Financial Tips As Recession Talks Loom

It’s certainly been quite a year, with the stock market having its worst first half of the year since 1970. As we’ve been weathering this extreme market volatility and watching the Federal Reserve hike interest rates to combat hot inflation, many believe a recession is near if not already here in some sense. With talks of a recession being thrown around, many are worried about what that might look like for them and ways that they can prepare. So, let’s take a look at some ways you can prepare and stay on top of your finances in the case of a recession. 

First and foremost, recession or not, establishing a financial plan should be your priority. Despite what the future holds, all the economic change in the fast few months should be an indicator of the importance of a financial roadmap and financial organization. If you already have a financial plan, now is a great time to revisit it to ensure your plan is equipped to weather not only the good times, but the bad as well. 

Next, think about adjusting your budget. We’ve been talking about this a lot, but with record-high inflation numbers and the Federal Reserve rising rates, many individuals are feeling the impacts of rising prices in their day to day. If you are feeling it too, you might want to think about cutting out old unused subscriptions or just accounting for inflation within your budget to ensure your cash flows align. 

Another tip when anticipating a recession is funding your emergency bucket. Your emergency fund is a crucial safety net to have, especially during uncertain and unprecedented times. Make sure you are comfortable with the value within your emergency fund in case you need to utilize those funds. Today, jobless claims hit its highest level since January coupled with surging layoffs, so update your resume and always protect yourself in the event of layoffs. 

In this rising-interest rate environment, we want to touch on variable interest rate debt and paying off your loans. If you are in the position to, think about paying off your debt, especially ones with variable interest rates, that could continue to increase with the Federal Reserve rate hikes. 

Most importantly, remember the importance of sticking to your long-term plan and try not to get too spooked by the markets. We know market volatility can be stressful, but it’s prudent not to derail years of your time in the market. Re-visit your asset allocation and ensure you are properly invested in the market. If you are having trouble sleeping at night because of your portfolio, you may be allocated incorrectly in correlation to your risk tolerance, so think about reassessing that as well. While these are only a few points to think about, if you have any questions about your personal financial situation or would like to establish a financial plan, we are here to help. Email us at info@shermanwealth.com or schedule a complimentary intro call here

 

The Federal Reserve Raised Interest Rates by 0.75%. What Now?

The Federal Reserve announced at its meeting today they are increasing its benchmark interest rate by 0.75%, the largest increase we have seen since 1994 in order to combat Friday’s 4-decade high inflation report. We saw rates rise over the last few days following the hot inflation report as you can see in the chart below. Fed Chairman Jerome Powell also said that he expects the Federal Reserve to hike rates by yet another 50 to 75 basis points during the July meeting and that “inflation can’t go down until it flattens out”. We will continue to monitor future rate hikes, but let’s take a look at how these increasing rates will impact the consumer. 

We previously wrote a blog discussing how a rise in interest rates will affect your wallet and future financial situation. A great place to start during this uncertain environment is to make sure your financial plan is up to date. Make sure you know everything you have and aggregate your entire financial picture into one place.

While we don’t know exactly where the market and interest rates will go, with talks of a recession near, it’s important to revisit your cash flows, keep a comfortable emergency fund, and review your budget and goals. Next, take a look at the debt you currently have and think about how these rising rates may impact variable interest rate debt you may be carrying or will carry in the future. Additionally, remember the importance of time in the market over timing the market. Especially for you long-term investors out there, make sure you stick to your financial plan and don’t let panic derail your roadmap and financial portfolio. As we continue to watch interest rates rise, seek out high-yield bank accounts with the highest interest rates that you can take advantage of.

We know that the current market environment might have you questioning your finances and current financial plan, which is why we are here to help. For more information on how rising rates will impact your portfolio and financial life, email us at info@shermanwealth.com or schedule a complimentary meeting to discuss your personal financial situation here

How Rising Interest Rates Will Impact Your Portfolio

As we’ve been discussing inflation and how to adjust your new budget accordingly, you might also be wondering how the continual rise in interest rates from the Federal Reserve will impact your wallet and investment portfolio. Let’s take a look. First, let’s start by digesting where interest rates come into play as they relate to your finances. Whether you have a savings account that earns interest, a mortgage or two, student or car loans, credit card debt and more, interest rates play a large role in each of these.

With rates being historically low for many years, many were taking the opportunity to refinance many of their loans and take advantage of a lower interest repayment. However, with the rise in rates from the Federal Reserve in order to slow down the economy and combat inflation, you might begin to think differently about your interest rates as a whole.

Now that rates are rising, loans, such as your mortgage, will be more expensive. So, if you are in the process of buying a home or refinancing, make sure you connect with your lender to see how the rise in rates will impact your situation. Furthermore, those of you with credit card debt will be seeing an even greater interest rate increase, so make sure you grab those zero percent interest rate credit cards or balance transfer options while they are still out there. 

As for student loans, if your student loans are at a fixed rate, which most are, this rise will not impact you. However, the Biden Administration just extended the federal student loan pause until September which will provide you with more time to prepare your budget for this additional payment. 

While rising rates will make some of your loans more expensive since you’ll be paying more in interest, they will have a positive impact on your savings account, accruing additional interest. If your emergency fund is in a traditional savings account, take this opportunity to open up a high-yield savings account to earn more interest on your savings fund. For more information on the perks of a high-yields savings account, check out our recent blog on why you should open one. For those curious about their investment accounts, especially given the recent market volatility we’ve seen over the last few years, the importance of a long-term oriented diversified portfolio is key. If you have further questions on how rising interest rates will impact your wallet, email us at info@shermanwealth.com or schedule a complimentary intro call here. 

Have You Had Regrets About Your Financial Decisions In The Last Year? You’re Not Alone

The COVID-19 pandemic has certainly had a large impact on the financial decisions of many individuals across the globe. The uncertainty of the pandemic along with continued times of extreme market volatility caused many to pull out of the market temporarily, or at least until things “returned to normal”. At Sherman Wealth, we are firm believers in “time in the market” over “timing the market”. Despite great market volatility and being spooked by unprecedented times in the world, sticking to your long-term financial plan is proven to give you the best output at the end of the rainbow. 

So let’s take a look at some of the financial regrets young Americans have about their investing decisions over the last year. According to Fidelity Investments’ 2022 State of Retirement Planning Study, more than half of young adult investors halted saving for their retirements during the pandemic and nearly half said there is no point in saving until things return to normal.” While many of these individuals believed in pulling out of the market at the time, they now are wishing that they instead invested more instead. 

A recent study from MagnifyMoney found that “Some 57% of Gen Z investors and 50% of millennials regret how they invested in the last 12 months,” with many wishing they invested more money into the stock market, others wishing they didn’t sell assets when they did, and some wishing they had saved more as a whole. Those who didn’t save sufficiently during the pandemic or pulled assets out of the market during a crash are also now feeling unsure about whether they can handle another unexpected expense or event. As you can see from the data stated above, those who didn’t see the original March 2020 COVID-19 crash as an opportunity to stick to their long term plan or potentially even invest more, are now regretting those decisions. 

We know it’s easy to get spooked by the market, especially given the unprecedented events of the last few years. Now that it is financial literacy month, we wanted to take this opportunity to make sure to educate yourself on the benefits of long-term investing and recognizing behavioral biases that may be getting in the way of your financial decisions. We recently wrote a blog discussing how to identify behavioral biases and the “do’s and don’ts” during a market correction, so check that out if you find yourself having trouble sleeping at night because you are worried about your investments. Life is complicated, but your finances don’t have to be. If you start with the right foundation, such as creating a customized financial plan and stick to it, you’ll find yourself in a much better financial position in the long term. If you have questions about building your financial foundation or financial roadmap, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here

Does Your Financial Advisor Provide These Services?

In our last blog we wrote about questions to ask when evaluating and searching for a financial advisor. Finding the right financial advisor is extremely important, as you want to trust the individual who will be handling your money and providing you with financial advice. We want to continue the conversation and make you aware of the services that your financial professional should be providing and assisting you with.

For starters, when choosing your financial professional, make sure they take a holistic approach to your financial life, encompassing all aspects of your life while making sound recommendations. We believe that in order for your financial advisor to make decisions or give you options that are in your best interest, they should be collecting and analyzing each of these documents. 

  • Employee Benefit Packages 
  • Tax Returns 
  • Bank Accounts 
  • Investment Accounts (401(k), Taxable, IRAs, Annuities, Pension, 529’s, HSA)
  • Real Estate Assets 
  • Estate Documents (Wills, Trusts, Powers Of Attorney, Medical Directives, Beneficiary Designations)
  • Income Statements (Paystubs, W2, Social Security Statements)
  • Expenses (Credit Card Statements, Annual Budgets)
  • Liability Statements (Loans-Car, Mortgage, Student Loans, Etc..)
  • Insurance (Health, Long Term, Life, Disability, Etc..)

Though all seemingly different, each of the bulleted items above work hand in hand with each other to complete your financial picture. When interviewing potential financial advisors, ask questions about their exact services and if they will utilize all the specified documents above when building your financial plan. At Sherman Wealth, we use a holistic and customized approach when creating our clients financial plans, analyzing and unpacking all the listed documents and our customized pre-meeting checklist.  If you have any questions about the specific services Sherman Wealth provides and how to work to build our financial plans, email us at info@shermanwealth.com or schedule a complimentary 30-minute consultation here

Questions to Ask When Interviewing A Financial Advisor

Whether it’s your first time working with a financial advisor or you are searching for a new one, it’s important to make sure you ask the right questions to ensure the advisor you choose will be a good fit and will help you reach your financial goals. Comfortability and the potential for a long-lasting relationship are just a few things to look for when seeking out and interviewing potential advisors. 

You should feel a sense of assurance, trust and transparency when working with a financial professional who will be advising you about your money and future investment goals.  So, in order to ease the selection process for you, we want to point out some good questions to ask when searching for the right financial advisor. 

  • Are you a fiduciary? Is your advice conflict free? Fee only?
  • What services does your company provide?
  • What is your compensation and revenue structure? 
  • What exactly am I paying for in terms of services and advice rendered? 
  • Do you receive commissions on any particular advice or recommendations? 
  • What are the core values of your firm and investment philosophy?
  • Can you give me a background of your firm and its evolution? 
  • Do you take a holistic financial approach to investments and financial planning?

Finding the right financial advisor may take some time and can be an overwhelming process. At Sherman Wealth, we believe that life is complicated, but your finances shouldn’t be. We provide our clients with fee-only, customized solutions that not only improve their financial education, but help them reach their life and financial goals.

Choosing the right advisor should be simple, feel natural and put you at ease. If you are seeking unbiased, conflict-free advice, the financial professional you choose should be a legal fiduciary and fee-only, meaning they always act in your best interest, do not receive commissions on recommendations, and eliminate as much conflict as possible. If you have any questions about evaluating financial professionals or are curious about our approach to any of the questions listed above, email us at info@shermanwealth.com or schedule a complimentary intro call here. 

2021 At Sherman Wealth

As we look back on the last twelve months, we can certainly say 2021 was quite a year. We continued to battle COVID-19 and re-assimilate into pre-pandemic life, we saw lots of market volatility and corrections, and helped many of our clients achieve major financial milestones. 

As we wrap up the year, we want to take a moment to discuss how grateful we are at Sherman Wealth to be able to do the work we do and love and help our clients reach and exceed their financial goals. So what are these financial milestones we are referring to? Let’s check out some of the amazing financial milestones some of our clients hit: 

  • With historically low interest rates this year, we assisted over 25 clients with their refinancing! And 5 went house shopping and ended up with a new home! 
  • Eleven families had children this year! And for those who already have children, 45 of them contributed to their children’s 529 plans to save for their college tuition. 
  • Charitable giving is always top of mind. At Sherman Wealth, we always are looking for ways to get involved in local givebacks and serve the local community. In fact, Brad Sherman was named Board Member of the Year 2021 at So What Else, which was extremely exciting for the Sherman Wealth team. Others were spreading the love too, with 11 clients contributing to their donor advised funds or donating stock!
  • While COVID-19 taught us the importance of having a solid financial foundation in place, it also proved that life insurance, wills, medical derivatives, and powers of attorneys are crucial in such unfortunate times. Many took this up, with 28 clients planning or updating their estate.
  • We always say retirement planning is key, so shout out to almost all our clients who maxed out their retirement contributions for 2021 (And if you’re reading this before the end of the year, you still have time!) 
  • 75 clients got a raise! 
  • 13 clients put their entrepreneurial skills to work this year and started their own company! 

Look at all these amazing accomplishments your peers, family members, and friends achieved this year! While these are just a few of the financial milestones we saw this year, we want to stress the importance of financial independence and that you are only a few steps away from financial freedom. While these goals won’t be accomplished overnight, setting up a financial plan to achieve them is a great place to begin. It’s never too late to start on your path to achieving your future financial goals.

For those of you who are close to hitting your end-of-year 2021 goals, there are still a few weeks left before the end of the year to fund those HSA’s, 401k’s, and 529 plans. If you have any questions about your financial situation or setting up a plan to hit your financial goals, email us at info@shermanwealth.com or schedule a complimentary 30-minute meeting here. 

 

Mortgage Strategies for Self-Employed Home Buyers

Being your own boss is a great feeling with many benefits, but those benefits do not include a fast track to a great mortgage. Gone are the days of the easy mortgages, the no-income-verification loans, and The Big Short. In fact, qualifying for a mortgage may rank as one of the biggest challenges you face as someone who is self-employed.

However, given that the 30-year rates have plunged below 3%, marking the lowest they’ve been in over a month, you should move quickly because now is a great time for refinancing and home buying to lock in those historically low rates. According to data company Black Knight, “In the U.S., homeowners withdrew $63 billion in equity from their properties through more than 1.1 million cash-out refinances in the second quarter of the year — the largest quarterly volume since mid-2007”. As you can see from the data, with these all-time lows, now is the time to act.

As a self-employed business owner who just bought a new home for our growing family, I can testify that the mortgage process is not for the faint-hearted. Every time I completed a lender’s checklist they come back to me for more information. This was not my first mortgage but the time and energy it took this time around was beyond what I expected – and I’m a credit-worthy borrower and financial pro with a background in the mortgage world.

So what’s the best way to prepare? To understand the issues, think like a bank. In deciding to lend you hundreds of thousands of dollars, the bank wants to know, first and foremost, that you will be able to pay them back – steadily, regularly, over time.

Here are 3 of the biggest hurdles you may have to overcome:

SHOW YOU MEET THE INCOME REQUIREMENTS

The first thing a potential lender asks to see is your W-2 form, the document that shows salaried workers’ annual wages and withheld taxes. Business owners and independent contractors are unlikely to have W2s, and instead need to present their full tax returns, including profit & loss and deductions & depreciation, as well as their own income.

Not only are lenders not likely to be expert at understanding your business and your cash flow, but the salary you show on paper may be deceptively low. That’s because most business owners invest a sizable chunk “back into the business” when they’re getting started as well as taking deductions for travel, leased vehicles, and purchases of computers, office supplies, and even their phone.

Getting ready: If you’re thinking about buying a house, consult a financial planner, your accountant, or a trusted mortgage professional (we’ve suggested a few below) about how much to accurately deduct – or not – this year to show sufficient income and an acceptable debt-to-income ratio.

HAVE ALL THE PAPERWORK

Having paperwork that tells the full story can make all the difference, so now is the perfect time to prepare a file with the documents you’ve already collected for the IRS. Remember, though, that this year’s tax returns and records may not be enough to show your business has been steadily growing. Be prepared with records from previous years, and bonus points for data about how your sector has been doing as well.

Getting ready: Keeping good records is key so if you haven’t already started, get started now, and see what you can put together for previous years.

MAKE SENSE OF COMPLEXITY

Every company and every consultant is unique and it may be hard to reconcile your business’ specific challenges and trajectory with the solid predictability a mortgage lender is looking for. You may want to bring a trusted accountant or financial or business advisor to the meeting with the lender – someone who knows your business well and can explain its structure, operations, and cash flow in context. If your advisor can’t be there, ask them to write a brief document explaining your data. Consider also requesting profit-and-loss statements prepared without personal expenses to show the difference between reported income and actual income.

Getting ready: be prepared to explain what your numbers mean in context and turn to a trusted advisor, if possible, who can translate your numbers for the lender and help them understand you’re a good candidate.

AVOID CREDIT SCORE SURPRISES

You wouldn’t be the first, or last, person to find discrepancies in your credit score. Correct any discrepancies and make sure it’s correctly updated before applying for a mortgage. And – obviously – pay off any outstanding debt.

Getting ready: get credit reports from the major agencies and make sure that they are accurate.

If you’re in the market for a new home, let us help you and guide you through the process. With interest rates at all-time lows, whether applying for a mortgage or refinancing, we are happy to schedule a call with you for a free analysis of how that may affect your purchasing power.

We are well versed in the latest options from different lenders that may be most appropriate for your situation and have online tools to help you look at your overall financial situation to determine how much of a mortgage it makes sense for you to take on. We also have resources and experts we can refer you to, or, if you already have a mortgage professional, we will work with them to determine how much your can afford.

And we have experience: I’m pleased to report that, after what seemed like a never ending process, I succeeded in getting a mortgage with very favorable terms and – most importantly – we love our new home.

Don’t be daunted by the challenges involved with getting a mortgage when you’re working for yourself. With the right preparation and the right help, you too can make your dream home a reality!

Here are three resources trusted referral partners in the Washington area:

(As a fee-only financial planner, we have no financial vested interest in referrals. We just want to make sure you have the best advice possible!)

Jody H. Eichenblatt, Senior Mortgage Consultant at Prosperity Home Mortgage

Josh Friedson, Senior Vice President of Mortgage Lending at Guaranteed Rate

James Schneider, Loan Officer at Eagle Creek Mortgage

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions.  They are for information purposes only. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.

If you have any questions regarding this Blog Post, please Contact Us.

Maximizing Your Benefits During Open Enrollment Season

We recently posted a video, blog and financial tips regarding the importance of creating and implementing an end of year financial checklist. As part of your annual checklist, a main focus during the month of November should be your employer’s open enrollment period.

For many employers, open enrollment runs through early December. This year, as a result of the pandemic, there are some new offerings aimed at mental, physical and financial health. Here are some things to revisit during your open enrollment period this month:

  1. Health Insurance

When reviewing your health insurance options during your open enrollment period, you should consider what your health coverage costs you now that premiums and deductibles are changing. Annual family premiums for employer-sponsored health insurance will likely be about 3% lower in 2022, after factoring in subsidies enacted under the American Rescue Plan Act. However, more workers have a deductible — the amount you pay before insurance kicks in — and that deductible is rising. In 2020, the average single deductible was $1,945, roughly twice what it was a decade ago. If you are shopping for a plan, make sure to not only focus on the premium, but also the total out of pocket

  1. Health Savings Accounts

As discussed in a prior blog, using tax-advantaged accounts for medical expenses, specifically, health savings accounts or flexible spending accounts, is one way to help with health care costs.

To be able to use an HSA, you need to be enrolled in what’s called a high-deductible health plan, or HDHP. Contributions grow on a tax-free basis, and any unused money can be rolled over year to year. For 2022, employees and employers can contribute a total of up to $3,650 for individual coverage and up to $7,300 for family coverage.

Health Flexible Savings Accounts (FSAs) have lower contribution limits ($2,750 for 2021) and you don’t need to have a high-deductible plan in order to be eligible. You don’t need health coverage at all to sign up for an FSA. There are also dependent care FSAs, which allow employees to pay for eligible childcare expenses using funds on a pre-tax basis.

Generally, you must use the FSA money by year-end or you lose it. However, recent legislation could also allow you to roll over any unused funds from 2021 to 2022 for use at any time next year if your company has opted in.

  1. Life Insurance

According to a recent survey, nearly 45% of U.S. workers don’t have or don’t know if they have life insurance. Due to the pandemic, people are now interested in life insurance policies more than ever. Since most employer-issued life insurance policies typically amount to a year’s worth of salary or less, it’s important to consider what’s the right amount for you and your family. You can then decide if you want to buy additional coverage, or supplemental insurance, through your workplace group plan or shop for your own individual term life insurance policy, which many advisors recommend.

  1. Disability Insurance

Disability insurance is often the most overlooked employee benefit. These plans can help replace a portion of your paycheck if you get sick or injured and are unable to work. Short-term disability generally replaces 60% to 70% of your base salary and premiums are often paid by your employer. Long-term disability, which ordinarily kicks in after three months to six months, typically replaces 40% to 60% of your income. If your employer offers some kind of disability insurance, you should consider enrolling. 

  1. Wellness Initiatives

The pandemic has many Americans turning to their companies for help dealing with work-life stressors and personal issues. Due to increased demand, many companies are now offering a variety of financial wellness benefits. Some of the wellness resources available this year include financial coaching, stress management classes, web-based resources for healthy living and even discounts on gym equipment. There could also be tuition assistance, student loan repayment programs, backup child care, tutoring services for older children and stipends for enrichment programs and camps. Companies that understand the importance of their employees’ well being often have a more productive and successful workforce.

If you have any questions about your company’s open enrollment options, you should contact your human resources department. If you are interested in having us help you create your end of year financial checklist, please contact us for a free 30 minute consultation.

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

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!