and if you overestimate, you may get a tax refund.

Quarterly payments are due in April, June, September and January. They can be mailed or made online. Depending on how much you earn, you may need to make quarterly estimated tax payments to avoid a penalty at the end of the year.

6. Consult a Tax Professional

As you can see just from the basic information and tips above, paying taxes as a freelancer can get complicated quickly. Consider talking to a tax professional to understand what all your obligations are and how best to reduce your tax burden using legal deductions. You might be missing a major deduction every year that could save you a lot of money.

And remember that as a freelancer, you’re running your own small business. That means paying attention to all your finances, including your credit report. If you ever want to take out a business loan or seek other funding to grow your business, you might need to rely on your good credit score.

Check your credit score, and if you find inaccurate negative information making an impact on your score, contact Lexington Law to find out how to get help disputing it.

Reviewed by Cynthia Thaxton, Lexington Law Firm Attorney. Written by Lexington Law.

Source: lexingtonlaw.com

May 4, 2021

Best Places to Get Out of Credit Card Debt â 2021 Edition

Best Places to Get Out of Credit Card Debt – 2021 Edition – SmartAsset

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The Federal Reserve says that revolving consumer credit debt – including debt from credit cards, home equity lines of credit and personal lines of credit – increased to $974.4 billion in February 2021, marking a 10.1% annual rate increase from the year prior. This is almost one-third of all consumer debt – which also includes student and car loans – and adds up to a grand total of $4.2 trillion. With so many people trying to pay off credit card debt, SmartAsset crunched the numbers to identify and rank the best cities where it’s easiest to do so.

To do so, we considered unemployment rate, median post-tax income, lower-quartile rents and disposable income to find where debt could be paid off the fastest, assuming average interest rates and a total debt of $7,935. For details on our data sources and how we put all the information together to create our final rankings, check out the Data and Methodology section below.

This is SmartAsset’s 2021 study of the best cities to get out of credit card debt. Read the 2019 version of the study here.

Key Findings

Timelines can vary widely. Debt in the top 10 cities of our study can be paid off in just over 10 months, while the average for the bottom 10 is almost 18 months. Frisco, Texas is the city where debt can be paid fastest – under nine months. And Arlington, Virginia takes more than four times longer – a little over 36 months.
Residents in smaller cities can pay debt faster. Small and mid-sized cities in this study can pay debt off quickly. All of the top five cities have fewer than 250,000 residents. Affordable rent and a sizable disposable income (which is the money you take home after taxes) are key factors for residents in these cities to pay off debt.

1. Frisco, TX

Frisco, Texas residents can pay off a credit card debt of $7,935 in 8.59 months. The post-tax income for high-school graduates in this city is just over $37,000. And with a lower-quartile rent (the most affordable unit one could reasonably acquire) of $1,126 per month, residents can afford to make monthly debt payments of $979.

2. Reno, NV

Reno, Nevada residents can get out of $7,935 debt in 9.43 months. The post-tax income for high school graduates is around $31,000 and the lower-quartile rent is $787 per month. This means that if they apply 50% of their disposable income after rent to paying down credit card debt, they can afford a monthly payment of $896.

3. Gilbert, AZ

The median post-tax income for high school graduates in Gilbert, Arizona is $35,463. Residents in this city can pay off a credit card debt of $7,935 in 9.60 months. And with a lower-quartile rent (the lowest number under which 25% of renters pay for rent) of $1,192 per month, monthly debt payments of $882 are possible.

4. Anchorage, AK

Anchorage, Alaska residents can pay off a credit card debt of $7,935 in 10.04 months. The median post-tax income for a high school graduate is $30,650 and the lower-quartile rent is $863 per month. If a resident applies half of their disposable income to paying down debt, they could make monthly payments of $846.

5. Chesapeake, VA

Chesapeake, Virginia residents can pay a debt of $7,935 off in 10.11 months. The median post-tax income for a high school graduate is $29,087, Furthermore, the most affordable rental unit, at the lower-quartile mark, costs $744 per month. With just over $20,000 in disposable income after rent, residents can apply half to monthly debt payments of $840.

6. St. Louis, MO

St. Louis, Missouri’s median income for high school graduates is just under $26,000 and the lower-quartile rent total is $519 a month. If someone with that income and rent adopted a relatively aggressive repayment strategy and put half of their disposable income towards paying a credit card debt of $7,935, they would be free of credit card debt in 10.37 months.

7. Fort Wayne, IN

Fort Wayne, Indiana’s median post-tax income for high school graduates is $24,881 – the lowest in the top 10 of this study. The lower-quartile rent (the most affordable unit one could reasonably acquire) in this city is $496 a month. Someone with almost $19,000 in disposable income after rent could pay off a total credit card bill of $7,935 in 10.81 months.

8. Lincoln, NE

The median post-tax income for a high school graduate in Lincoln, Nebraska is $25,828. And the lower-quartile rent in this city is $589. If residents were able to afford to put half of their disposable income after rent towards repayment, they could pay down a credit card bill of $7,935 in 10.91 months.

9. Tulsa, OK

Residents in Tulsa, Oklahoma could pay off a credit card debt of $7,935 in 10.98 months. This is based on a median post-tax income of $25,038 and a lower-quartile rent payment of $532, which means that they could afford a monthly debt payment of $777 using a relatively aggressive repayment strategy.

10. Oklahoma City, OK

Oklahoma City, Oklahoma is the most-populous in the top 10 of this list and it has a median post-tax income of $25,125 for high school graduates. The lower-quartile rent payment is $558 a month. Using a relatively aggressive repayment strategy, a resident who puts half of all disposable income after rent towards debt could pay a credit card bill of $7,935 in 11.12 months.

Data and Methodology

In order to find the best places to pay off credit card debt, we created a credit card debt payment model for 56 cities. To determine our list of cities, we excluded cities with a population smaller than 200,000 and those with a below-average unemployment rate.

To complete the analysis, we first calculated the amount of disposable income a high school graduate could have in each city, assuming he or she earned the median salary for high school graduates with no further education. Using SmartAsset’s income tax calculator, we found the after-tax income for local high school graduates. We then subtracted the annual lower-quartile rent to get how much disposable income the average high school graduate would have. Lower-quartile rent is the lowest number under which 25% of renters pay for rent.

We then assumed that high school graduates would dedicate half of their disposable income to credit card payments. Using that figure, we calculated how long it would take to pay off $7,935 of credit card debt, determined by dividing the estimated outstanding credit card debt by the number of households in the U.S. in February 2021. We also assumed consumers would be paying interest of 15.91%, which was the estimated average credit card interest rate, according to the Federal Reserve.

Data for population, median income for high school graduates and lower-quartile rent comes from the U.S. Census Bureau’s 2019 1-year American Community Survey. February 2021 unemployment figures come from the Bureau of Labor Statistics (BLS) and are measured at the county level.

Credit Card Tips

Consider consulting an expert. A financial advisor can help you plan so that you don’t find yourself in debt. SmartAsset’s free tool connects you with financial advisors in five minutes. If you’re ready to be matched with advisors, get started now.
Budgeting can go a long way in minimizing or even preventing debt. A budget is another way to make sure you don’t end up with too much credit card debt. Use SmartAsset’s free budget calculator to plan how much to spend on various categories so you don’t end up owing more than you make.
Choose the right card for you. If you do use a credit card, use SmartAsset’s Best Credit Cards rankings to find one that is best for your lifestyle.

Questions about our study? Contact press@smartasset.com.

Ben Geier, CEPF® Ben Geier is an experienced financial writer currently serving as a retirement and investing expert at SmartAsset. His work has appeared on Fortune, Mic.com and CNNMoney. Ben is a graduate of Northwestern University and a part-time student at the City University of New York Graduate Center. He is a member of the Society for Advancing Business Editing and Writing and a Certified Educator in Personal Finance (CEPF®). When he isn’t helping people understand their finances, Ben likes watching hockey, listening to music and experimenting in the kitchen. Originally from Alexandria, VA, he now lives in Brooklyn with his wife.

Choosing the Best Savings Accounts for May 2021

Storing your cash in a duffel bag under the bed has its perks — immediate access when you need it and the feeling of completely controlling your own finances.

But hoarding hard-earned money in your own home puts it at risk of theft or loss to natural disasters, and it’s doing you no favors in terms of interest.

Savings accounts at an FDIC-insured bank, on the other hand, keep your money secure and can earn you more money in the process.

Nowadays, the best savings accounts are typically with online banks due to higher interest rates, but brick-and-mortar banks still have some (though not many) benefits.

So which savings account should you choose? We’ve ranked the very best savings accounts available today to get you started.

What is a Savings Account?

A savings account is a bank account where you store your money until you need it. To see a detailed explanation to how it differs from a traditional checking account, visit our checking vs savings account comparison.

The best savings accounts are secured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000. That means that if you store your money with a bank and it goes under, you won’t lose your money.

Savings accounts are perfect for achieving your savings goals — for a car, a house, a wedding, vacations, you name it. More importantly, they are the best tool to build your emergency fund.

Most experts agree your emergency savings should total six months’ worth of necessary expenses in the case of job loss or another unpredictable emergency. Necessary expenses might include rent/mortgage, car payments, insurance, medical bills, utilities and groceries.

Don’t sweat it if you don’t have six months’ worth saved up. It takes time to build up your savings. Even if you can deposit $50 a month, you will eventually reach your goal.

One thing a savings account is not is an investment account. Savings accounts have historically low interest rates (or APY — annual percentage yield), but they are inherently low risk.

Pro Tip

After you have padded your savings account with enough cash to cover emergency expenses and your other savings goals, your money is better spent on investments like IRAs, 401(k)s and stocks.

Common alternatives to savings accounts include certificates of deposit (CDs), where you store your money for a fixed term for a slightly higher interest rate, and money market accounts, which typically offer a higher APY but have significantly higher minimum balance requirements.

So just how much interest will you earn in a savings account? That depends on the amount you’ve saved and your APY.

Online Banks vs. Brick-and-Mortar Banks

Before the advent of the internet, brick-and-mortar banks (and credit unions) were the only place to store your money, if not in your duffel bag.

But over the last couple decades, online banks have transformed the way we think of safely storing our money, and because of their low overhead (fewer staff and few or no physical locations), they can offer much better interest rates on savings accounts.

Pros of Online Savings Accounts

Two women smile as they withdraw money from the ATM. — Getty Images

When online savings accounts first surfaced, bank customers were hesitant to store their money with companies they had never heard of and were fearful of internet security issues.

Today, many of these same customers now see far more pros to online savings accounts than their traditional physical banks.

Higher Interest Rates

This is easily the most important distinction between brick-and-mortar banks and online banks. The national average APY for a savings account is 0.70%, but many brick-and-mortar banks offer just 0.01% interest rates on their savings accounts.

Online banks, on the other hand, tend to offer savings rates that are better — sometimes a lot better

Availability

Online banks are always open. The most competitive online banks offer around-the-clock service over the phone or online, and typically have more user-friendly apps and websites.

Some national banks and credit unions may offer 24/7 service, but their physical locations are typically limited to the 9-to-5 business hours.

Pros of Brick-and-Mortar Savings Accounts

There are advantages to brick-and-mortar banks. However, if these benefits do not hold massive weight for you, we highly recommend an online savings account.

Easy Access to Account Funds

Emergencies wait for no one. If you have an unexpected need for $10,000, it would be nice to be able to immediately access that.

Many online savings accounts take several days to get you your funds via ACH deposit or a written check, though wait times for ACH deposits have dramatically decreased in recent years.

(You can also speed up the process by opening a checking account with your online bank or choosing an online savings account with ATM benefits. Prioritize online banks that offer free checking accounts or ATM convenience cards.)

Brick-and-mortar banks, however, can allow major withdrawals at any of their locations. No waiting necessary.

In-Person Support

Some people prefer to resolve their issues over the phone or online, but many others find comfort in face-to-face communication. By opening a savings account with a bank that offers physical locations, you’ll be able to get in-person help from financial experts during regular business hours.

… And a Toss-Up

When it comes to access to ATMs, there is no clear winner. Obviously, brick-and-mortar banks and credit unions offer ATMs at all their locations, where you can easily withdraw your money.

Many online banks, however, offer fee-free withdrawals at select ATMs, and the best online banks will reimburse you for fees incurred out of network.

Best Savings Accounts of May 2021, Ranked

So what are the best savings accounts of May 2021? That depends on what you value most.

In determining our top nine, we reviewed more than 20 popular savings accounts and considered what elements seem to be most universally important:

Best savings rates
Stellar mobile app and/or web experience
Convenience of transfers (easy access to funds)

We considered only savings accounts that were FDIC-insured or NCUA-insured and had no monthly fees.

Because physical branch access is becoming increasingly less important, all accounts on our list are online or hybrid (online with some brick-and-mortar bank locations).

So what didn’t we consider when making our list that you might also want to look for?

Bonuses: Because banks regularly add, remove or replace their bonuses, we did not include them in our criteria. If you’re stuck between two or three comparable savings accounts, see which one offers the best sign-on bonus. We highly recommend checking out our current bank promotions list to help earn bonus cash or incentives when signing up for a new savings account.

Customer service: Quality of customer service is subjective. Read reviews and ask friends and family about their experiences when considering banks.

To truly determine how you feel about the level and quality of customer service, give the bank a call and ask some questions about the account. From that interaction, you should be able to feel out how much each bank values customers and prospects.

1. Synchrony Bank High-Yield Savings Account

We ranked Synchrony’s account as the very best savings account of May 2021 because it has the perfect combination of the most important elements of a bank.

APY: 0.40%.

Monthly fees: None.

Minimum balance requirement: None.

Additional fee for withdrawals: None.

ATM card: No fee for in-network ATMs, $5 monthly reimbursement for out-of-network ATM fees

Access to funds: ATM, electronic transfer to an external account, wire transfer or a paper check in the mail.

Mobile app: Yes. At the time of this writing, the app has a 4.5 rating on the App Store and 3.7 on Google Play.

Details: Synchrony Bank High-Yield Savings account.

2. CIT Savings Builder Account

CIT Savings Builder is another solid account option, but you have to meet certain conditions to earn it:

APY: To earn up to 0.40% APY, either your account needs $25,000 in it, or you must make a monthly minimum deposit of $100 to the account. The latter option should be more feasible and is a good incentive to save each month.

Minimum balance requirement: $100.

Additional fee for withdrawals: None.

ATM card: None.

Access to funds: Electronic transfer, wire transfer (free if you have $25,000 or more in the account) or paper check.

Mobile app: Yes. At the time of writing, the app has a 4.6 rating on the App Store and 4.2 on Google Play.

Details: CIT Savings Builder.

A woman smiles as she checks her phone at night in her bed. — Getty Images

3. Ally Online Savings Account

Though savings accounts are different from checking accounts — and thus should not be thought of as a place to quickly and easily get money — Ally does make it easier than most to access your funds when you need them. Just open a free checking account (ranked 5th in the best online checking accounts of 2020), and you can easily transfer your money over.

APY: 0.50%.

Minimum balance requirement: None.

Additional fee for withdrawals: After the six permitted withdrawals a month, you’ll pay $10 per transfer with Ally.

ATM card: None.

Access to funds: You can transfer money via direct deposit, electronic transfer, wire transfer or paper check.

Mobile app: Ally’s mobile app is highly rated at 4.7 stars on the App Store and 3.7 on Google Play.

Details: Ally Online Savings account.

4. Alliant High-Rate Savings Account

The Alliant High-Rate Savings account is offered via the Alliant Credit Union, so instead of FDIC insurance, it carries insurance through the National Credit Union Administration, but the benefits are the same.

Because it is a credit union, joining Alliant can be a little more challenging. You need to fulfill one of these four requirements:

Be a current or retired employee of a business that is partnered with Alliant.
Have an immediate family member or domestic partner who banks with Alliant.
Be a member of an Alliant-related organization/association.
Become a member of Foster Care to Success, Alliant’s partner charity.
Live in one of the communities near the Alliant headquarters in Chicago, Illinois.

APY: 0.55%. You need an average daily balance of $100 for the APY to kick in.

Minimum balance requirement: $5.

Additional fee for withdrawals: Hard limit on six federally regulated withdrawals.

ATM card: Money access is super convenient with a free ATM convenience card that qualifies at more than 80,000 ATMs nationwide.

Access to funds: If you live in the Chicago area, you’ll even have access to brick-and-mortar locations.

Mobile app: It’s got a solid app (4.7 on the App Store and 4.6 on Google Play)

Details: Alliant High-Rate Savings account

5. Discover Savings Account

The Discover Savings account offers a substantial APY and easy access to funds via a rewards checking account.

APY: 0.40%.

Minimum balance requirement: None.

Additional fee for withdrawals: The bank may refuse to pay transactions that exceed the six monthly permitted withdrawals.

ATM card: While Discover doesn’t offer an ATM card for its FDIC-insured savings account, you can sign up for the Discover Cashback Debit (it’s free!), which earns up to 1% cash back on up to $3,000 a month.

Access to funds: The linked debit account provides an easy way to transfer funds; otherwise, you can rely on electronic transfers, wire transfers and paper checks.

Mobile app: Discover’s app has a 4.8 rating on the App Store and a 4.5 rating on Google Play.

Details: Discover Savings account

Learn more: Discover Bank review

6. Capital One 360 Savings Account

While it’s certainly not the savings account with the best interest rate, it makes up for it with no monthly fees, easy integration with other Capital One 360 accounts (including a checking account for easy funds transfer) and a killer app.

APY: 0.40%.

Minimum balance requirement: None.

Additional fee for withdrawals: Hard limit on six federally regulated withdrawals.

ATM card: None.

Access to funds: If you don’t open a linked checking account for the easy ATM access, you can still access your funds via the traditional (but slower) means.

Mobile app: In 2018, the Capital One 360 mobile app was ranked No. 1 in customer satisfaction in the banking category for the second year in a row in J.D. Power’s U.S. Banking App Satisfaction Study.

The app has a 4.8 rating on the App Store and a 4.7 rating on Google Play.

Details: Capital One 360 Savings account

7. Barclays Online Savings Account

Barclays has its cons, like challenging access to funds, but its high APY and strong mobile app earned it a spot on this list.

APY: Barclays is one of three banks on this list to offer the competitive 0.40% APY.

Minimum balance requirement: None.

Additional fee for withdrawals: Withdrawals that exceed the monthly limit will result in a fee.

ATM card: None.

Access to funds: You can deposit and withdraw funds in a number of ways, through direct deposit, an electronic transfer, paper check and more.

Mobile app: Yes, but the Barclays US Online Savings mobile app is not the most user-friendly based on its ratings: a 3.7 on the App Store and a 2.4 on Google Play.

Details: Barclays Online Savings account

Learn more: Barclay’s Bank review

A woman works on her laptop while dipping her feet into a pool. — Getty Images

8. American Express Personal Savings Account

You might rely on American Express for your credit card, but the bank offers an online savings account worth your consideration as well.

APY: 0.40%.

Minimum balance requirement: $1.

Additional fee for withdrawals: Hard limit on nine withdrawals, though this is more than most of its competitors.

ATM card: A major drawback of the American Express account is the lack of ATM card.

Access to funds: Electronic transfer, wire transfer and paper check are the only ways to access your money.

Mobile app: It currently has a 4.9 rating on the App Store and a 4.2 rating on Google Play.

Details: American Express Personal savings account

9. Marcus Online Savings Account by Goldman Sachs Account

Our final online savings account is by Goldman Sachs. It offers a competitive APY and fairly new mobile app.

APY: 0.50%.

Minimum balance requirement: None.

Additional fee for withdrawals: Due to a change in federal law, Goldman Sachs currently doesn’t impose a limit on withdrawals.

ATM card: None.

Access to funds: Withdrawals are limited to electronic transfer and wire transfer (you also cannot deposit checks via the app).

Mobile app: Yes. It has a 4.9 rating on the App Store and a 3.9 rating on Google Play.

Details: Marcus Online Savings Account

6 Tips for Choosing a Savings Account

You should be aware that banks can change interest rates, develop better apps and update their bonuses, so it is important to understand how to determine the best savings account for yourself.

Here are a few tips:

1. Consider Your Needs

We prioritized high savings rates, ease of funds transfer and mobile apps in our rankings, but maybe for you, two-factor authentication and customer service are top considerations.

Build your own ranking system based on your top two or three criteria. You won’t find a perfect bank that offers everything, but at the very least, you’ll find banks that can meet all of your top needs.

2. Stick With Online

Put your money in an online savings account, unless you have a good reason not to, such as a high interest savings account at a brick-and-mortar credit union or a regular need to get in-person help.

3. Save Only With Insured Banks

Do not put your money into any bank that is not insured by the FDIC. Or, if you go the credit union route, make sure it is insured by the NCUA. We did not include any banks on our list that were not insured.

4. Don’t Be Tempted by Sign-on Bonuses Alone

Earning cash for starting an account with a bank feels awesome, but don’t let the appeal of $100 now prevent you from putting your savings into an account that will earn you $500 over a couple years.

5. Find a No-fee Account

Be wary of accounts with monthly maintenance fees, statement fees or any other miscellaneous charges. You’re more likely to find these fees with a brick-and-mortar bank.

Ideally, find a bank that has an associated free checking account for easy and fast funds transfers.

6. Read the Fine Print

Know what you are signing before you sign it.

If an APY sounds too good to be true, it’s possible there are strings attached — or that the rate is only temporary.

Ask questions and do research when you are confused by any of the terms and conditions, and don’t deposit your savings until you are satisfied with the agreement.

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Source: thepennyhoarder.com