Category: Finance

3 Facts About Credit Card APRs

credit card APR

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Whether you blame text messaging, millennials, or simply busier lives, our modern society has developed a dependence on acronyms that can make it difficult to communicate unless you’re firmly in the know. At the same time, some of these acronyms have been around long enough that we really ought to know them — especially those that directly impact our finances.

One of the most important acronyms in the consumer credit world (and the business credit world, at that) is APR, which is short for annual percentage rate. In essence, APR refers to the interest rate you pay for a particular credit product — be it a loan, a credit card, or some other type of credit line.

For the most part, the details and specific applications of an APR, including the relationship between the APR and the actual interest you pay, will vary by the type of credit product. For example, the ins and outs of your credit card APR will be different than those for a loan APR in several key areas.

  1. Your Card Likely Has Multiple APRs

The fact that a single credit card may have multiple APRs can be a source of much confusion for the credit card novice, but it’s pretty straightforward once you know what to look for — and where to look for it.

In general, your average credit card will have as many as three different transactional APRs, with the exact APR you’re charged dependent upon the type of transaction responsible for that portion of the balance. The typical transactions with their own APR include new purchases, cash advances, and balance transfers.

As an example, consider a hypothetical shopper, Shonda, whose total $850 credit card balance includes: $500 in new purchases, $100 in cash advances, and $250 from a transferred balance. If Shonda’s credit card charges 15% APR for new purchases, 20% APR on cash advances, and 10% APR for balance transfers, then she’ll be charged three separate APRs on her balance: 15% on the $500 in new purchases, 20% on the $100 in cash advances, and 10% on the $250 transferred balance.

Aside from promotional balance transfer APRs, most credit cards will have the same rate for both balance transfers and new purchases, but don’t let this fool you into thinking the two transactions will be treated the same way. Specifically, the interest fee grace period that applies to new credit card purchases doesn’t apply to other transaction types, meaning you’ll likely be charged interest on balances from balance transfers and cash advances as soon as the transaction is complete.

The details of your card’s APRs can be found in your cardholder agreement, which was part of your welcome kit and can also be downloaded from your issuer’s website. If your cardholder agreement doesn’t specify an APR for a certain transaction type, chances are good that the card doesn’t support that type of transaction. For instance, store cards and other easy credit cards to get for rebuilding credit may not allow balance transfers to the card.

  1. Late Payments Can Increase Your APR

Another hugely important APR fact to remember is that making late credit card payments can actually increase your APR. Specifically, many credit cards will instigate a penalty APR if you make a late payment, and that penalty can be huge — 30%-APR-or-higher huge.

Penalty rates aren’t strictly limited to issuers providing credit cards for bad credit, either; even prime credit cards may charge you a penalty APR after missing a payment. This can be particularly painful for cardholders who are enjoying a 0% APR from an introductory offer, as you could go from zero to 30% in the blink of an eye.

Even worse, penalty APRs won’t apply solely to the balance you had when you made the late payment. Many credit cards will require you to meet certain conditions, such as making six months or more of on-time payments, to return to your normal purchase APR. And some cards will actually charge you the penalty APR indefinitely.

The easiest way to avoid falling victim to a penalty APR is to avoid late payments entirely by automating your credit card payments. This will ensure your bill is always paid by the correct date, regardless of whether you actually remember the date.

  1. Credit Card Interest Rates Are Variable

Something that can be confusing for even seasoned credit card veterans is that the APRs charged by your credit cards are often variable, meaning they can change as the market changes throughout the year. The most common type of variable APR is based on the Wall Street Journal Prime Rate (WSJ Prime Rate), which is a measure of the US Prime Rate determined by the interest rates being charged by the 30 largest US banks.

Despite popular assumption, the Prime Rate isn’t set by a specific government body, though it is heavily influenced by the federal funds rate overseen by the Federal Reserve’s Federal Open Market Committee (FOMC). Historically, the Prime Rate tends to remain three percentage points above the federal funds rate.

Changes in the federal funds rate will occur as deemed necessary based on the current economy, with rates generally decreasing in flagging economies and increasing as the economy improves. There are no limits on how often a rate change can occur. The rate may change multiple times in one year, for instance, or go several years without changing at all.

As the federal funds rate changes, so, too does the WSJ Prime Rate. And since your credit card’s APR most likely is based on the WSJ Prime Rate, changes in the federal funds rate can mean changes in your APR. Each change in the federal funds rate is typically made in quarter-point increments, meaning a single rate change could see your credit card APR increase by 0.25%.

Save a Lot of Cash with a Little APR Knowledge

Whether we like it or not, we live in a fast-paced, acronym-rich society — even in the often-behind-the-times financial industry. As such, it’s up to us to stay informed on the important terms impacting our lives (and pocketbooks).

While hardly the only acronym that will crop up along your personal finance journey, APR is definitely one of the most common in the credit world. It can also be one of the most expensive, especially if you don’t know the important facts, such as the painful truth of penalty APRs.

On the other hand, armed with the right knowledge, you can go forth and do battle against high APRs, excessive interest fees, and dreaded penalty APRs like a financial pro, potentially saving yourself money — and a headache.

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Four Personal Finance Tools You Need and Why

personal financial tools

Most high school educations do not require learning real-world skills like balancing a checkbook, keeping track of earnings, or paying bills on time — all cornerstones of building and maintaining credit.

Luckily, a perk of living in the age of technology is the fact that we have instantaneous access to an assortment of personal finance tools that are critical in managing finances and staying on top of our credit. Here are four of the best tools available today.

1. Online budgeting tools

Spending money you don’t have — and using credit cards to stay afloat — is one of the fastest routes to credit trouble. This is where an online budgeting tool like You Need a Budget comes in. YNAB is a basic tool used to strike the delicate balance between your income and costs of living. It will help you plan for expenses, cut entertainment or lifestyle costs when needed and most of all, stick to your financial goals. YNAB and other online budgeting tools can help keep some of your hard-earned money in your pocket.

2. Financial mobile apps

The iTunes and Android app stores are full of free financial mobile apps to help you stay on top of your money. They are a great way to be accountable while on the go and make personal finance part of your daily routine. For example, Pocket Guard gives users a snapshot of how much they can spend at any given moment. It crunches the numbers and spits out an estimate for how much can be spent in a given day, week or month. Taking a moment to find a financial mobile app that can help you stay on top of your money is well worth the time investment.

3. Bank resources

If you have an account with any reasonably sized bank, chances are there will be a mobile banking app for instant information and access to your money. Some bank apps allow you to take a photo to deposit a check, which certainly beats standing in line for a teller. Most banks also offer online banking, which may give you the ability to review account balances, transfer funds, pay bills and manage investments, loans, credit and more. Depending on your banking institution, many personal finance tools could already be right at your fingertips.

4. Personal finance subscription service

For a more thorough dive into personal finance you might consider a professional subscription service. Lexington Law Firm’s Premier Plus membership is the leading financial solution for credit repair, score coaching, identity theft protection and managing personal finances. The Personal Finance Manager included in the membership is all of the services mentioned above rolled into one — and then some. Features include:

  • Budgeting — A budget can be auto-generated based on previous spending patterns. Your budget is then graphically represented, making for an easy and intuitive guide for spending.
  • Account management — Monitor all your financial accounts from one spot by syncing to the central Accounts tab.
  • Goals and trends — Spending trends are automatically identified as you make purchases. From there you can set goals to improve your finances long term.
  • Credit insight — Review your credit reports and the items that are affecting it. Receive your FICO Score and an analysis on how to improve it.

If it’s time for you start the journey to better personal finance and credit repair, the Lexington Law approach is the most holistic option on the market. Users receive detailed understanding of every factor affecting their wallet and credit in order to improve their finances long term.

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Confused About Refinancing Your Home? Consider These 6 Tips

refinancing your home

With interest rates still at low historical levels, many homeowners may have considered the idea of refinancing their homes to save some money – but may be concerned about the hassles and headaches involved to pursue the option.

It turns out that the time spent doing your research and shopping around for a mortgage refinance deal can definitely be worth it. The National Bureau of Economic Research recently surveyed the market and indicated that at least 20 percent of homeowners could qualify for refinancing, saving them an average of more than $11,000 – and a total savings to consumers of more than $5 billion.

Refinancing is not a simple process, but if you follow these six steps, you might find a solution that could save you a significant amount of money – even if you’re challenged by credit issues.

Do Your Research

The best approach to finding a deal is to do some detective work. Start with your own lender or bank, and simply ask them if refinancing is an option. Then, do some research and speak with the competitors. You might even be pre-qualified for refinancing; certainly ask them for some good-faith estimates on what they might be able to do to work with your loan. Do some online searches, or even go to a lender or financial institution in a nearby city – the more evidence you have of the potential to save money, you might even be able to get your own lender to step up to the plate.

Prepare for the Paperwork

Part of most homeowners’ aversion to the idea of refinancing stems from the challenges involved in the process – and they’re certainly real. Banks have made refinancing a much more complex process than it was in the free-wheeling days a decade ago, with some homeowners spending as much as three months to score a deal, even with sterling credit.

Be prepared to do almost as much work as you did when you initially purchased your house. That means having all of your documentation and supporting materials at hand, even when you’re making those initial inquiries with potential lenders. It’s critical to have copies of your recent income tax returns, your bank statements, copies of your pay stubs and other financial details that a lender can use to start the process. Some lenders will also allow you to begin an application online, which can ultimately save time. And be prepared for the long haul.

The 1 Percent Rule May Not Apply

When people are considering the benefits of refinancing their mortgage, the standard wisdom suggests that it’s not really worth the effort unless you can reduce at least 1 percent of your current interest rate. While that’s probably good advice if you’re not willing to do the work involved, experts say that even a one-quarter of a percent change could save you significant money down the road, provided that the timing and your long-term plans for the home all add up.

To see if refinancing is right for you, consider what your own financial break-even point might be for a refi deal. How long do you think you’ll be living in your home? Are you planning on sticking with your current job for a long period? Those computations will help you figure out if the refinance is worth the effort.

The math should be straightforward: Consider your total projected savings per month as a result of refinancing, and divide it by the expected closing costs involved. If it costs approximately $6,000 to do a refinance but it looks like you’ll be saving $200 a month for the life of the loan, it’s going to take you at least 30 months to begin to break even. If that fits into your long-term plans for the home, then even a small percentage change will pay off in the end.

Banks are Willing to Refinance – Really

As mentioned before, banks have indeed cracked down on the rules and procedures involved in refinancing. But they haven’t made it impossible, and still need your business, so keep an open mind and talk with your banking representative.

You may be surprised by their relative flexibility. Experts say that even folks with less-than-fantastic credit can qualify: A credit score of 580 may put you in the running for a Federal Housing Administration loan or refinancing offer, and a score of at least 620 could be sufficient to work with some traditional lenders.

Even the idea of a 10-percent downpayment on a home is not the absolute rule nowadays, with some lenders willing to accept as little as a 3-percent down payment. Asking does not hurt, and you may be surprised by the flexibility.

Better credit will definitely get you a better deal, so you may want to consider the option of working with a credit repair company to help address inaccuracies or issues that may be dragging down your score.

Score a Deal on Your Closing Costs

One of the biggest disincentives for refinancing is the fear of major closing costs. Those are certainly valid concerns, but savvy homeowners are also discovering many ways to roll those costs into the loan themselves, or have considered taking a marginally higher interest rate in order to cut those closing costs. It’s a math game, but for some borrowers, it works.

The notion of “no-cost” financing can indeed be helpful, especially for those who only see themselves living in their house for three to four years, and can accept a higher interest rate or avoid the impact of closing costs to maximize their savings.

Don’t Feel Attached to Your Lender

Ultimately, the best deal is going to drive the refinance process, so don’t feel beholden to your current lender. If they’ve been demanding, discourteous or have tried to dissuade you from heading down the refinancing road, shop around. You’ll likely find other options who are more amenable to your business.

If you’d like some professional suggestions on the best ways to help fix your credit score, we can provide some answers.

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You Should Make Good Credit a Priority – Even in Retirement

Good Credit Priority in Retirement

Each month sees thousands of baby boomers joining the ranks of the retired, as one of America’s most significant waves of population finally reaches the age where Social Security benefits and post-work plans start to come to life.

Today’s retirees are a little different from the somewhat simpler times of the past. Fewer are retiring with guaranteed pension benefits from their employers, and many will have to rely on a mixture of savings and Medicare benefits to help them enjoy a long and healthy retirement.

What’s more, longevity rates are at an all-time high for Americans. Many of those retiring today could conceivably live into their late 90s (or beyond), making their financial plans and a positive credit score all the more important to long-term happiness.

The Boomer Debt Burden

Today’s boomer-aged retirees are also leaving the workforce under different circumstances than their parents. According to data from credit bureau TransUnion, the average baby boomer has amassed $100,000 in debt, leaving many questioning whether they can afford to fully retire or if they will have to continue working into their golden years.

The reality of long-term financial issues, even at retirement age, makes it all the more important for those in their late 50s or mid-60s to keep on top of their credit situation.

The uncertainty about retirement-age financial plans means that more older folks will have to consider loans, credit cards, and other financial vehicles to help them cope with the loss of a regular paycheck.

And while it might be nice to think that creditors or banks might be willing to cut a retiree some slack when it comes to paying bills on time, just a few late (or entirely missed) payments can cause a serious impact on your credit score.

As a result, you might face higher interest rates on cards or be denied loan privileges. Poor credit can also impact your ability to get a second mortgage or to pursue the increasingly popular reverse mortgage as a means to help subsidize medical or other senior-living costs.

It Pays to Keep on Top of Your Credit

Experts suggest that retirement-age folks do what the rest of the working public should be doing. That is, paying much more attention to their credit reports and engaging in financial behavior that helps build, not burden, your overall credit picture.

The good news is that it is not impossible to keep on top of your credit situation, though it takes a little bit of extra dedication. Maybe a little extra time on your hands can help, if iyou can examine your purchases and other details in your credit reports and your financial statements.

The three major credit bureaus, as well as many banks and credit cards, now make it easy to get free copies of your monthly credit report. They will let you know what your credit score is and can alert you to any changes, credit inquiries, or changes that might cause a drop in your credit score.

You may want to consider a professional service to help monitor your credit, which can be helpful in spotting erroneous items, or tracking inquiries that have all the tell-tale signs of identity theft.

Don’t Chop Up the Cards

More and more seniors face the same quandary as their younger working peers: How to drive down their personal debt while also maintaining their credit power.

It can be tempting to go to the old standby in do-it-yourself credit repair – chopping up your credit cards – as a way of forcing yourself to make better financial decisions, but that route may not be the best, especially if you have limited resources in retirement.

Your credit score is generated by a number of factors, with almost a third of the value generated by your overall credit utilization. Consumers should try to use less than 30 percent of their available credit, though people often think this suggestion applies to only the credit limit on any particular card.

In fact, credit utilization looks at all of your credit resources, the pooled potential of your credit cards and lines of credit. That’s also measured against your ability to handle other existing debts such as automobile loans, mortgage payments, and outstanding student loan payments. Your mix of credit usage is also a factor.

Cutting up a card means eliminating that extra credit float and shifting the burden onto a smaller available body of credit.

Credit agencies also give credit score points to the longevity of an account, so closing a card, especially one yo have had and kept in good standing for many years, can also produce an accidental negative.

Maintaining a Healthy Credit Picture

Like any other consumer, retirees and pre-retirees are wise to do their best to keep on top of their credit obligations, as payment history is yet another significant factor in retaining a positive credit score.

Paying your bills on time, every time, is key to keeping creditors happy. And checking your credit report on a regular basis can help you know if you’ve accidentally missed a payment or if a creditor has said you have done so, as a billing mistake on their part. Learning to pay bills online or even via a smartphone is also an important skill to develop, and a valuable one even for seniors.

Modern retirement is certainly not always the riding-bicycles-on-the-beach utopia we see in retirement investment companies’ ads, but it doesn’t have to be a financial nightmare, either. By keeping a closer look at your credit score and your use of the credit you have, you’ll have better opportunities to access financial help if you need to do so.

How can I fix my credit? We can help, with an array of professional resources designed to assist you in better understanding and improving your score.

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3 Areas to Keep an Eye on as US Debt Raises

United States Debt

Americans may have learned a sense of frugality in the tough days following the 2008 financial meltdown, but those thrifty ways seem to have gone by the wayside.

According to the Federal Reserve, U.S. consumers now owe almost $13 trillion for car, home and credit card loans, a number that’s even higher than it was before the days of the Great Recession.

Spending may help keep the economy buoyant and be beneficial to the country’s hospitality, service and tourism industries, but there are also some key concerns to watch as that collective debt load grows ever larger.

Student Loan Debt at Record Numbers

While home and car loans do help produce a bit of equity and keep America on the road, our staggering student loan load has become a significant burden for more and more graduates, especially those who haven’t been able to land the higher-paying jobs they’d hoped their degree might help them get.

Americans now owe $1.34 trillion in student loans – a number about the same as the annual gross domestic product of Russia – and with college tuitions on the increase and more students heading to universities or trade schools each year, that number is rising at a fast rate.

Student loan debt can also become a serious burden for workers, most of whom would rather be spending that money on new purchases or rent, and almost 11 percent of student loan holders are now 90 days or more behind on making their payments.

Car Loans Also on the Increase

If there’s one thing Americans love, it’s new cars, and with average transaction prices on the rise and the SUV and pickup truck craze filling the country’s garages with large, high-value, low-mileage vehicles. It’s a $1.17 trillion part of the economy, with record sales.

And as those costs go up, car buyers are also signing much longer and longer car loan agreements to lighten their monthly payments, with the average car loan now 62 months or more.

Making a hefty monthly payment for almost six years can become a strain on many consumers’ budgets, not to mention the ever-escalating prices for car insurance, and about the only respite is low fuel prices – though they are sure to not last forever.

Charging it is Back in Style

Credit card debt is also a major part of America’s overall, escalating debt load, with three-quarters of a trillion dollars now on consumers’ monthly bills.

And with deepening credit card debt comes credit issues – missed payments, total defaults or consumers carrying balances that are too large or spreading their credit too widely with too many bank, department store or gas station cards.

Those who realize that they’ve spent themselves into a spot that they can’t get out of may also want to consider some professional help. Are you looking for credit repair services?

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