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interest rates

6 Credit Card Blunders to Avoid This Holiday Season

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

If you've just finished paying off your credit card debt from last year's holiday shopping, you know that gift buying and paying with plastic can be a dangerous combination.There are so many things that can go wrong (and right) that it would take forever to list every possible way you could spend yourself into the poor house. But whether you're someone who always pays off credit card debt every month or you're still working on paying off debt from Christmas 2009, be sure to at least avoid these credit card blunders.[See: Best Credit Cards: Find the Right Card for You.]Falling for store credit card deferred interest deals. Planning on buying someone a big, expensive gift, or maybe getting something monumental for yourself? Wondering if you should really splurge? That's where deferred interest often lures consumers in. The store will promise that you won't pay interest if you pay off the entire purchase by the end of the advertised period."Every holiday season, many store chains that sell large and expensive items like furniture or appliances start advertising deferred interest offers on their store-branded credit cards," says Alex Gerard, CEO of CardsMix.com, a credit card comparison site. "These offers seem attractive, but they can be dangerous for your pocket if you have little discipline, like the majority of us."If you do have discipline, deferred interest deals can be swell. But it can be devastating if something goes wrong."If you don't pay off the entire purchase and owe even a penny at the end of the advertised period, you will be charged the interest for the whole introductory period," Gerard says.[See: Spend a Windfall Wisely.]Forgetting to track your spending. "The holiday spirit blinds you to how much you're really spending – until the bill comes due in January," says Howard Dvorkin, a certified public accountant and chairman of Debt.com. "So my suggestion is to keep a running list of all your holiday expenses and post them on the refrigerator or somewhere prominent in your home. Once you hit a dollar figure you agreed to stay below – whether it's $300 or $500 or even $1,000 – you and your family agrees to stop spending for the holidays."And if you still have some important gifts you really want to buy? "Everyone agrees to cut from somewhere else in the non-holiday part of the family budget," Dvorkin says.Carrying revolving debt from the holidays. Consumers plan on spending an average of $1,159 on their holiday purchases this year, according to a just-released annual survey of 2,006 consumers (between Oct. 5-9, 2016) from the credit card Discover.You know revolving debt is important to avoid, but you may want to do some math before you whip out your credit card, so you can see what you're getting into. If you were to spend $1,159 on holiday gifts this year, and you had a credit card with an average interest of 15.18 percent (the national average at the time of this writing, according to CreditCards.com), and you planned to take six months to pay it off, you would pay $201.81 each month, spending a total of $1,210.86.That arguably isn't too expensive, spending $51.86 to float $1,159 in gifts in exchange for making your family or friends happy. But, of course, the question becomes – do you only carry that revolving debt for those six months? If you're likely to buy more with your credit card and not pay it off right away, then suddenly that $201.81 payment is going to balloon and will likely become a weight around your neck. For all you know, next holiday season, maybe you'll still be paying off that $1,159 in gifts.Thus, it's vital you pay off that holiday credit card debt as soon as possible.[See: 10 Easy Ways to Pay Off Debt.]Failing to remember that the holidays are ideal for scam artists. It's smart to be something of a Grinch, assuming the world isn't full of good people when you're shopping at your computer or at the mall. From pickpockets to scammers with sophisticated equipment hoping to steal your credit card information when you shop at a public place with unprotected Wi-Fi, some people are out to get you.In Calgary, Canada, for instance, police recently alerted the media that they've seen an escalation in text messages asking consumers if they want to be secret shoppers, and while that might sound plausible, no, these text messages aren't legitimate. And throughout North America, there have been reports of fraudulent online stores and fake shopping apps being created, just waiting for people to find them and type in their credit card information.Be careful about applying for store credit cards. Like deferred interest deals, you'll get a lot of sales employees asking if you'd like to apply for a store credit card. Unless you shop there all the time, and you have a great track record of repaying your credit card debt, your answer should be: no, thanks."It's during the holidays that consumers, revolvers especially, are most susceptible to credit card debt," says Kerri Moriarty, CEO of Cinch Financial, a website that makes customized suggestions to people on what types of financial products they should get.She admits that it might seem "like a no-brainer," to open a store credit card to get a 20 percent discount, "but when you do the math on what it takes to really benefit from the action as a year-round decision and not just a Christmas Eve one, you might be surprised to realize how little of a deal there is – and even more so if you'll carry a balance on that card," she says.Forgetting about rewards on credit cards – or focusing too much on them. According to the aforementioned Discover survey, 46 percent of shoppers said their main reason for using credit cards for holiday shopping was to earn rewards. This is great, if you're racking up rewards and paying off your cards every month. But every credit card and personal finance expert who ever lived will tell you to not overspend just to get a bunch of rewards. Drowning in credit card debt isn't much of a reward.10 Tips for a Budget-Friendly Cyber Monday.

February 21, 2020 0 comment

Financial Advisors

Why It Pays to Know Your Investing Fees

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

If the tired old cliché applies and the best things in life are free, then surely its opposite does as well and the worst things in life are fee. ATM fees. Concert ticket surcharge fees. Airport tax fees. How shall we count the feeble paths to hair-tearing aggravation?But if you're an investor, perhaps no fee rankles the spirit and wrangles the portfolio quite like the ones investment managers and financial advisors might overcharge.And while it's possible to sweep such charges under the rug as the cost of doing business, investors do so at their portfolio's peril."I see it every week, when I ask investors questions," says Scott Krase, founder and president at CrossPoint Wealth in the Chicago area. "Whether in a meeting, video conference call or on the phone, I ask questions about their current investments. I ask if they know the risk they truly hold and what do these investments cost them. The answer is the same. They don't know."Yes, but they absolutely need to know."Fees take a percentage of a client's return over time," says Ryan Goldenhar, partner advisor at AdvicePeriod and based in San Diego. "The higher the fees, the lower the benefits of compound interest for a client."Albert Einstein supposedly called compound interest the eighth wonder of the world, adding: "He who understands it, earns it; he who doesn't pays it." Safe to say that if he weren't dabbling in the relativity thing, Einstein might well have made a splendid investment guru. For as money accrues in a portfolio, you can easily reinvest it – think of dividends – and create a mountain of money where none once existed.For example, let's take $5,000 with a monthly addition of $10, compounded 10 years over a return rate of 8%. You'll end up with $12,553. Now, let's do it again: You're now up to $28,840. One more time, and in 30 years you've got a whopping $64,000. And all it cost you was 33 cents a day and some patience.If you tried the same thing but did not contribute that $120 – which a financial advisor's commissions and hidden fees could far surpass – here's what happens: You'll have just $50,313 after those same 30 years, or close to $13,700 less. (You can run similar calculations at investor.gov, a website of the U.S. Securities and Exchange Commission.)The trouble is, many people invest greater sums and hence miss out on much more money than that."Fees can be silent killers in a portfolio," says Daniel Kern, chief investment officer at TFC Financial Management in Boston.TFC is independent and "fee only," but don't be confused by the term. It means they fulfill a fiduciary responsibility to always act in their clients' best interest. They do not accept any sales-related fees or compensation, which is where charges really begin to kill an investor."Managing costs and taxes is an important aspect of selecting an advisor or mutual fund," Kern says. "A 1% annual fee on a $500,000 investment at a 6% return over 20 years compounds to more than $180,000.""Over an investors' lifetime, excessive fees can take an astonishingly huge share of the investors nest egg," says Stefan Sharkansky, creator of the Personal Fund analyzer site for advisors and individual investors. "Although some managers do beat the market before fees, it's impossible to know in advance who the lucky managers are going to be."Investors should observe two types of fees, says Carlos Dias Jr., founder of Florida-Based MVP Wealth Management Group and Excel Tax & Wealth Group."With investment advisors, a portfolio manager – the person who's doing the actual investing – might charge 0.5% more or less, while the financial advisor – the person overseeing the account and providing financial advice – might charge 1%," Dias says.When fees pass those amounts, or commissions run high, it's time to take a closer look at your arrangement. Another danger sign: lack of transparency in how an advisor constructs a portfolio, says Mason Williams, chief investment officer at Coral Gables Trust in Florida."Minimal proactive contact from your advisor is a clue," Williams says. "It's important to ask for service expectations up front and what is to be expected as a relationship begins."That's the key word: relationship. Some people need the financial equivalent of a personal trainer to get themselves in ship shape, even if other people can start and follow their own fitness regimen."If advisors are only charging for investment advice, then arguably the fees might not be worth it to an investor," says Matthew Schulte, head of financial planning at eMoney Advisor.Indeed, one way around high fees is to work with a web-based, automated investing platform commonly known as a robo advisor."Depending on an investor's personal financial situation, it might make sense for them to work only with a robo advisor," Schulte says. "If their needs are simple, pursuing a low-cost, low-touch module is certainly one possible way to achieve their financial goals. However, as their needs become more complicated, an investor can greatly benefit from working with a planning-led advisor who can provide recommendations based on their holistic financial picture."And of course not all fees are alike, and an educated investor needs to learn the difference, says Brent Weiss, co-founder of Baltimore-based Facet Wealth."Start by educating yourself on the total fees that you are paying," Weiss says. "Ask your advisor or your service provider for a summary of all fees so you know the true cost."Because in the end, knowing and dealing with the total cost now is far preferable to and cheaper than dealing with it later.

February 21, 2020 0 comment

Banking & Credit

5 Clues That You're Dealing With a Predatory Lender

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Consumers are often told to stay away from predatory lenders, but the problem with that advice is a predatory lender doesn't advertise itself as such.Fortunately, if you're on guard, you should be able to spot the signs that will let you know a loan is bad news. If you're afraid you're about to sign your life away on a dotted line, watch for these clues first.You're being offered credit, even though your credit score and history are terrible. This is probably the biggest red flag there is, according to John Breyault, the vice president for public policy, telecommunications and fraud at the National Consumers League, a private nonprofit advocacy group in the District of Columbia."A lender is in business because they think they're going to get paid back," Breyault says. "So if they aren't checking to see if you have the ability to pay them back, by doing a credit check, then they're planning on getting their bank through a different way, like offering a high fee for the loan and setting it up in a way that locks you into a cycle of debt that is very difficult to get out of."[See: 25 Fast Financial Fixes.]But, of course, as big of a clue as this is to stay away, it can be hard to listen to your inner voice of reason. After all, if nowhere else will give you a loan, you may decide to work with the predatory lender anyway. That's why many industry experts feel that even if a bad loan is transparent about how bad it is, it probably shouldn't exist. After all, only consumers who are desperate for cash are likely to take a gamble that they can pay back a loan with 200 percent interest – and get through it unscathed.Your loan has an insanely high interest rate. Most states have usury laws preventing interest rates from going into that 200 APR territory, but the laws are generally weak, industry experts say, and lenders get around them all the time. So you can't assume an interest rate that seems really high is considered normal or even within the parameters of the law. After all, attorney generals successfully sue payday loan services and other lending companies fairly frequently. For instance, in January of this year, it was announced that after the District of Columbia attorney general sued the lending company CashCall, they settled for millions of dollars. According to media reports, CashCall was accused of offering loans with interest rates around 300 percent annually.[See: 11 Money Tips for Women.]The lender is making promises that seem too good to be true. If you're asking questions and getting answers that are making you sigh with relief, that could be a problem.Nobody's suggesting you be a cynic and assume everybody's out to get you, but you should scrutinize your paperwork, says David Reiss, a professor of law at Brooklyn Law School in New York."Often predators will make all sorts of oral promises, but when it comes time to sign on the dotted line, their documents don't match the promises," Reiss says.And if they aren't in sync, assume the documentation is correct. Do not go with what the lender told you."Courts will, in all likelihood, hold you to the promises you made in the signed documents, and your testimony about oral promises probably won't hold that much water," Reiss says. " Read what you are signing and make sure it matches up with your understanding of the transaction."You're dealing with pushy sales people. Maybe you went into an office of your own power and free will but suddenly you're feeling as if you won't be able to leave the premises without taking out a loan?That is a very bad sign. Get out.John Henson, a vice president at LendingTree.com, says one red flag is "overly aggressive sales tactics, including using language which obfuscates the actual terms of the mortgage."He also says you could be in trouble if a lender can't explain some of the vocabulary associated with the loan, especially around fees, or if you're having trouble getting the loan terms from the salesperson right away, such as the interest rate, payment amount or number of payments.[See: 10 Ways to Feel Better About Your Money.]The loan is really easy to get. Borrowing money, especially a lot of it, should be difficult. After all, if you're going to borrow tens or hundreds of thousands of dollars for a car or house, a lender would be crazy to not vet you thoroughly and take a look at your credit score and report and make sure you can pay. Not doing that, of course, is partially how the country got into a recession about 10 years ago. Mortgage companies weren't doing enough to learn if consumers could afford to pay back what they were borrowing.So if you're in the process of getting a loan, especially a big one, and you're thinking, "Wow, this is easy, almost too easy," you're probably right. Breyault says you should be especially wary when you're on a car lot, and you're seeing signs like, "Guaranteed loan," and "No credit needed." Those dealerships are notorious for having predatory lending practices."The point of those car lots is as much to sell you on a high interest loan as it is to sell you a car," Breyault says.And if that's the case, it raises another question: If you're paying a fortune on a loan with crummy terms, how much confidence can you have that the same company is selling you a quality product?Dear Younger Me: 12 Financial Truths We Wish We Knew Earlier.

February 21, 2020 0 comment

Banking & Credit

What You Need to Know About Taking Out Any Cash Advance

by sshrx_ns3li1 February 21, 2020

written by sshrx_ns3li1

Sometimes we hear advice so often – don't do this, don't do that – that we simply know something is a bad idea and forget why it's a bad idea.Taking out a cash advance is a bad idea. If you're ever in the position in which you feel as if you have to take a cash advance, you'd do well to learn what they are, and what taking one entails.[See: 13 Money Tips for Married Couples.]Understand what a cash advance is. Generally, when anyone refers to a cash advance, they're talking about using their credit card to get cash. Instead of, say, paying for groceries or a book with your credit card and later paying back your credit card, you're borrowing cash from your credit card and later paying it back.But, really, cash advances are also payday loans – you're getting a cash advance that you'll need to pay back. They're also the same thing as getting a refund anticipation loan, when a tax preparer gives you money that you expect to get back from the Internal Revenue Service. You could argue that if you go into overdraft with your bank account, you're getting a cash advance. Your bank paid something for you, and you'll have to pay them back.In any case, all cash advances involve money being advanced to you that you will have to pay back, probably fairly quickly – usually with a fee or interest and sometimes both.[See: 8 Financial Steps to Take After Paying Off a Debt.]Know they're expensive. That's the main drawback with cash advances. You're borrowing money and paying a hefty amount of money to do so.There are three main reasons cash advances are considered very expensive loans:Hefty fees. Often when you take out a cash advance with your credit card, you'll pay either 5 percent of the money you're borrowing or $10. And you'll pay whatever's greater. So usually if you borrow anything up to $100, you will always pay $10.High interest rates. You'll get this with credit cards and certainly with payday loans. Currently, the average credit card cash advance annual percentage rate is 22.11 percent, according to LowCards.com. And with few exceptions, it's more expensive to borrow actual cash from a credit card than to use your credit card to pay for merchandise and services. So if your APR is 22 percent when you use your credit card at the grocery store, a cash advance will likely have a considerably higher APR.The average APR for a payday loan is almost 400 percent, according to the Consumer Financial Protection Bureau. That, of course, makes it sound as if a credit card cash advance is a bargain, but they're both pretty bad deals.If you borrow $100 from a typical credit card, you'll pay back $22.11, plus $10, and so you're paying almost one-third of $100 to borrow $100. If you borrow $100 from a payday loan store, you'll typically be charged $15. That doesn't mean a payday loan store is better due to the …Short grace periods. Being charged $15 for a $100 payday loan doesn't sound bad, but you'll have less time (two weeks) to pay the money back than you would with a credit card (a month), and the real problems come if you decide you need to borrow more than $100 from a payday lender. For instance, if you borrow $400, you're probably paying back your lender $460 – in two weeks. And if your next paycheck is, say, $1,000, half of that paycheck will go back to the lender, and you'll have to try and make do until the next paycheck.And even though you should have 30 days to pay back your credit card cash advance before it's considered late, the interest begins accruing immediately.These are simply very expensive loans, according to Alexander Stern, a consumer attorney who has his own practice, Stern Legal Services, in Berkeley, California."A $1,000 loan can balloon into three times that amount given enough time and interest," he says.Look at the fine print. There's very likely something written in the legal jargon that you won't like. You just have to find it."It's extremely important to go over the terms and conditions of any short-term loan with a fine-tooth comb," Stern says. "Advertisements highlight the best parts of a product and rarely discuss the worst aspects. Salespeople are similarly focused on the sale rather than what is necessarily best for a given consumer. That's why it is important that you be proactive in reading any contracts carefully before signing."And because you'll never be able to carefully read a contract with a salesperson waiting at his or her desk or looking over your shoulder, you might want to consider taking the paperwork home and coming back the next day – or at least in an hour or two, giving yourself some time to read through everything and think about what you're doing.[See: 8 Ways to Maximize Your Credit Card Rewards.]Be aware of financial traps. The reality is, if your finances are shaky enough, you may feel you have no choice but to take out a cash advance. Just try to not be lulled into the idea that the financial institution lending you cash wants to help you. It wants to make money.Chrystine Julian, an artist and poet in Redlands, California, doesn't mince words. Due to a heart attack, surgery and other health issues, she recently needed a payday loan."My financial life is in the toilet," she says.She only borrowed $150 from an online payday lender and was able to pay it back for less than $20 over her original loan amount. By doing so, she avoided overdrafting her bank account and being charged a $35 fee. The cash advance, she says, worked out well for her.But Julian says that she had to borrow another $150 shortly thereafter and logged onto the website and discovered that she was set up for a $2,500 loan. If she had taken the $2,500, she would have had several years to pay it back, at a cost of over $12,000. She instead called up the website and got them to change the setting, so she could only borrow $150.But she marvels at the mess she might be in now, if she hadn't been strong. "I could have done that with one click," Julian says, of borrowing $2,500."Never forget these are predatory lenders."25 Ways to Fix Your Finances Fast.

February 21, 2020 0 comment

Business Growth

Interest-Rate Risk vs Credit Risk

by sshrx_ns3li1 February 20, 2020

written by sshrx_ns3li1

Bond markets are complex, and if investors aren’t aware of the different types of risks that affect a bond’s value, their investments can lose money.

What is an Interest-Rate Risk?

Investors take on interest-rate risk when they purchase a bond with a certain yield. There is a “chance that once you purchase an investment, interest rates will rise or fall, making the value of that investment worth more or less than when you purchased it,” says Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott.

[

See:

10 of the Best Stocks to Buy for 2020. ]

The Federal Reserve sets short-term interest rates and will raise or lower them based on economic conditions to keep inflation low. The Fed has a 2% inflation target, and if inflation remains under that level, the central bank can keep rates low. If inflation seems to be rising too fast or is holding above the Fed’s target, the central bank will raise rates.

When interest rates increase, the price of bonds falls because bond yields and bond prices move inversely to keep the value constant. Interest rates may increase on their own for a few reasons, says Bill Zox, chief investment officer, fixed income and portfolio manager at Diamond Hill Capital Management.

Inflation might be rising faster than expected, or investors may demand more after-inflation return from their bond investments. This is known as the real yield.

“It’s basically inflation expectations plus the real yield gives you your bond yield,” Zox says.

Normally, if inflation expectations increase or investors demand more return from their bond investments, it’s because the economy is strong. A strong economy usually leads to faster earnings growth, which should be good for equities.

“In a normal environment, if interest rates are increasing, the value of bonds should be decreasing and the value of stock investments should be increasing,” Zox says.

Interest rates are higher for bonds with longer maturity dates.

Maturity can be as short as a day or as long as 30 years or more, in some cases. Jason Ware, head of municipal bond trading at 280 CapMarkets, says investors can tailor how they want to expose their capital to interest-rate risk by holding bonds with different maturities.

“The shorter the timeline is, the faster you’re going to get that principal back, and you are a little less susceptible to some of that interest-rate risk,” Ware says.

What is Credit Risk

Credit risk is the chance that a bond issuer, the borrower, won’t perform its legal obligations to pay back the debt, LeBas says.

Ware says people can think of credit risk like a credit score for companies. Companies with low credit risk are not unlike people with high credit scores. Both can borrow money from banks at lower interest rates because they’re less likely to default.

When companies decide on a yield for the bonds they want to sell, they start with the benchmark interest rate, and then add more yield entice investors. That differential is known as a credit spread, and the benchmark interest rate is Treasury bonds.

Companies that have a high risk of defaulting must offer buyers a yield high enough to make the return worth with the risk. These are known as high-yield or junk bonds.

[

See:

Why Bonds Beat Expectations. ]

“Unlike equity managers, if you’re a bond manager, the best thing that can happen is you get your money back. When you look at credit risk, you know you are being compensated for the probability that you will not get your money back,” says Jeffrey MacDonald, head of fixed-income strategies at Fiduciary Trust International.

How These Factors Affect Current Market Conditions

Interest-rate risk influenced stock and bond market direction in 2018, when rates increased and both markets fell.

In 2019, rates fell and both markets rose.

For 2020, Zox says the key question is whether economic and earnings growth validates 2019’s strong moves in both stocks and bonds. Earnings didn’t grow much in 2019, but if earnings grow 5% to 10% this year, then, “stocks will do reasonably well, but nothing like 2019,” he says.

That could cause interest rates to increase and bonds may struggle to produce positive returns, he adds.

If earnings don’t materialize and defaults increase in 2020, then government and high-quality bonds may do well and interest rates will come down from current levels, Zox says.

“Equities and high-yield bonds, in particular, will struggle because the risk of recession will be higher and the risk of corporate defaults will be higher,” he says.

There’s always a tradeoff between what the level of interest or credit risk an investor will accept, LeBas says.

He says with solid economic conditions and corporate profitability, investors aren’t getting paid to take a lot of risks, which is why credit risk is low and credit spreads between the safest and riskiest bonds are tight.

For a point of reference, currently, the average high-yield bond is paying about 3.27% over the U.S. 10-year Treasury bond yield. While that sounds high, he says over the last five years the risk premium been as high as 8.4%.

LeBas says his firm recommends clients own higher-quality bonds with intermediate to longer terms, which he defines as five to 15 years. Since the Fed has said it will likely keep interest rates low for the foreseeable future, he believes having longer-dated bonds is a good way to hedge against potential stock market weakness.

“At a time when stock market valuations are high, a good way to buy a portfolio is to own longer-term bonds,” he says. “If (stock) valuations fall – that’s not our prediction – but if valuations fall, then those long-term bonds will generally perform well.”

MacDonald prefers to take credit risk rather than interest-rate risk because he believes longer-dated maturities don’t have enough yield to compensate investors versus shorter-duration vehicles.

[

See:

7 of the Best Bond ETFs to Buy Now. ]

“You can look at company fundamentals and say they’re solid enough so that the idea of a big wave or surge of defaults given the economic backdrop seems unlikely,” he says.

Increase Returns With Low Interest Rates

February 20, 2020 0 comment