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Consumer

National averages for credit card and other consumer debt can be a good barometer of consumers’ financial capacity and goals. For instance, when debt decreases, Americans, as a whole, may be spending less and saving more. Of course, that’s a good thing.

So, when SmartAsset released its average credit card debt study recently, we took notice. The survey looked at median individual income and credit card data from 2006 to 2016. It even broke down the data by state!

trend

What did the survey find? Here are some of the topline results and what they might mean for consumers like you:

Americans were dropping credit card debt… but now they’re reversing that trend.

The data show that from 2006 to 2015, the average total credit card debt went from about $3,175 per person to $2,800 per person. Total credit card debt dropped — in every region except Virginia, Maryland, and Washington, D.C. — during this time period.

What does that 11.6% decrease mean? It’s hard to say exactly. But it could have been a result of the financial crisis, and people understanding how dangerous credit card debt can be during a time of personal financial upheaval.

During this time, though, there was a peak in the average credit card debt. In 2008, the average debt was $3,670, and the average American had debt equal to about 14% of their annual income! From that high point, we started cutting back on credit card debt quickly and efficiently. This is definitely a good thing.

So for several years, Americans were dropping debt at a significant rate. But then, a new trend happened.

The average credit card debt bottomed out at $2,730 in 2014, bouncing back up to $2,800 in 2015. Over this same time period, the total national credit card debt rose from $733 billion to $799 billion. So, is this the new normal?

It’s hard to say. But the report speculates that the Great Recession incentivized Americans to lower their credit card debt. But once the recession turned around, Americans seem to have forgotten the struggle and gone back to their old ways… taking on significant amounts of credit card debt.

What does it meant for consumers?

Boiling complex statistics, in a survey like this one, down to a few talking points is risky. The challenge is to avoid reading too much into the results. With that said, I think there are a few lessons that financially savvy consumers could take away from this study.

 

It’s all too easy to go back to bad habits.

What we see here in these trends is that, when given a big enough push, Americans are capable of buckling down and paying off debt. In some states, credit card debt levels shrunk by 30% or more, during and right after the Great Recession!

Necessity tends to breed discipline, in finances as in everything else. But when that necessity is no longer spurring you on, what happens? It’s way too easy to go back to former bad habits.

Time will tell whether the recent uptick in debt levels is a trend that will continue. But it does show that once the worst of the crisis is over, people may be willing to slide back to where they were before.

If you really want to change your habits, whether in the realm of personal finance, your health, or elsewhere, you have to keep going. And that means even after the crisis that spurred your change has passed!

 

We should all be prepared for the worst, at any time.

If consumers had known beforehand that the Great Recession was coming, do you think they would have had thousands of dollars in credit card debt lying around? For many, probably not!

It’s easy to live large when things are good, and not to worry too much about things like credit card debt. After all, you can afford the payments, so what’s the big deal? The problem is that you never know what’s just around the bend.

Illness, stock market crashes, job loss, and other disasters can strike at any time. While you don’t want to live in a doom-and-gloom mindset, it’s best to be prepared. And, financially, this means being as debt-free as possible and having emergency savings available.

 

Focusing on staying out of credit card debt is still important.

Personal finance blogs like this one have been around for decades now, but many people still need to go back to the basics. One of those basics is the importance of paying off credit card debt.

Sure, sometimes taking on credit card debt can be justified. But it’s important to pay it off as quickly and efficiently as possible. Otherwise, you run the risk of trying to pay down such debt while you’re already in the middle of a crisis.

So, what’s your story from the Great Recession? Did your credit card debt go down? Are you letting it slide back up again? Tell us in the comments.

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Have you been looking for a new online checking account? Preferably one with a higher-than-average interest rate? Then the FNBO Direct checking account may be the answer.

FNBO Direct checking

I’m a bit particular when it comes to my checking accounts. I don’t like paying any monthly fees, regardless of how much money I keep in the account. I want to be able to easily withdraw my money; I want a debit card, and I want to be able to manage my funds (including paying my bills)… oh, and I want all of that for free.

Narrows the list down a bit, huh? Luckily, the FNBO Direct Checking with BillPay offers all of that and more. Here’s what you’ll get with this account:

  • A completely free online checking account with zero monthly service fees, no matter how much money is in your account
  • Interest earned on your balance – currently 0.65% APY (as of April 7, 2017)
  • Minimum opening balance of $1 – yes, one dollar
  • Free online banking, bill pay, and account alertsfnbo
  • Complimentary FNBO Direct Visa® Debit Card
  • One overdraft fee forgiveness every 12 months (typically a $33 fee)
  • Free incoming wires
  • Free stop payments (I’ve paid as much as $35 for this before, so it’s a great bonus in my book!)
  • 24/7 access to over 2 million ATMs worldwide (no fees charged by FNBO for using out-of-network ATMs, though the machine operator may charge their own fees)

BillPay

popmoney

Being able to automate my bills is one of the biggest perks. The FNBO Direct checking account allows you to not only pay your bills online, but also set up automatic, recurring payments. That way, you’ll never miss another electric bill or charitable donation.

Need to send money to a friend or pay your babysitter? You’ll also have access to the free person-to-person money transfer app, Popmoney®, which is conveniently linked directly to your checking account. It allows you to easily and quickly send (or receive) money via mobile and email.

Earn Interest

For me, one of the best perks of this account is the interest rate. While it is subject to change, of course, the APY currently sits at 0.65%. This is significantly higher than many online savings accounts… let alone checking accounts!

The high yield – and absence of any fees – make this account a must-have for anyone looking to earn as much as they possibly can off of their money.

If you’d like to learn more about FNBO Direct checking with BillPay, or are interested in opening an account, check them out online here.

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One of the best things you can do to build awareness of your financial condition is to view your credit report. Your financial condition — as perceived by potential lenders — can cost or save you thousands of extra dollars throughout your credit repayments, such as the life of a mortgage, for instance.

Credit Card

You can get them for free these days, too. In fact, you are entitled to three credit reports, one from each of the three major reporting bureaus, each year. You can either get them all at once or visit annualcreditreport.com (the government’s official free credit report source) three times a year, to space the credit reports out evenly. Personally, I prefer the latter approach.

What You’ll Probably Find

Well, if your credit report is anything like mine, it contains a list of credit cards with basic information like partial account numbers, a credit limit, and payment history. Some probably date back to college, when you signed up for a credit card in exchange for a free t-shirt at freshman orientation. You may not even know where to find the actual credit card anymore.

For example, here’s a snapshot of one of my own records. This card account hasn’t been touched since 2011, but here it is, on my 2017 report:

old cc sc

There are a number of reasons that I keep this card active, though.

Reason 1. It’s one of my oldest accounts. I opened this card back in 2005 when I was a college freshman (cliché, I know). It’s the second oldest credit card I have, and even though I don’t use it, I like to keep my credit score’s Average Age of Accounts as high as possible.

Average Age of Accounts and How Your Credit Score Is Calculated

Were I to cancel this card, that number — an average of the credit length of all my revolving accounts — would go down. No, it wouldn’t be substantial, but I would still rather avoid it unless necessary. Which leads me to…

Reason 2. It doesn’t have an annual fee. Since I don’t use this credit card, it just sits around collecting dust (actually, I shredded it years ago, so that’s just a figure of speech). It doesn’t have any sort of fees involved, so I’m alright with that. However, if I were being charged an annual fee to hold the account, I would close it faster than you could say “Semi-Annual Sale.”

Many rewards credit cards do have annual fees; whether they’re worth it or not is up to you. If you’re using the card and earning great cash back (that more than negates the fee), go for it. If not, then you’re just throwing money away. And with a mere $1,000 credit limit impacting my credit utilization ratio, it wouldn’t be worth my cash to keep the account open.

Before closing an unused card due just to an annual fee, though, try calling the issuer. Sometimes, they will be willing to waive the cost for you — at least for that year — just to retain your account. Others may have a version of the card that doesn’t have an annual fee, and would happily switch your account over to that product instead. It would keep the benefits of the account on your credit, while avoiding the unnecessary drain of a fee every 12 months. Win-win.

Reason 3. I am still paying off balances on other cards. That credit utilization I just mentioned? This is where that comes into play.

If you don’t hold balances on any of your other accounts (i.e.: you have no credit card debt), closing a card like this won’t really impact you. I, on the other hand, am still paying off some old credit card balances… so closing an account with a $1,000 limit would ding my credit score in yet another way.

This is because of my debt-to-available credit ratio. Also called credit utilization, this is the ratio of how much debt you owe (your balance) versus your line of credit (the available credit). Let’s look at an example.

  • If you have three credit cards, adding up to a total of $10,000 in available credit, but keep a $0 balance on each one, closing a $1,000 limit card won’t hurt. Your utilization will remain at 0%.
  • However, if you have $10,000 in credit but hold balances adding up to in $5,000 in debt, your ratio is already 50%. If you close down that $1,000 card with a $0 balance, your debt-to-credit ratio just jumped up to 55.6%!

So, take into account where your credit already stands before closing an unused card. If you don’t hold any debt, you’re probably fine to close the card and won’t notice much of a difference. If you need that line of credit to boost your utilization, or need the account to factor into your average age of accounts, perhaps it’s worth keeping the plastic around.

Related: Millennials Aren’t Using Credit… But Should They?

Still Want to Close the Card?

So, the above reasons don’t impact you, and you’re still ready to cut up some cards? Go right on ahead… but take these three steps into account.

Step 1. Save your best, oldest card. Find the credit card with the longest, cleanest history, and keep this card. If you don’t know where the credit card is, call the company to update your address information and ask them to send you a new card. This probably isn’t the card you want to use moving forward, though. Just keep the credit history clean, and spend on/earn rebates with newer cards.

Step 2. Close all other inactive accounts. You can do this by calling the phone numbers that are listed with the information for each card. If you have an active card with the same company, ask to move your credit limit from the inactive card to the active card, and then close the inactive card. This will keep your credit history long and your credit report short.

Step 3. Choose the best card to use. If you are struggling to get out of debt, you should choose a low-interest card with no perks. If you are managing your money well, this should be the card that offers the best perks (like cash back, airline miles, etc.) for you and your lifestyle.

Try looking through lists of cards like

You may not have to apply for a new card if you already have one by the same lender; just call customer service and ask to convert your card. They may have some additional options for you, too.

How to Get Your (Legitimately) Free Credit Report

If you want to improve your credit score and get the lowest mortgage rates, the bottom line is you want to keep your oldest, cleanest credit card to show a long, solid history of responsible credit. You also want to have a low debt-to-income ratio and credit utilization ratio (by paying off your balances every month).

Doing these will help you to improve your credit score, qualify for the best interest rates, and receive some of the best credit products (such as rewards credit cards).

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Former President Barack Obama signed an order into law back in March 2010, which later became known as Obamacare. He did so with the hope that it would revolutionize the way Americans handled their healthcare.  However, if Obamacare was to ever survive, it required a large number of healthy individuals to sign-up for healthcare.

To “persuade” healthy individuals to sign up for plans, Obamacare included a mandate. This required everyone in the United States who didn’t have other healthcare to sign up for healthcare on either the state or government exchanges… or else.

trumpcare

This meant that if you had healthcare from your employer, you were covered. If you signed yourself and/or your family up on the exchanges, you were covered. But if you currently had no health insurance, and did not have an employer that offered it to you, then you either had to sign up for healthcare on the exchanges or face a financial penalty. In 2016, the penalty for not having health insurance was $695 per adult, $347.50 per child, OR 2.5% of your adjusted gross income (whichever number was higher), with a maximum amount per family of $2,085.

Now, on its face, that amount might make you think, “Geesh, I better get health insurance.” The sad reality of the mandate, though, was that it wasn’t punishing enough.  Let’s take a healthy individual, who hypothetically needs to pay $500 a month in health insurance premiums. Many of them would rather just pay the $695 one-time penalty than fork over $6,000 for health insurance premiums in a given year.

Related: Another Insurance Giant Pulls Out of Obamacare

The end result was tens of millions of Americans still declining to sign up for Obamacare, which meant the amount of money in the health insurance pool was far lower than what was predicted.  To compensate, health care providers increased the costs for existing exchange owners, sometimes as much as 115% year over year.  Hanging by a thread, the law needed Hillary Clinton to be elected president in order to survive. Instead, it was given Donald Trump.

Obamacare Mandate

Goodbye Obamacare Mandate

It may feel like Donald Trump has been president for four months and not four weeks. However, if you can think all the way back to President Trump’s first executive order, it was one to remove the enforcement of the Obamacare mandate. To put it simply, President Trump ordered the U.S. government to defer to the individual, rather than the government, should a dispute arise regarding the enforcement of the mandate. This didn’t really mean much the day he signed it because its implementation was unclear. However, last week the IRS put out a statement that said, “If you don’t answer the healthcare question on your tax return, we will still accept your return.”

Wait… what?

So, Line 61 of your 1040 tax return will ask if you had healthcare coverage for more than 9 months in the 2016 tax year.  Before this change in policy, you had three options to answer the question:

  • You can check YES, and show proof of coverage
  • You can check NO, and expect the penalty amount above to be included in your return
  • You can check EXEMPT, and show proof of exemption

Now, there’s a fourth option for every US taxpayer:

  • Naa Na Naa Na Naa Naa, I’ll never tell you

To be clear here, there is no guarantee that if you leave the question unanswered, the IRS will simply look the other way.  The IRS has not explicitly said they will be avoiding all Obamacare penalties for the 2016 tax year. However, considering they’ve decided to allow taxpayers to leave this question blank, it’s highly unlikely that they plan to create more work for themselves and audit individuals who choose to avoid the question.

Thus, in one stroke of the pen, the mandate is done. This all-but-means that Obamacare has been effectively killed, and the need for a replacement healthcare plan is of great urgency.

What Will a Trumpcare Mandate Look Like?

Knowing that the end is near for Obamacare (you might say it’s already here), the next logical question is: Will there be a Trumpcare mandate and, if so, what will it look like?

Well, I’m here to tell you that a gentleman by the name of Tom Price proposed a conservative healthcare plan back in 2015…and wouldn’t you know it, he’s just been confirmed as the new Health and Human Services Secretary. Without getting into specific detail about the entirety of the plan, I’d like to focus squarely on his idea for how to make a mandate work in the future.

The crux of Obamacare, and the part that Republicans have always hated, was that it forced people to buy health insurance, even if they didn’t want it. But you see from the text above that the only way a national healthcare plan would work is if everyone contributed, healthy or otherwise. So, how can a Republican plan provide enough money so that those with Obamacare do not lose coverage AND people that don’t want health insurance don’t have to buy it?

Tom Price proposed two main ideas:

  • This should not be national health care. It should be private and sold across state lines, which is expected to increase competition and lower prices.
  • Pre-existing conditions should be included, so long as the consumer has had 18 consecutive months of healthcare coverage.  If someone without healthcare suddenly gets sick and tries to buy coverage, they can be charged appropriate rates based on a previous medical condition. Also, their current healthcare costs can potentially be increased by 50% annually, for up to three years.

The best analogy I can think of is comparing this idea to your auto insurance policy. If you’ve just signed up for auto insurance and get into a big accident, your insurance provider is likely to increase your rates substantially. However, if you’ve been with your auto insurance carrier for years, you likely have small (or large) accident forgiveness, so your rates are not increased. Similarly, if you’re healthy and have avoided buying health insurance for years and then get sick, don’t expect to walk through the door with a low-cost health insurance policy.

Resource: 15 Auto Insurance Discounts You May Be Missing

Now, this is not to say that the healthcare proposal Congressional Republicans put forward will include a mandate specifically like the one above. It is simply an idea on how to go about getting people to pay for health insurance, without forcing them to pay for health insurance. You can bet any plan that we see proposed in the next few weeks will receive extreme scrutiny from tens of millions of Americans, so the benefits and drawbacks will be widely known.

Make sure that when the dust settles, you’ve done your research on whatever 2018 health insurance looks like, and do the best for you and your family. Something tells me you won’t be short of options.

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Buy It Right or Buy It Twice: When It’s Worth Paying More for Quality

by Aliyyah Camp
buyright

Whether or not you should pay more for quality is a decision that comes up often when shopping. The answer varies depending on the product.For some purchases, paying more is a giant waste of money which would be better spent elsewhere. For other items, it’s well worth the additional investment up front to ensure a […]

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Humana: Yet Another Player Pulling Out of Obamacare

by Abby Hayes

After pulling out of a merger deal with Aetna, major insurance company Humana announced that it will drop out of the Affordable Care Act exchange in 2018. The company had already been scaling back its plans available on the exchange. For 2017, it was only selling policies in 11 states. Although Humana has been a […]

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A Sign of the Times: Amazon to Begin Accepting Food Stamps

by Stephanie Colestock

There are over 44 million Americans currently receiving SNAP benefits, better known as food stamps. This financial assistance was designed to provide nutritious food to qualifying citizens, and about 54 percent of beneficiaries are children and the elderly. However, there are a number of struggles that SNAP recipients can face as far as actually spending these […]

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Getting Out of Debt: Make That New Year’s Resolution Work

by Luke Landes
CLIMB DEBT

Along with losing weight, getting out of debt is the most popular New Year’s resolutions in the United States. This resolution, like all others, unfortunately tends to be forgotten within weeks. Well, if you resolved to get out of debt this year — and haven’t yet abandoned that idea now that we are at the […]

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Millennials Don’t Use Credit… But Should They?

by Abby Hayes

A recent survey by Bankrate showed that many millennials don’t carry credit cards on a day-to-day basis. In fact, just 33 percent of those surveyed in the 18 to 29 crowd even owned a credit card at the time of the survey. People in the 30 to 49 category carried significantly more plastic, with about 55 percent […]

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The Philadelphia Soda Tax Is Now In Effect – Time to Start Drinking Water

by Michael Pruser

Last year, the city of Philadelphia decided to pass into law a “beverage tax,” which taxes the sugary drinks you consume at the rate of 1.5 cents per ounce.  At the time, there was some considerable outcry from residents of the city. Nevertheless, the government stuck to their guns. Well, at the turn of this new […]

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