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Adam Luehrs

Credit card debt doesn’t have to crush your budget. Take the proper steps and you can get out of credit card debt once and for all. Here’s how how to pay off your credit card debt.

How to pay off credit card debt

Credit card debt is a national epidemic. According to one survey, the average U.S. household with credit card debt owes $16,425. Just the interest on this debt can easily exceed $1,000 a year.

Credit card debt won’t vanish overnight. However, it can vanish if you take some small steps. Here are five ways to pay off your credit card debt.

Audit Your Charging Habits

Does your credit card balance mystify you at the end of every month? Tracking your spending could help with that. There are many online tools and budgeting apps that allow you to break down your spending. Here are a few of our favorites:

  • Personal Capital: This free online tool will automatically track and categorize your spending. It also tracks all of your investments.
  • Mint.com: This free tool is similar to Personal Capital and is a popular option.
  • YNAB: This is our favorite budgeting app.

You’ll find a complete list of the best budgeting apps here.

Your credit card company may all provide a free spending app. Discover, for example, has an excellent tool that tracks your spending on the card by category.

Squeeze Extra Cash From Your Budget

It’s probably going to take a little pain to get out of credit card debt for good. Do your best to find extra cash hiding somewhere in your budget. Here are the steps to get there:

  • Create a list of all of your monthly bills
  • Look for unnecessary costs you can eliminate
  • Look for auto-pay billing errors from businesses or services you no longer use
  • Scrutinize bills that could potentially be reduced through negotiating, switching providers or bundling services
  • Look into refinancing your mortgage if you own a home

How can you lower or eliminate bills that just aren’t working for your debt-reduction plan? Ask everyone from landlords to cable providers if they can lower your rates or offer you better deals. Also, make sure the cancellation fees for getting rid of a phone plan or shutting off cable won’t be counterproductive.

Reduce Your Interest Rate

You could reduce payments by reducing your interest rate. How do you do this? There are two ways.

The easiest way is to ask. Most credit card companies are willing to lower rates if cardholders call and request a reduction. According to one survey, 84 percent of those who asked for a rate reduction or other concession received it.

Second, you transfer your balances to 0% credit cards. With these cards, you can receive 0% for up to 21 months. There is typically a balance transfer fee of about 3%. But this is far less than the interest rates charged by credit card companies. You can find a list of the best balance transfer credit cards here.

Note: Obtaining a new 0% credit card won’t be worth the benefits if you make new charges to the old card.  If necessary, cut up the old card so you won’t use it.

Take Things One Card at a Time

Focus on the card with the lowest balance if paying off at least one card quickly is your goal. If your goal is to try to rescue your credit score, focus on the card with the highest utilization rate. This can be found by dividing your balance by a card’s limit. Don’t forget to make the minimum payments on all other cards while you’re targeting your priority card.

Resource: Use this Debt Snowball Calculator to compare the best way to pay off your debt.

Stop Using Credit Cards for a While

A serious problem sometimes requires a drastic solution. You’re unlikely to get out of the debt cycle unless you stop using your credit card to make purchases. Cut up your cards, have a friend lock them away in a drawer or simply remove them from your wallet to avoid the temptation to fall back into old habits. Just make sure to have an alternative method for making emergency payments in the event that you become stuck or stranded somewhere without cash.

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Mortgages come in two types: fixed-rate and adjustable-rate. When buying or refinancing a home, understanding the pros and cons of fixed and variable rate mortgages is critical.

fixed-rate vs adjustable-rate mortgage

In this article will cover how these two types of mortgages work. We’ll also look at the pros and cons of each. The goal is to help you pick the best type of mortgage for your specific situations.

Fixed-Rate Mortgage

A fixed-rate mortgage is exactly what its name suggests. The interest rate for a fixed-rate mortgage remains constant throughout the life of the mortgage. In a 4% fixed-rate 30-year mortgage, for example, the interest remains 4% for the entire 30 years. The rate doesn’t change even if current rates rise significantly.

A fixed-rate mortgage enables you to budget your monthly expenses for up to 30 years without worrying about your rate suddenly spiking. It is also easy to understand for first-time buyers.

Pros of a Fixed-Rate Mortgage

A fixed-rate mortgage has several advantages:

  • Stability: The rate never changes, so your principal and interest payment stays the same
  • Budgeting: The stability in your monthly payment makes budgeting easier
  • Peace of Mind: There’s no reason to worry that rising interest rates could increase your monthly payment

Cons of a Fixed-Rate Mortgage

There is one significant disadvantage to fixed-rate mortgages. The interest rate typically is higher than the initial rate on a variable-rate mortgage. We’ll look at an example in a moment.

The bottom line on fixed-rate mortgages is that they are the safe, steady option ideal for many buyers.

Adjustable-Rate Mortgages

An adjustable-rate mortgage (also known as an ARM) differs from a fixed-rate mortgage in several ways. First, and most obvious, the interest rate can change over time. Second, and less obvious, is that the way the rate can change varies from one ARM to the next.

An ARM typically has some period of time during which the rate is fixed. After this initial period, the rate adjusts based on a formula typically tied to some economic indicator. Depending on the terms of the loan, the rate can continue to adjust up or down thereafter.

When shopping for an adjustable-rate mortgage, you must consider several factors:

  • How the adjustable-rate is set
  • When the rate can adjust the first time
  • How often the bank can adjust the rate thereafter
  • How much the bank can adjust the rate the first time (called an Initial Cap)
  • How much the bank can adjust the rate thereafter (called a Periodic Cap)
  • The highest (and lowest) the rate can go (called a Lifetime Cap)

The best way to understand these types of mortgages is with an example. A common adjustable-rate mortgage is called a 5/1 ARM. This means that the initial rate is fixed for five years. The rate then adjusts each year thereafter for the life of the mortgage.

A similar example is a 7/1 ARM. In this case, the initial rate is fixed for seven years instead of five.

There are more complicated adjustable-rate mortgages. For example, the rate is often expressed as something like 2/2/5. These numbers are important to understand:

  • The first 2: This is the Initial Cap. After the initial fixed-rate period expires, the rate can increase, at most, by 2%.
  • The second 2: The Periodic Cap. All future rate adjustments can go up by no more than 2%. Note: The Initial Cap and the Periodic Cap are not always the same.
  • The 5: This is the Lifetime Cap. Fora loan that starts at 3%, for example, the highest the rate can go over the life of the loan is 8% (3 + 5).

Pros of ARMs

  • Initial Rate: The initial interest rate is typically lower than a fixed-rate mortgage.
  • Rate Changes: The interest rate could, in theory, go down of the index used to set the rate is lower.

Cons of ARMs

  • Complicated: As you can see from the examples above, an adjustable-rate mortgage has a lot of moving parts
  • Risky: The interest rates could rise significantly over time.

How to Decide

Deciding between a fixed-rate and adjustable-rate mortgage is not an exact science. There are, however, several questions you should consider:

  • How long do you plan to live in the home? For those who plan to stay in the home more than a few years, a fixed-rate mortgage is often a better option. In contrast, if you plan to stay in the home for fewer than 5 years, a 5/1 ARM may be ideal.
  • How important is it to have a set monthly budget? If you have little room for extra expenses, an ARM may be the wrong choice.
  • Do you think rates are more likely to rise or fall? This is a bit of a guessing game. With rates at historic lows, however, it seems more likely that they will rise. Rising rates make fixed-rate mortgages more attractive.

We Prefer Fixed-Rate Mortgages

As you can tell, we generally favor fixed-rate mortgages. The fact that mortgage rates continue to slide means that fixed-rate mortgages are more competitive than ever when compared to variable-rate options. But that doesn’t mean that a fixed-rate loan is best in all cases.

Variable-rate mortgages got a pretty bad reputation following the big financial crisis of 2008. While it’s true that variable-rate mortgages should be handled carefully, they shouldn’t automatically be off the table if you’re about to purchase a home. In fact, these loans are making a comeback nearly a decade after they received villain status.

ARMs Work in Some Cases

A variable-rate loan offers lower rates and payments during the introductory period of a loan term. This allows people to buy larger homes than they might be able to with a fixed-rate loan. This loan type could save you a lot of money if you plan to stay in the home for a short amount of time. You’ll usually come out ahead with a variable-rate loan if you relocate to another area or you move to a larger home before the loan’s introductory period ends.

It’s important not to skip over the fact that the potential pitfalls of this type of loan are pretty large. Your monthly payments could increase very sharply if interest rates see a big spike. This is something you have no control over. Variable-rate loans are also complicated.  This is why first-time buyers should probably stay away from this option unless they have a pretty solid understanding of how mortgages and financing work.

Here are the questions to ask when considering a variable-rate mortgage:

  • Am I confident that I cna maintain my monthly payments if my interest rate suddenly increases?
  • Am I purchasing a home for the sake of selling it at a profit once I move within five years?
  • Is my main goal to save up a down payment for a better home while making lower initial payments on a smaller home?

Regardless of your choice, you can get multiple rate quotes online for free at LendingTree.

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When adding somebody to an account, a common question is whether to add them as an authorized user or joint account holder. Here’s the difference.

authorized user or joint account holder

Are you looking into the options for sharing a credit card with another person? There are actually two main options to consider when making the decision to share a credit card. You can either choose to make one person an authorized user or open a joint account. Take a look at the benefits and risks of both options before you decide what your next move should be.

Authorized User

An authorized user is someone who piggybacks on an existing credit card. They can’t control the card and are not financially accountable for paying off the card. They can’t seek a credit limit increase or close the account. However, they can use the card.

This option is often used when a person is trying to improve their credit score. The credit card company issues a card to the authorized user. The new user is able to make purchases with the card as if it belongs to them.

The authorized user, however, won’t be financially responsible for paying the credit card bill or any fees associated with the account. Here are some situations where adding an authorized user to an account might be a good choice:

  • A person needs to establish or rebuild credit
  • A family member only needs to carry a credit card for potential emergency situations
  • A family member needs some accountability regarding spending habits and bill-paying habits

You can add a person to your card regardless of their credit score or credit history. Adding an authorized user to an account can put the cardholder at risk because the full responsibility for paying the bill falls on the shoulders of the cardholder. This is one of the reasons why this type of arrangement should really only be done among parents, spouses and other close family members.

Of course, it’s always wise to set up card alerts for purchases if you’re allowing another person to have access to your account. The cardholder is permitted to remove an authorized user from an account instantly for any reason.

Joint Account

Opening a joint account is different from adding an authorized user. With a joint account, both people will have equal ownership of the card and equal responsibility regarding payments. Here are some situations where opening a joint account might be a good idea:

  • A couple wants to build credit together and make it easier to pay bills
  • A parent wants to help a teen or young adult open a first credit card
  • Business partners want a shared way to charge and pay off business expenses

While adding an authorized user to your account can be done at any time, joint accounts must be opened by both account holders from the start. Both account holders must meet an institution’s requirements for credit and income before a card is issued.

The application for a card can be denied if one of the applicants doesn’t meet those requirements. While an authorized user can be removed from a credit card at any moment, removing a joint user from an account isn’t so simple. The only way to dissolve this type of financial partnership is to transfer or pay off the balance before closing the account for good.

What Is the Better Choice?

Is it better to add an authorized user to an account or opening a joint account? Both options offer specific pros and cons. Becoming an authorized user on a credit card is one of the most popular methods for building credit.

This option, however,  probably isn’t necessary or beneficial if two people with good credit would like to share a credit card. Opening a joint account with a partner or family member is a better way to spread accountability across both cardholders than simply making one person an authorized user.

Authorized User Pros and Cons

  • You can add a child or family member regardless of their credit history
  • An authorized user can improve their credit score
  • It’s a simple and quick process
  • The cardholder can remove the authorized user at any time
  • The cardholder is responsible for all charges made by the authorized user

Joint Account Pros and Cons

  • Both account holders are responsible for paying the bill
  • Both account holders and improve (or hurt) their credit score
  • Account holders must each meet the credit card issuer’s underwriting standards

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Paying for trip cancellation insurance is a hassle and costly. Fortunately, there are credit cards with trip cancellation insurance. Here are four of them.

credit cards with trip cancellation insurance

Frequent travelers should approach credit cards differently than the rest of us. They have to look for cards that offer travel perks and rewards. Perks like no foreign transaction fees make travel cheaper. Another important feature is credit cards with free trip cancellation insurance.

This perk could save travelers a lot of money and hassle. With this perk, you don’t have to debate whether or not to purchase additional trip cancellation insurance. So you can nix those insurance premiums out of your travel budget. Furthermore, a credit card’s trip cancellation coverage kicks in automatically whenever you book a trip using that card. It’s a no-brainer if you frequently book trips for either work or pleasure.

This means that you’ll get to enjoy the peace of mind that goes along with knowing that you have cost-free protection without meeting any special enrollment criteria or paying an annual premium. In fact, if you travel two or three times per year, you might even consider one of these cards with an annual fee. The trip cancellation insurance alone should balance out that fee within the year.

What can you expect from cards that offer trip-cancellation insurance? Some rules are pretty universal throughout the trip cancellation coverage terms offered by credit cards. For instance, most will cover the nonrefundable, prepaid arrangements you’ve booked with hotels, airlines, and tour operators to some degree.

However, not all of these programs are the same. Some cards only offer reimbursement for airfare. Others will cover every part of your trip, including pre-booked tours and activities. How much each program reimburses and what qualifies for reimbursement also vary from program to program.

Here’s a look at the four popular credit cards that offer trip-cancellation insurance with the biggest reimbursement amounts and the best terms.

4 Credit Cards with Trip Cancellation Insurance

Chase Sapphire Preferred® Card:

  • Reimburses costs when customers have purchased travel arrangements, tours, trips, or vacations using an eligible Chase card or with rewards earned with an eligible Chase card
  • Entire cost must be paid using a Chase card or benefits to qualify
  • Covers the cardholder and immediate family members, even if the cardholder isn’t traveling with them
  • Covers up to $10,000 per trip with maximum limits of $20,000 per occurrence and $40,000 in a 12-month span
  • Also covers trips that you must cancel due to severe weather, terrorist activity, jury duty, court subpoenas, financial insolvency of a travel provider, and more

Citi® Card:

  • Covers cardholder, family members, and travel companions
  • Offers reimbursement of up to $5,000 per covered traveler per trip
  • Kicks in when all or just part of the cost of a travel arrangement was made using a Citi® card or ThankYou® points
  • Covered cancellation reasons include illness, injury, loss of employment, active military service, weather, natural disasters, terrorist activity, and more

Barclaycard Arrival Plus World Elite MasterCard®:

  • Provides reimbursement of up to $1,500 if your trip is interrupted or canceled for a covered reason
  • Tickets must be purchased entirely with your Barclaycard Arrival Plus World Elite MasterCard® to qualify
  • Covered cancellation reasons include financial insolvency of the company providing travel arrangements or the death, illness, or injury of the traveler or an immediate family member

Wells Fargo Visa Signature® Card:

  • Provides reimbursement of up to $2,000 for airline costs if your trip is canceled or interrupted for a covered reason
  • Entire amount of a passenger’s fare must be charged to a Wells Fargo Visa Signature® Card to qualify for reimbursement
  • Covered cancellation reasons include the financial insolvency of an airline carrier or the death, injury, or illness of the traveler or an immediate family member

In addition, you’ll find a complete list of the best travel reward credit cards here.

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A Review of GEICO Auto Insuance

by Adam Luehrs
Geico Auto Insurance Review

Have you ever seen a GEICO commercial?  Of course, you have. In fact, I bet over the last few years, you’ve seen hundreds of them. Every month it seems this auto insurance giant is releasing a new ad to lure customers in. Originally, it was take 15 minutes and save 15 percent on your car insurance. […]

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How to Lower Your Medical Bills When You Have No Insurance

by Adam Luehrs
Medical Bills

Health care costs go up every year. But you don’t need to be stuck with a big bill. Here are 5 ways to lower your medical bills. A visit to a doctor or hospital can be stressful if you don’t have health insurance. Even insurance with a high deductible can make any visit an expensive […]

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How to Save Money on Groceries Without Skimping on Flavor

by Adam Luehrs
save on groceries

A flavorful life doesn’t have to cost a fortune. People who enjoy cooking and baking can often feel overwhelmed by the cost of groceries. Millennials get a lot of flak for their love of pricey avocado toast and other expensive culinary habits. However, the reality is that even just buying groceries for simple meals can add up […]

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FutureAdvisor Review 2017: What Can It Do For You?

by Adam Luehrs

Investing isn’t always easy. Sometimes you need a friendly guide to point you toward opportunities and help you keep things organized. Sometimes that friendly guide is a robot. This is the premise of a service called FutureAdvisor. The company essentially provides a robo-advisor that offers automated portfolio management, which users can access online. FutureAdvisor uses […]

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Are Cash Back Websites Really Worth the Hassle?

by Adam Luehrs

You’ve probably seen at least a few of your friends brag about their coupon-clipping triumphs and bargain-hunting victories all over social media throughout the years. However, it suddenly seems like everybody has moved past sales and coupons into the world of cash back websites. What’s the hype? These websites offer a very tempting service by […]

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Do You Really Need to Buy Travel Insurance?

by Adam Luehrs

Traveling to another state, or even to a foreign country, means experiencing a new culture, meeting new people, and making memories that can last a lifetime. It can also mean visiting a hospital in a place where you don’t have any type of medical coverage or being stranded at an airport without your luggage. This […]

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