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hand holding a credit cardDebit or credit? That is a common question that you hear from the cashier when you are about to pay for your purchases. Even if you have given the same answer for years now, you may want to sit down and reconsider your payment choice. After all, smart spending is determined by your payment choice.

Some people will tell you that spending in cash is still the best way to pay for your needs. That is because you want to keep yourself from overspending. You do not want to suffer the consequences of debt because it can seriously compromise your ability to grow your personal net worth.

But what exactly is the payment choice of Americans? Is it cash, debit or credit? Based on an infographic published on NilsonReport.com, in 2007, $3.34 trillion expenses were paid in cash while $3.38 trillion were paid in cards. The same report stated that in 2017, it is expected that more people will prefer to use their cards. It will grow to be $7.10 trillion while cash spending will go down to $2.28 trillion.

We can assume that the reason for this is the convenience of using cards. You do not have to carry all that cash with you. Your wallet do not have to be too bulky. Not only that, cards provide an extra layer of protection compared to cash. When someone steals your money, you can say goodbye to it forever. But when your card is stolen, it has an automatic protection that will ensure that only you can use it. Of course, thieves are smarter now and they can probably break those protective measures but it will be a lot harder than cash.

Since cards are more appealing than buying through cash, the next question that you have to ask yourself is this: should you use debit or credit?

When should you use debit cards over credit?

So why should you choose to use debit cards over credit? Here are a couple of reasons why it is better than the other payment choice.

  • Debit cards keep you from overspending. A debit card is connected to your bank account. If it still has money, you can use your debit card for purchases. In some cases, bank allow you to spend even when you have insufficient funds but that will result in overdraft fees. It is typically high so most consumers make sure not to let this happen. If your monthly spending goes beyond your budget, then you know that a debit card is your best option.

  • Debit cards allow you to get actual cash. Another benefit is when a merchant only accepts cash, a debit card can give that to you. It can be done through an ATM or even through another cash register. As long as you have your PIN, you can get cash without any charges. If you do this with a credit card, you will be charged with interest and fees.

  • Debit cards protect your money. In terms of protection, debit or credit cards can keep your money safe. But the former seems to give more protection. Debit cards, even if they are technically cash from your bank is still protected from theft because a PIN is needed to use it. As mentioned that personal identification number is also required when using getting cash from ATMs. It is oftentimes difficult to duplicate a PIN so theft is more difficult to do. Based on some statistics found on CardHub.com, 85% of debit card transactions in 2011 that used a signature verification were done in fraud. This proves that credit cards that use signatures are also more in danger of identity theft.

  • Debit cards do not charge you will interest. Since you are technically using your money to make purchases, there are no interest rates to worry about. That means, you are not putting yourself in danger of acquiring too much debt amount. You are also ensuring yourself that you will only pay for the true cost of your purchases.

When is it wiser to use credit cards over debit?

Now let us go over the reasons why between a debit or credit card, you will choose the latter over the former.

  • Credit cards help you build up your credit score. According to a study published in 2012 on KansasCityFed.org, consumers who have a high credit score typically use credit cards instead of debit for purchases. While the high interest rate may scare you out of using it as a spending tool, you have to realize that debit cards will do nothing to influence your credit report. How can it do that when using it does not put you in debt? So if you want to build a good credit score, you need to opt for credit cards.

  • Credit cards allow you to buy big items without waiting. While this does not promote patience, you should realize that some big purchase items come at 0% interest. At least, this is true if you stick to the payment terms. As long as you pay your dues on time, buying through credit cards will not give you any problems.

  • Credit cards provide another source of emergency funds. You are still encouraged to save up a cash emergency fund. But there are situations wherein your need is so great that you end up needing more than that fund. This is where credit cards can be really beneficial. It allows you to dip your hands in additional funding to help you survive an unexpected event in your life.

  • Credit cards teach you credit management. Believe it or not, credit cards are not the culprit when it comes to debt. Sure it has high interest rates and all the other fees. But if you think about it, you will realize that the error is actually in the way we handle the card and the balance that we acquire through it. If we learn credit management, you do not have to fear credit card use. Through this purchasing tool, you get to learn how to manage debt – something that debit card will not give you the chance to learn.

How to choose the right card for your purchases

Choosing between debit or credit is actually more simple than you thought. All it really takes is understanding the details of each card and knowing the type of spending lifestyle you lead.

Simply put, a debit card will leave you less room to make mistakes. That is because you are relying on money that you currently have. On the other hand, a credit card may increase your chances of being in debt but it opens doors for you like having an emergency fund or a high credit scores.

Here are some important points to consider when you are deciding between debit or credit.

  • Can you control your spending? If not, then you should stick to using debit cards.

  • Do you always shop with a budget? If you do, then a foolproof budget plan can allow you to use your credit card and avoid overspending.

  • Does your credit card offer rewards? If there is a chance to gain rewards, then opt to use your card. The cash intended to be used from your debit should be transferred accordingly to pay for the credit before the due date.

  • Which has the lower fee? Take note of the fees of each card and understand which of them will cost you more in the end.

Knowing the right purchasing tool, debit or credit, is important to be wise about your expenses. Make sure you take time to understand your options so you know when one should be used over the other.

couple arguingMoney problems in marriage is common. All married and unmarried couples discuss and argue about money. All relationships will encounter financial troubles together. All partnerships will have one person that will make money mistakes that can frustrate and drive the other crazy.

But not all of them end up in flames. In fact, some of them even get out of it a lot stronger than before.

Marriage and personal finances can be a dangerous yet necessary mix. When two people are bound in matrimony, you have two different personalities coming from separate backgrounds trying to live and build a life together. And you also have two money personalities that are not only different, but can also be contrasting.

All type of relationships will have one aggressive and one passive personality. It is quite obvious who will be taking the lead when it comes to financial matters. But regardless of that, you know that any money problems in marriage should be expected and treated the right way to keep it from destroying the whole relationship.

Important reminders when discussing money matters with your partner

It is impossible for you not to talk about money with your other half. After all, we live in a society that is built on consumerism. We need to have the money to pay for the things that we need to survive. We need to pay for food, shelter, drink, clothing – among other things. We also have to deal with the rising cost of living that is increasing a lot faster than our incomes. That means we need to worry about trying to fit all the expenses in our limited budget.

That is not necessarily the best conversation that you will make with your spouse. So how can you keep your finances from destroying your marriage? Here are a couple of reminders that you should always keep in mind when you discuss your finances – especially when it involves money problems in marriage.

  • It’s normal to argue. We are not saying that you need to argue all the time. But if you feel like your spouse is saying or deciding on something that you know is not right, then you need to speak up. Some people choose to be passive and silent until everything blows up in their faces and the blame game starts happening. You have to remember that by not saying anything, you are also to blame. Regardless if you are not the breadwinner, you need to be part of the financial decision making. If something does not feel right to you, then you need to argue your case. At least, ask your spouse to convince you why you need to agree with him.

  • Know where your spouse is coming from. Always remember that even when you have similar personalities, your minds are still wired differently. That is why you need to communicate all the time. That is how you will understand where the other person is coming from. It is important that you hear out what they are saying for you to arrive at a peaceful agreement on the money problems in marriage. Listening is sometimes the key to keep the conversation from heating up.

  • Find a common ground. In case you cannot agree on something, find a common ground. For instance, let us say that your child wants to go to sports camp. You want to give it to them even if it means you have to take the money from the child’s college savings. Your spouse disagrees and thinks the money should be left alone. Both of you have a point so the argument is to be expected. But here’s one way to solve it. You may have conflicting ideas but it has a common theme – the well being of your child. Concentrate on that common ground and together, map out how you will approach the problem. Is it really on the best interest of the child to go to the sports camp? If you really want to, maybe you can appease your spouse by coming up with a plan to pay back the money so it is like you never took money from the college fund.

  • Treat the discussions as you would in a professional situation. Now this will be quite difficult because money problems in marriage can make you emotional. But make sure that you hold it off as much as possible. In a survey published on Lexisnexis.com, it is revealed that 26% of Americans avoid talking about finances. One can only assume that it is because they feel embarrassed or they know it will only hurt the other person. While that may be true, especially when you made a mistake, you need to approach it as you would in the professional world. When something goes wrong in the office, you dread it but you still talk to your superior about it. If you approach it professionally and set aside the emotions, you will realize how clear both of your minds will be.

  • Do not force to agree after one conversation. Some money problems in marriage take time to solve. If a decision has to be made about it, you have to remember that you do not have to solve it immediately. Talk about it two or three times more before you really decide. Space the conversations between days or weeks if you can afford to wait that long. That way, you can think things more thoroughly and you can view it in the perspective of your spouse.

  • Sometimes, consultations can put things in a new light. If you find yourself at an impasse, call in someone else and discuss it with that person – together. It can be a financial adviser or a trusted friend or relative. A third party opinion may be what you need to make a decision and keep the money problems in marriage from being destructive.

Money difficulties can destroy relationships

We’ve discussed in a previous article why money problems can drive you and your spouse apart. It is important that you understand why money is such a sensitive issue so you can keep your financial relationship smooth.

Here are a couple of ideas from that article and some new ones that should give light about why money can drive you apart.

  • You cannot survive without money. As discussed, you need to buy things to survive. Study reveals that money can buy you happiness – at least until you are able to pay for the basic needs. If you do not have this, everyone in the family will feel unhappy.

  • Some materialistic frame of mind will use it as a measurement of success. That being said, you know that money can affect your self esteem. A low self esteem can make you quite disagreeable and even resentful. You do not want that in your marriage.

  • It reveals an underlying problem in the marriage. Financial infidelity is sometimes more damaging for couples. The effects of money problems in marriage will have a ripple effect on everyone in the family – not just in the present but in the coming years. According to an article published on MSN.com, although one partner is to blame, financial infidelity is a result from the couple’s actions. As mentioned, even if you failed to speak your mind and let the other make the mistakes, it is also your fault. Or if you are too overbearing and that prompted your spouse to not be honest with you. These are problems that you need to fix together with the financial problem.

  • It can quickly turn your life around. Another reason why marriages can be destroyed by money is because it can change things about your life drastically and negatively. That can make you extremely frustrated and stressed about your life.

You will always have money problems in marriage but it is just a matter of knowing how to deal with it to help keep your relationship secure. If you really want to save the marriage, you need to be more open minded, understanding and wiser about your decisions. Remember that you are in this together. Make sure you come out stronger and not the other way around.

family with young daughterThere are money habits that will make you a financial failure but it can be corrected if you only learn financial responsibility. Learning to be responsible with your money is tough and it becomes more difficult if you do not start early. The more you get used to being reckless with your finances, the more it will be difficult for you to break the habit and get used to a new and better one.

This is why we have compiled some useful lessons that teens ideally should learn before they venture into the world of adulthood. Some of the lessons will take some getting used to and that is one of the reasons why you want to start early.

6 lessons that will help you improve financial management

Here are a couple of lessons that teens should learn prior to entering into adulthood. Ideally, you want to learn these as early as possible but being in high school should be old enough for you to understand the concepts.

Learning how to do things yourself.

The first lesson that you need to learn is not entirely a financial one. But if learned, it can be a great asset to help in wealth building. This lesson is all about learning how to do things on your own. DIY is always a great skill because it can keep you from spending unnecessarily. For instance, learning how to cook, will eliminate the need to order take out. That should cut a huge bill from your future expenses. Learning how to fix a car, even to just change the oil, will save a lot because the need for a mechanic will not longer be necessary. These things will add up to be a huge saving for you.

Being responsible for your actions.

The second lesson that you need to learn is how to be responsible for your actions. That should be a fitting lesson for financial responsibility. You need to know that any decision that you will make is your own. Regardless of the influences around you, it is not right for you to blame your friends or parents for your overspending habits. You could have chosen to walk away from every shopping event. Even if they are telling you what to do, it is still your decision if you want to pursue it or not.

Knowing the alternatives.

Did you know that one of the characteristics of a modest millionaire is they know how to budget from fun activities? Some people think that to practice financial responsibility, you need to stop wasting money on entertainment expenses – especially when you are still in debt. However, that is not how it should be. You need to continue spending for what makes you happy but you just need to know the alternatives that will keep you from the pricey ones. Being resourceful can help you enjoy life despite your financial limitations.

Reading the fine prints.

Here is one lesson that is rarely taught. It is boring so it will be difficult for a teenager to grasp the importance of reading the fine prints. If adults have a hard time with it, what more can you expect from teens? But nobody ever said that financial responsibility is an easy thing to do. Just like you need to go through with your exams or study all night just to pass your course, you should read the fine prints. The information you gain will pay off in the end.

Understanding good from bad debts.

According to Bankrate.com, debt can be a complex subject to learn. We may want to think that debt is entirely bad but that is not accurate. There are good debts that will help you improve your financial situation. You just have to learn how to identify it from the bad ones. Not only that, you need to learn credit management to be more responsible with your money.

Stepping back to look at the big picture.

Lastly, you want to learn how to always look at the bigger picture. It keeps your future in perspective so you can ensure that your present choices will not affect it. In most cases, people got into financial troubles because they opted to focus only on the present. That is not how you practice financial responsibility. You want to keep your eye on the mistakes of the past, the situation in the present and what you want to pursue in the future.

Why you need to be responsible with money from the beginning

Being responsible with your money is best done while young because you typically start on a clean slate. Although by the time you are a teenager, you should already have a couple of insights about life and personal finances. But still, you are young and it should be easy to put you in the right direction – as long as you are willing to learn and adapt.

An article published on StreetWise.co, discussed a study done by the TIAA-CREF about Millennials and the state of their personal finances. According to the study, this generation has the highest income and debts to match. That does not really promote a picture of financial responsibility. Especially when you find out that they do not have enough savings to their name.

Finding financial responsibility while in debt  is difficult and that is one of the reasons why you want to use it to stay away from debt. To help encourage you, here are some benefits to being more financially responsible even at an early age.

  • Helps you develop the good habits before you develop the bad ones. The great thing about starting early is you can develop the good ones before you are exposed to the bad ones. When you start earning money, you will be tempted to be reckless with it. Before that happens, make sure that the right habits are already in place.

  • Allows you to start on your financial goals early. Another thing that should make you want to learn financial responsibility is it will help you work on your goals early in your life. That way, the chances of you achieving them early will also be high.

  • Encourages you to set up your financial future right. Lastly, learning how to be responsible at a young age will help you setup your financial future the right way. It will help make the right decisions that will lead you the type of future that you want to have.

Apparently, learning financial responsibility is needed now more than ever. According to an article from FoxBusiness.com, the household debt in the country has risen higher. It may be viewed by economists as a good sign because consumer confidence is up once more. After all, people who are not confident about their finances will not put themselves in debt. However, you also have to realize that too much debt is the reason why everything was so bad the last recession. The rising consumer debt can lead us into another debt situation that this time, a lot of us may not be able to survive it. With a debt of $11.52 trillion, we may not be too far off from another crisis.

This is why it is important that you adapt a more responsible way of managing your finances. You cannot afford to let your finances be as bad as what your elders had. It will be a challenge, given the present economic conditions in the country. But soon, you will find that the lessons learned are all worth your while.

woman doing a stop hand signThere are many mistakes to avoid in retirement planning. One of the most prominent is taking money out of your retirement fund. It is high on the “No-No” list together with not saving early for your retirement. There is just too much at stake if you decide to take money from your retirement plan – whether you intend to return it or not.

According to an infographic published on Principal.com, 27% of retirees are actually working while in retirement because they lack the funds to support themselves. The same statistic also revealed how 61% of those who retired early did so because of health problems. Imagine having to retire on a small retirement fund with health problems. How can you hope to support your basic needs much less the medical treatments that your health requires?

This is the reason why financial experts are strongly against consumers who plan to get from their retirement money.

3 conditions that make borrowing from a retirement plan okay

However, there are instances wherein your back is against the wall and you have no choice but to take money from your retirement fund. But before you really consider this as a solution, you must explore your options first. More than that, you need to make sure that these three conditions are met.

You have the stable income to pay it back.

First of all, you want to make sure that you have the income to pay back what you are getting from your retirement fund. Whether you loaned or withdrew the money, that should be put back someday. There should be no question about that. If you know that you cannot afford to put this back, then do not borrow from your retirement plan. That way, you will not be too much at a loss when you finally retire.

To have stable income means you should be currently employed with a regular salary coming in every month. Consider how stable your job is. Did you get a positive review the last time you spoke to you boss? And do not just concentrate on your own reviews. Take a look at the stability of the company. You may be very competent but the company may not be in good condition. You could still end up losing your means to pay back your the retirement money you borrowed.

And having the means to pay it back is not enough. Make sure that your repayment plan can be completed in 5 years. This is the allowable number of years that will keep you from being penalized by the IRS. If you loaned the amount from your retirement fund and you failed to pay in back, that will be considered as a taxable income.

You do not have a cheaper loan alternative.

Another condition that you have to meet is making sure that you have explored your options. If you need money, try to explore getting a peer to peer loan or a cash advance from your office. If other loans that you are trying to get is going to cost you more than borrowing from your retirement savings, then that usually means you have a credit score that is less than ideal. If this is the cheaper alternative, then go ahead and borrow from your retirement.

This is another reminder that bad credit scores negatively impact your life. In this case, it is forcing you to have no other option but to get funds from the money that should have been kept untouched until your retirement. Make sure that it will be a lesson that you will keep in mind. Fix your credit score problem so that you will not be put in the same position again. Your retirement plan may not fully recover if you make it a habit to borrow from it repeatedly. If anything, this should always be your last resort. Unless this is the cheapest loan alternative that you have, do not touch your retirement fund.

You will use it for something that will improve your personal net worth.

Lastly, the only acceptable time that you can touch your retirement money is when you plan to use it to grow your personal wealth. According to a study from Wells Fargo and Gallup, 64% of investors would prefer to have their retirement investments secure even if it will limit the profit that they will earn. The study published on WellsFargo.com also revealed that 33% admitted that they do not mind the high risk as long as there is a high growth potential. If you are part of the latter, then you can use your retirement money to grow your funds further. That is the only time you are allowed to use it. No ifs and buts about it.

This can also be applicable for those who want to use this as a downpayment of their home. A house can build up equity over time. This is a great way for you to increase your personal net worth. It sure beats having to rent all the time. Of course, this is a great option if you are still young and you have decades to go before you have to actually retire. In fact, the IRS allows $10,000 or less in withdrawals and will not penalize you for it. At least, if this is your first home purchase.

When these three conditions are met, that is the only time that borrowing from your retirement fund makes sense. If not, keep your hands off.

Should you ever use your retirement money to pay off debt?

There is a question of using your retirement money to pay for your debts. Some people who had it really bad when the recession happened had no choice but to use their retirement money to haul themselves out of debt. According to a Q&A article published on Oprah.com, financial adviser, Suze Orman warned consumers against borrowing from their retirement funds. She said that the better option is to keep their hands off the retirement money, get a part time job and them pay off the debt slowly but surely.

It is difficult to judge if you should use your retirement plan to pay off your debt. But in case you feel strongly about it, there are certain signs that will tell you if you are doing the right thing. It is still generally not okay but it will probably be acceptable if:

  • You will pay off a high interest debt. Compare the interest that your money will get if it stays in your retirement fund as opposed to the savings you will get if you eliminate the high interest debt. That can be a great way for you to compare if this is a good idea or not.

  • You will loan the money and not withdraw from it. Withdrawing would mean an early withdrawal tax penalty for you. If you loan it, it is technically still a debt but the interest will be placed in your retirement fund anyway.

  • You will make a plan to return the money. Actually, this should be something that you do before borrowing from your retirement money. Make sure that you can put it back.

  • You will address the real reason why you got yourself in debt. Lastly, you want to address the root cause of your financial problem. If you concentrate too much on paying off the debt without really thinking about staying out of it, then you might just be wasting your time and money. Ensure that you will solve the overspending or lack of emergency fund problem that led to your debt situation.

There are many retirement regrets that you should avoid at all cost and taking from your retirement savings is one of them. If you are not careful, you might find yourself struggling in the future just because you took money out of your retirement fund.

student holding envelopIf you think about the student loan crisis, you will realize that we have a long road ahead of us. We have yet to put a huge dent on solving it. In fact, if you look at the statistics, you will realize that it does not seem like we are doing anything to solve it. If we are doing anything to the student debt at all, it is obviously not working.

Based on an article published on NYTimes.com early this year, it is apparent that student loans continue to rise. In fact, to quote the article, it is revealed that “delinquencies continue to rise, and loans continue to be made without regard for the ability to repay.”

The article explained that student loans were initially created to help low income families have the chance to get a higher education. That is still happening but the whole system seems to be in error. Instead of helping, we find young adults struggling for the first ten years of their corporate life. It is creating a bigger problem for new graduates. Although they have the means to earn more compared to high school graduates, they still have the student debt to take care of.

Three reasons why the student loan situation in the US is scary

There are three important reasons why the student loan problem in the country is scary.

Student loans are advertised as a good debt that is necessary.

There is truth to this – that we cannot deny. Study reveals that graduates really earn more compensation. This is why college debt is often advertised as a good debt that is necessary for young adults to succeed in life. The explanation is this – it is a type of debt that has the ability to put money in your pocket. That is because it can open more opportunities for you to earn. But even if that is true, you should realize that the student debt is compromising the money that you should have been enjoying.

Student loans are given to confused and innocent borrowers.

In most cases, student loans are offered to borrowers who do not understand the real effects of debt in their life. Not only that, they are unaware of their actual capabilities to pay off this debt. At the time that the debt is made, there is no way for the borrower to know how they can hope to pay it back because they are still studying. If they have a hard time getting a job, that will not stop the student debt from being billed to them.

Student loan delinquencies continue to rise.

Another scary fact about this debt is that the delinquency rate is steadily rising. As mortgage and credit card delinquencies improve, the student loan is going the other way. It keeps on rising just as the amount of debt is also going up. We need to consider this fact because it clearly shows the inability of young adults to pay off this debt. To add to this scary fact, lenders are still issuing student loans despite the trend that borrowers are having a hard time paying it off!

These are the reasons why student loans make college education seem worthless. If we are not careful, this might result in another economic crash.

Recent study reveals that Americans still want to go to college

Surprisingly, despite all of these facts, Americans still believe that college education is a must. In a recent poll done and published on Gallup.com, 70% of Americans believe that it is very important for consumers to have a postsecondary degree. 24% believe that it is somewhat important. Only a mere 6% believe that this is not necessary at all.

The other findings from the poll are as follows:

  • 44% strongly agree that a certificate or a degree beyond high school is necessary to get a good job.

  • 40% strongly agree that a college degree can lead to a better life.

  • 89% believe that institutions providing higher education need to change so that the needs of students can be met.

  • Less that half of poll respondents believe that institutions are not doing anything to change and improve.

Gallup provided an explanation in this poll results that revealed how consumers know that student loans are destructive – but that they still believe that college education is necessary. It is safe to assume that when it comes down to it, they will opt to put themselves in debt if that means that they can get access to this higher education. That is because they believe it is a necessity towards a better standard of living.

How to go to college and minimize debt

It is true that student loans may be worth it because a college education can really open more doors to help you improve your life. But while a college education is a necessity, you have to remember that student loans are not. There are ways for you to get an education after high school and it does not always have to end up in debt.

Here are some things that you can do to keep student debt from being a problem after you graduate.

  • Work on the side. One of the most effective ways for you to break free of the student loan statistics is to just work your way through college. People have done it so you cannot say that it is impossible. They had to work during their spare time and it paid off in the end. They are able to enjoy their salaries entirely because it does not have to be split with student debt payments. There are so many things that you can do to earn on the side. You can babysit or provide tutoring services. Or you can have yourself employed by the college you go to so they can waive off your tuition. That means you only have to worry about your daily expenses and your books.

  • Be frugal. Another way that you can keep yourself from too much student debt is when you live a frugal life while in college. This is possible for you to do if you concentrate on the expenses that are necessary. New clothes, for instance, should not be high on your list if you still have clothes to wear. You need to prioritize food and your school expenses before you think about your wardrobe.

  • Keep an eye on your credit card spending. One of the things that make student debt a burden is the fact that it is often combined with credit card debt. The high interest of credit cards can be quite a financial obligation that can cripple the finances of the young adult. It can be too much to bear if this is accumulated on top of the college debt. That means you have to make sure that you keep any credit card spending in moderation. If you can manage it, just spend in cash only. That way, if you cannot afford it, you will be forced not to spend on it.

  • Understand your student loan. Lastly, if you really have to borrow money, make sure that you understand student loans. This is one of the regrets of a lot of young adults who have graduated with student debt. They said that they wished they know how hard it will be to pay off this type of loan. If they did, they mentioned that they would have done more to keep their debts low. That may be better financial management skills or a more frugal lifestyle. If you understand how student loans work, you can make better decisions about this debt.