Interest Rates Are Rising, Did You Know?

One common theme we see with many clients, friends and prospects is the lack of knowledge surrounding interest rates. Many Americans have debt, whether that be credit cards, student loans, mortgages or other financial obligations. However, while taking on debt can be beneficial to your credit score and financial health, it can be detrimental for those who are unaware of their interest rate and how to interpret it. 

Interestingly enough, a Bankrate survey  reported that “Of those who carry a balance, 40% don’t know the interest rate they’re being charged on their primary card”. Not knowing your interest rate and its terms can be very dangerous and potentially very costly to the borrower. When reviewing your financial picture, be sure to pinpoint certain debts that have higher interest rates and make sure you are staying on top of your payments and reducing that liability. 

As we’ve been discussing for quite some time now, interest rates are beginning to rise and, according to Federal Reserve’s Jerome Powell’s announcement last week, rates will continue to rise throughout the year. This is a great and timely warning to educate yourself on your interest rates as you prepare financially for 2022 and beyond.

Moving forward, make sure you know your interest rates, especially as you evaluate whether you want to take on more debt and what it may cost you. With pandemic-related economic support the past two years, interest rates may not have been on the forefront of your financial planning list, but now it’s time to take control and see how your current rates and rising rates will impact your portfolio, credit cards, mortgages, and overall financial life. 

If you need help analyzing and understanding how your interest rates will affect you, email us at info@shermanwealth.com or schedule a complimentary intro meeting here. 

What Happens If You Try To Spend More Than Your Credit Limit?

credit cards

When you sign up for a credit card, you are often assigned a credit limit when that account is opened.  These limits typically start at $200 and go up to tens of thousands of dollars.  With so many people out of jobs and finding it hard to make ends meet these days, credit cards have become a necessary resource to pay for things that we might not have the money for right now. However, the more you charge on your cards, the closer you may come to hitting that max limit.  If you do hit that amount, you are likely to get hit with over-the-limit fees. Before you decide to use your credit card to pay for necessities, there are alternatives to going over your max before risking having your credit limit cut or incurring unnecessary fees.  

Can You Go Over Your Credit Limit?

Yes, you can go over your credit limit, but there’s no surefire way to know how much you can spend in excess of your limit. Card issuers may consider a variety of factors, such as your past payment history, when deciding the risk of approving an over-the-limit transaction. Any approved transactions above your credit limit are subject to over-the-limit (or over-limit) fees. This credit card fee is typically up to $35, but it can’t be greater than the amount you spend over your limit. So if you spend $20 over your limit, the fee can’t exceed $20.

Due to the CARD Act of 2009, over-limit fees can’t be charged without your consent. As a result of these regulations, most card issuers have done away with over-limit fees and the default for any transactions over your credit limit may be that the transaction is simply denied.

If you do consent to a one-time over-limit fee, you can change your mind and opt-out at any time. However, in doing so, your card issuer will likely decline any purchases you attempt to make over your limit. Even if you opt-in to over-limit fees, transactions exceeding your credit limit may still be denied.

Should You Go Over Your Credit Limit?

While spending over your credit limit might relieve some short-term problems, it can also cause long-term financial issues, including fees, debt and damage to your credit score. The best practice is to try to maintain a low credit utilization rate – avoid maxing out your card and spending anywhere near your credit limit.  If you do go over your limit, you should sit down and consider why it happened in the first place and review your budget. You should figure out what purchases caused you to spend more and whether you can make any changes to your spending habits.

Alternatives If Your Credit Limit Is Low

For those that may have a low credit limit or if your credit limit recently got cut, there are some options to ensure you don’t max out your spending. If you’ve had a low credit limit for a while and currently have a stable job, you may want to request a credit limit increase. This can be a good idea if you have good credit (scores 670 to 739) or excellent credit (scores 740 and greater) or if you haven’t updated your income in a while and make more money than what’s listed. Your card issuer may pull your credit report for this request, which may cause a small, temporary ding to your credit score.

However, if your credit limit was reduced, you may want to consider other options. Cardholders with good payment history and a stable job should call their card issuer and ask for reconsideration.  You should ask why your credit limit was cut, explain that your account is in good standing and that you have a stable source of income to pay off your bill. This may shed light on why your limit was lowered and potentially result in your credit limit increasing — though there is no guarantee. Rather than asking for a credit limit increase on the card that had a reduction, you may want to consider any other cards you have instead. If you have three credit cards and one got the limit cut, see if you can get an increase on one or both of the other two,

If you have a history of missed payments or maxing out your cards, you are likely not a good candidate for reconsideration and don’t want to draw attention to yourself. Therefore, if you fall into one of these categories, it’s best to not try to request a higher limit.

When To Apply For A New Credit Card

Cardholders with only one credit card and a low credit limit may want to consider opening a new credit card, but should be aware of any potential risks. For starters, if you were recently laid off or faced a reduction in income, you may not be in the best position to be approved for a new card, and there’s no sense in adding a new credit inquiry to your credit report if your chances are low. Also, if you have a history of maxing out your card, you should be aware that more credit can lead to more debt. An additional credit limit can be helpful for affording your expenses, but it can also be harmful if you overspend.

Before opening a new card, give yourself clear guidelines on how you’ll use the card and stick to keeping a low credit utilization rate. When it comes time to pay your bill, make on-time payments of at least the minimum every month for all of your cards.  If you are able to do so, pay in full so that your credit score will  improve and your debt will be minimized. When applying for a new card, check your credit score first to narrow down your options. Then consider cards based on your credit score. 

In these tough times, we need to be responsible when it comes to spending and not see going over your credit limit as a choice. If you do need to use your credit cards to pay for utilities, groceries and other necessities right now, make sure you are aware of your max and other options you might be able to work out with the credit card companies before going over your limit. When you do receive those credit card statements, make sure to pay at least the minimum amount each month to maintain a positive credit score. And, make sure you are paying the bills on time to ensure you won’t incur any late fees either.  If you have any questions about credit, credit cards or other issues concerning your finances, please contact us.  We are all in this together and we’re here to help! 

How To Determine Your Debt Tolerance

Debt can be tricky. While on one hand it can help you achieve your goals and build your wealth, it can also be a downfall if you do not know how to use it properly. Sometimes, it seems like taking on debt is a good idea for raising net worth and building credit. However, building up debt can be a slippery slope and quickly turn negative, if you are over-spending and taking on too much. 

We know that finding the right balance can be tricky, so determining your debt tolerance might be an easy way to start tracking it. Today we want to point out a few key factors to consider if you are trying to figure out if you can afford more debt.

Calculate your debt-to-income ratio

Whats a DTI? Lenders use a standardized calculation called debt-to-income ratio (DTI) to decide whether you can take on a loan. DTI is calculated by dividing your monthly expenses by your gross monthly income before taxes. 

Watch out for your credit utilization 

If you are making a big purchase, take a second and think about your credit utilization rate. Buying a big expensive item may seem like a good idea, but it may temporarily drop your credit score and raise your CUR.  However, once you pay the balance off, your score will improve. A typical rule of thumb is to not spend too much over 30% of your CUR. 

Add up at the total cost of the debt

The more money you borrow, the more you’ll have to pay back in interest and other fees. Always do your research on the types of loans you will be applying to before taking it on. Think about using tools such as interest calculators to see how much you are really paying when you take on a loan.  

Putting aside the financials, you also want think about your personal financial situation. Make sure you are comfortable with your debt tolerance and know what you are doing before taking out more and more debt. If you have any questions about your personal situation or about debt, please email us at info@shermanwealth.com or schedule a 30-minute consultation here

How to Take Advantage of the Student Loan Relief Extension

Are you stressed about your federal student loan bill? Well, you’re in luck. The government has allowed another federal student loan extension through Sept. 30 The original pause for federal student loan payments had originally been set to end Jan. 31 for more than 42 million borrowers. This extension means that interest rates for student loans remains at 0% for almost another year. However, remember to keep in mind that this relief does not apply towards all student loans, especially private ones. 

This loan deferral gives you and your family a chance to slow down and catch up on your other bills and expenses. Or, if you are in the position to do so, you can use this relief as a way to keep building up your emergency fund. Also make sure to use this time to think about your future repayment plan as this relief will not continue forever.

Moving forward, Biden has said he is forgiving up to $10,000 in federal student loans for borrowers. But borrowers have no guarantees that such a change will take place or when. So, right now it’s important to take a realistic look at your overall financial situation and try to use the next eight months to your advantage. There is pending legislation to forgive student loans, so make sure to stay tuned for updates to come. If you have any questions related to your student loans and your strategy to repay them, please contact us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here

The American Consumer Is Flush With Cash After Paying Down Debt

Almost a year into the pandemic, and we’re seeing American’s in pretty good shape financially. This may seem like a surprising statement given the current climate and widespread of lockdowns earlier in the year, but it’s true statistically. We know this doesn’t apply to all families in the same way, but it shows how strong the US economy is recovering from such a year year.  

During this time we saw very low mortgage rates, that may have had something to do with the Fed policy, but we also saw that more and more Americans are holding onto extra cash, which is something we wouldn’t think to be true. 

“Despite the surge in Covid-19 cases, economists project a 4% annualized rate of U.S. economic growth this quarter, though down from the prior period’s record gain”, according to a Bloomberg survey. The survey also showed that the pandemic has been financially challenging for working class families more than wealth ones, but they all seem to have been stockpiling cash. One reason savings and cash has remained flush could contribute to the fact that due to the pandemic, many people have not been spending on activities such as dining, leisure, and travel.

In all, it seems as though many American’s may have entered the pandemic in a strong financial position, which has helped them get through it. It’s surprising and great to see how after all this turmoil,  households are still remaining strong. It’s important to take advantage of situations listed above, especially refinancing, to help lower payments and in turn pile up your cash account. If you have any questions or want to discuss your portfolio or finances, please reach out to us at info@shermanwealth.com or schedule a complimentary 30-minute meeting here.

New Fed Strategy Means Cheaper Loans For A Long time — Here’s How You Can Benefit

fed resize

As we’ve all been waiting to hear about the outcome and policy changes from the Jackson Hole symposium, there’ve been some updates that you should know. The Federal Reserve has said that it will let inflation run “hotter than normal” to help the economy bounce back from the coronavirus crisis, according to a CNBC article. According to some commentary, it seems as though this policy change is meant as a stimulus, to get people to spend more. 

Since the central bank lowered its benchmark rate to near zero in March, credit card rates have hit a low of 16.03%, on average, according to Bankrate.com. The average interest rate on personal loans is currently about 12.07% and home equity lines of credit are as low as 4.79%, according to Bankrate, both notably less than the APR on a credit card.

On the flipside, “Low inflation has helped suppress mortgage rates,” said Tendayi Kapfidze, chief economist at LendingTree, an online loan marketplace. “If you let inflation go up, mortgage rates will also go higher.”

Given this new economic data, and with these cheaper loans for a longer period of time, it’s important to take a look at where you can lock in those lower rates, such as through credit card balance transfers or refinancing your mortgage. If you have any questions about this new policy, and want to see how this could be an advantage for your portfolio, please reach out to us at info@shermanwealth.com and we would be happy to discuss with you. 

Here’s How to Prepare your Finances

finances

With the additional $600 per week unemployment benefits coming to an end this week, it is important to think about the ways in which you can prepare your finances for the months ahead. Many Americans are currently jobless and have been relying on these additional COVID-19 related unemployment benefits. There is much uncertainty as we navigate through the pandemic the best we can, but there is great value in coming up with a plan to start saving and getting your finances in order as your benefits may decrease in the coming months. 

Here are some key ways to be prepared for your future and what you should expect as any additional unemployment relief comes to an end. 

Adjust your Budget 

A great place to start in uncertain times is with your budget. Sit down and attempt to cut out all unnecessary expenses along with looking into other options that may be cheaper. It’s important to think of all your essential monthly costs and see where you can save a buck or two. For example, take a look at your housing, food, utilities, and car payments to see if there are places you can cut down. Also make sure to take a look at bank and credit card statements to cut out those annoying hidden fees or unnecessary charges such as ATM fees. Also, think about selling items you may not use anymore for some extra cash. 

Contact your Creditors 

If you have not already called your creditors, you should consider reaching out to them and discussing your options moving forward. If you are only able to pay the minimum payment on your credit card bill, make sure to let your creditors know so they can figure out a plan and help you out. Many creditors may be able to offer you “financial hardship assistance” so that you can keep your credit in good standing even if you can’t pay more than a certain amount each month.

Build an Emergency Fund Even if You Don’t Think You Can 

We all know it’s important to have a cash cushion, especially in times of economic crisis. However, it can be difficult to think about how to build one when you are already strapped on cash. But, it’s never too late to start saving. The first step is to start reducing any debt. You should also try to put yourself into a “saving mindset” by incrementally setting aside a small stash of cash every month. You can contact your bank to set up auto payments to your savings account each month, which will help you get consistent with your saving habits. 

Expect a Drop in Your Credit Score 

While it’s important to maintain a strong credit score, in times of financial crisis it is okay to expect a drop in your score. As mentioned above, make sure to give your creditors a call to keep them in the loop about your situation. Also, if you are unable to pay your credit card balance in full, at least pay the minimum amount to keep your credit stable. 

Understand Your Costs

When you are strapped for cash, it is important to know which bills you should be prioritizing, for example, housing payments. While the additional unemployment relief is ending, so are the eviction moratoriums. Make sure to do some research and have a conversation with your creditors, landlords, and banks to fully understand the regulations and rules associated with your payments. 

Get Creative and Seek out Resources

Our current environment is a new adjustment for everyone, so don’t be afraid to seek out help even if you never have before. Your local city and state government offer information and resources ready to help you. When the additional coronavirus unemployment relief runs out, you may be able to qualify for government programs such as SNAP, Medicaid, and HEAP, according to CNBC. There are also many charities and organizations that are doing their best to help out those in need. 

Ask your friends and family for advice and we encourage you to seek out a financial advisor for guidance and clarify on your financial situation. If you have any questions or are uncertain about the future of your financial life, we are happy to help you in any way and help you figure out your financial future. Please contact us to schedule a free 30 minute consultation.

 

Recently Graduated? How to Establish A Good Credit Score

credit score

Are you a recent college graduate? Are you starting your first job? While it’s extremely important to save money when you are first starting out, it’s also quite important to know how to spend money and understand the concepts behind your credit score and establishing good credit. 

As your first paycheck starts rolling in, make sure you are opening multiple lines of credit, including opening credit cards, putting your name on your school apartment lease, and signing your name on the comcast bill. However, when you open these lines of credit and sign your name, make sure you are paying your bills in full each month. If your roommate hasn’t paid your cable bill, make sure to stay on top of them so it doesn’t impact you down the road. However, if you have been impacted by the coronavirus pandemic and can’t pay the full bill, make sure you understand to pay the minimum and reach to your creditor to figure out a reasonable solution or game plan. 

Here are five important credit concepts that you should be aware of:

  1. Low credit scores can cost  you thousands 
  2. Your credit score actually measures your risk of not paying
  3. Credit repair companies charge for services that maybe you can do yourself 
  4. Your age has nothing to do with your credit score, except for how long you’ve been borrowing credit
  5. All types of companies can check your credit score

Unless you have a perfect credit score, there is always room for improvement. The bottom line is that when you are just starting out, it’s easy to overlook the small steps needed in establishing a good score. However, having a good credit score is something that should be maintained and will impact many financial decisions you are able to make in your lifetime. If you have any questions about your credit score, how to obtain credit or how to fix a bad credit score, please contact us for a free 30 minute consultation.

 

4 Financial Red Flags When Dating Someone New

relationship

It might seem strange to talk about finances when you first start dating someone new. People often try to overlook financial issues when embarking on a new relationship as it can be uncomfortable and awkward to discuss. However, if you see a future with that special someone, it’s important to know what kind of financial baggage they might be bringing with them and to be aware of any potential financial red flags.

Red Flag #1: Having Different Approaches to Saving

If your partner is a spender and you are a saver, this could be your first major red flag. It is critical that you both discuss your savings plans and goals in detail. If you share accounts or credit cards, you don’t want one person spending more than their fair share since this would not only negatively affect your savings goals, but it can also create a power struggle over financial control. It’s important to discuss how much money you’re okay spending on certain items and creating a budget that will help you compromise to meet your financial goals. It may be best to keep your finances separate for now, however, if you’re still unable to reach an agreement.

Red Flag #2: Not Discussing Your Credit Scores

Disclosing your credit scores is a must. Depending on what your partner’s credit score is, it could diminish your chances of getting a house together or making any other big purchase in the future.

Red Flag #3: Neglecting To Address Debt 

It is essential that you know what debts your partner may have accumulated and how they plan on handling them. If you’re still getting to know one another, they may not be comfortable divulging the actual amount. You should, however, have a good understanding of whether or not they’re paying it off responsibly and spending wisely. 

Red Flag #4: Not Sharing the Same Financial Goals 

While the relationship is still fairly new, you should outline what your end goals are. It is important to ensure your financial goals are aligned early enough in the relationship to avoid any future disappointment. 

 

The excitement of any new relationship might cause you to overlook some major financial red flags. But when the time is right, it’s important to address these issues (preferably sooner rather than later) – especially if you’re both in it for the long haul.  If you encounter any of these red flags in your relationship and have any questions regarding your finances, please contact us – we are here to help!  

Coronavirus and Student Loan Debt: What You Need to Know

student loan debt

By the end of 2019, student loan in America reached $1.48 trillion.  There were approximately 45 million borrowers across the United States.1  The COVID-19 pandemic has created even greater financial instability for many Americans and those that have student loans may have more difficulty paying them than ever before.  

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was recently enacted to provide a wide array of assistance for families and businesses.  The legislation also made some important changes to assist federal student loan borrowers. 

Here are some answers to a few important questions regarding student loan debt during the current pandemic: 

Question #1: Are Interest & Payments Suspended on All Student Loans?

The suspension of payments applies only to student loans that are held by the federal government. However, your FFEL (Federal Family Education Loan) lender or school may suspend interest and payments voluntarily, but they are not required to do so. 

Regarding your federal student loans, all interest and payments are suspended through September 30, 2020.2 

The benefits authorized by the CARES Act do not apply to private student loans that are owned by banks, credit unions, schools or other private entities. If you are trying to suspend payments to these institutions, you will need to contact them directly to find out what your options are. 

Question #2: Should I Apply to Suspend My Payments or Interest?

Until September 30, 2020, there will be no interest accrued or payments due for federal student loans.2 There is no action required on your part as these payments will be stopped automatically.  

Question #3: What Should I Do if I’m Behind on Payments?

On March 25, 2020, the Department of Education announced that it would not be withholding federal tax refunds, Social Security payments or garnishing wages from those who have defaulted on their federal student loan payments.3 In addition, private collection agencies contracted by the government will put a pause on attempting to contact defaulted borrowers. 

No defaulted federal student loan will collect interest until September 30, 2020.3

Many of us are experiencing a certain level of financial stress as we navigate this “new normal” through the COVID-19 pandemic. If you are able to continue to make regular payments to your federal student loans, it is beneficial in the long-run.  However, it is important to know your options have changed. If you have any questions relating to your student loan payments or other financial matters, please contact us.  We are here to help! 

  1. https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/hhdc_2019q2.pdf
  2. https://www.congress.gov/bill/116th-congress/house-bill/748
  3. https://studentaid.gov/announcements-events/coronavirus#defaulted-loan-questions