When an Auto Loan May Work for You

When it comes to buying a car, you have two options: pay with cash or opt for a loan. More often than not, it is assumed that paying cash means saving on monthly payments and, as a result, saving money in the long run. While this can be true in some instances, there are a few good reasons why you may want to rethink emptying your bank account in order to purchase a car.

Emergencies and Interest

Cars and trucks range in price from $500 (for a used car with very high mileage) to more than $15,000. For the sake of this scenario, let’s say the two-year old car that you want to purchase can be yours for around $12,000. Let’s also assume that you have $12,000 sitting in your bank account right now collecting interest.

While the average savings account interest will not return as much of a profit as you might gain from, say, investing in the right stocks, it’s interest all the same. Once you take that money out of your savings account, you will not be able to accrue any additional interest. This is the first reason why taking out a loan to pay for your new car might make more sense.

The second reason has to do with practicality. In the instance that an emergency should arise sometime soon, you have $12,000 available in your bank account. You can access this money at any time, and it’s always there for you. If you were to extract that money in order to pay for a new vehicle, you will no longer be able to count these funds as part of your emergency stash.

Even if an emergency situation didn’t happen, there are many ways that you can spend that $12,000 you have in your bank account. The point here being that you can always count on the money you have saved, but all of that available liquidity will dry up if you use your saving to purchase a vehicle in cash.

The Loan Benefit

Taking out a loan allows you to obtain a vehicle without the worry of spending a large amount of money right away. You can still put part of your savings towards monthly loan payments, but don’t have lose sleep over knowing whether or not you have enough money saved up in case of an emergency.

Loan payments can be arranged, so that you can make payments that simply makes sense to you. Often, making low monthly payments is a lot easier to do than spending all of your cash at once. While the idea of purchasing a vehicle with cash seems like a good one, consider the factors mentioned above. Sometimes, taking out a loan in order to purchase a vehicle simply makes more sense. Weighing both of the scenarios listed in this article will help you make a decision that you can live with.

How to Not Ruin Your Credit This Holiday

Analysts believe that consumers will spend more this holiday season than last year, up 2.8 percent to $465.6 billion nationally. The good news is that, according to the latest Credit Karma data, consumer credit card debt is down 11 percent to $6,600 nationally from October 2010. But even consumers with a good grasp on their credit could use a lesson or two on how to keep their credit healthy this holiday.

Here are a few tips for managing your credit this year. Happy shopping!

Consider a new card…

Instead of getting you deeper into debt, a new card should help you manage your credit.

· Balance transfer credit cards allow you to consolidate your credit card debt by transferring it from multiple cards—for a small balance transfer fee—to a single card. The best balance transfer cards let you pay down your debt interest-free for a 12- to 18-month period. Use your balance transfer card to help you continue to pay down debt while you shop responsibly for the holidays on a different credit card. Check out the Citi Platinum Select MasterCard, which offers 0% interest on balance transfers for 21 months.

· A new credit card will increase your available credit, which decreases your credit utilization rate. Your utilization rate should be kept under 30 percent for good credit health. Read more about credit utilization rates here.

· If you choose wisely, rewards or cash back credit cards can help you get something back for your holiday shopping. Make sure you research and read the fine print to find the card that best suits you. The Chase Freedom Visa card will get you $200 in bonus cash back after you spend $500 in purchases your first three months.

…But avoid store credit card offers.

Don’t give in when your favorite store’s salesperson asks, “Would you like to save 20 percent by opening a store card account?” Store credit cards promise a lot up front, but the discounts aren’t always worth it, especially if you spend more in interest on the card than you save with your discounts. Store credit cards have historically high interest rates typically 20 percent or higher. They can also lead to impulse buying or unnecessary shopping; you might buy something you don’t need just to get the card perks.

Use your credit cards…

There are several reasons why it’s a good idea to use your credit cards to do your holiday shopping:

· They offer better protection against fraud. If there are fraudulent charges on your credit card, at most you’ll be liable for $50 of the amount charged due to federal law. However, debit cards could leave you liable for up to $500 on fraudulent charges, depending on when you catch the charges.

· Many offer price protection. If you use an eligible MasterCard for a purchase and find a lower price for the same item within 60 days from the date of purchase, you could be reimbursed for the price difference.

· Each credit card company offers its own extended warranty program, typically for up to one year after the manufacturer warranty expires.

…But plan beforehand.

Before you go on an all-out shopping spree with your credit cards in tow, make sure you have a plan. Know how much you’re going to spend, and be prepared to pay off your balance at the end of the month, if possible. If you can’t afford to pay down your balance at the end of the month, consider making frugal DIY gifts for some recipients. To ensure you don’t overspend while shopping, set up mobile or email alerts on your accounts. Some credit cards allow you to set a spending limit; you’ll be contacted by your issuer if you approach your limit.

Bottom Line: Remember that the season is about spending time with the ones you love, not just spending money. Keep that in mind to keep up a healthy credit score.

Bethy Hardeman is the social media maven at CreditKarma.com, a completely free credit management service that provides free credit scores, financial education and personalized savings recommendations. Credit Karma helps more than 3 million consumers realize the everyday cost savings of having a good credit score.

When to Choose Credit over Debit

Before you pull out your debit card to make your next purchase, be aware that there are circumstances when it’s better to use your credit card. How do you know which one to use? Take a look at our quick list of times when it can be beneficial to use your credit card over debit.

To avoid a fee.

If you’re with a bank that will begin charging debit card fees in 2012, consider switching accounts. Although $5 per month doesn’t sound like much, that adds up to $60 a year. Plus, it could mean the dawn of even more fees for banking customers. If making the switch is too much of a hassle right now, consider using your credit card instead when you don’t have cash.

Tip: Make sure not to over-use your credit card, which can damage your credit score. A good rule of thumb is to keep your credit balances at 30% or less than your total credit limits.

For online purchases.

Did you know that your credit card likely offers better protection against fraudulent charges than your debit card? Federal law limits your liability to a maximum of $50, regardless of the amount charged on your credit card. When it comes to your debit card, your liability is dependent on how long it takes you to report the fraud. If you catch it within two days, your maximum liability is capped at $50, the same as a credit card. But if it takes you longer, you could be liable for as much as $500 in fraudulent charges.

Tip: Stick to using your credit card for online purchase protection, especially with merchants you’ve never purchased from before. That way, if something goes awry with the purchase and you experience unauthorized charges, your liability will be capped at $50, no matter how quickly you catch it.

For the price protection and insurance.

If you make a purchase with an eligible MasterCard only to find the item for a better price elsewhere, you’re protected. You have a 60-day window from the date of purchase to be reimbursed for the price difference. Additionally, some other credit card issuers offer to protect you if an item you purchased with credit was stolen or damaged within 90 days of purchase. Check with your credit card’s terms and conditions to find out if these services are available to you. Debit card purchases simply just aren’t as well-protected.

Tip: Price compare before you buy to avoid submitting the paperwork to be reimbursed for a price difference.

When you can get bonus rewards.

Unless you’re with a bank or financial institution that offers debit card rewards, you won’t get any cash or miles benefit out of using your debit card. Instead, a good cash back or rewards card is the way to go. You might even get enough for a free trip to Paris.

Tip: If you want to research some good cash back credit cards, check out Credit karma’s reviews section to see how others have rated different credit cards.

Bottom Line: These are just a few guidelines to follow when deciding whether it’s more useful to use your credit over debit. Above all else, when you choose credit, make sure you handle it responsibly by paying off your balances by the end of the month and avoiding late or missed payments. You’ll avoid paying additional interest costs as well as late payment delinquencies on your credit report.

Bethy Hardeman is the social media maven at CreditKarma.com, a completely free credit management service that provides free credit scores, financial education and personalized savings recommendations. Credit Karma helps more than 3 million consumers realize the everyday cost savings of having a good credit score.

Four Reasons Why Your Credit is Important

There are lots of things you can’t control in life, but one thing you can control is your credit. But why should it matter to you what your credit score is or what’s in your credit report? There are several reasons you should pay attention to what’s going on in your credit life, and some of them may surprise you.

It will work for or against you when you’re applying for a loan.

One of the most significant reasons to pay attention is because your credit comes into play when you’re shopping around for a mortgage, auto loan or credit card. The information in your credit report, boiled down into your three-digit credit score, tells lenders whether or not they should approve you for a loan. It also tells them how to set the terms and rates of your loan. For instance, while you may be able to get a mortgage with a credit score of 660, in order to get the best terms and rates you typically need at least a 720. Maintain your credit health so your score can help instead of hurt you when you apply for a loan.

It can help you stave off identity theft.

Identity theft is more common than you think. Nearly one out of every five consumer complaints to the Federal Trade Commission in 2010 concerned identity theft. Your credit can help protect you, both before and after it occurs. By placing a fraud alert or credit freeze on your report, you’ll keep thieves from opening credit accounts in your name. Read more about how a credit freeze can protect you here.

It could keep you from landing that job.

Like it or not, an employer can decide not to hire you based on poor credit. For instance, in order to land a TSA airport screener position you can’t have more than $5,000 in overdue debt. It may not sound fair, but it seems employers are considering derogatory marks on your credit report as reason enough to reject your application.

It can affect whether or not you get an apartment.

Not only does your credit affect your ability to get approved for a loan, it could also determine whether or not you get the apartment you want. Many landlords and apartment complexes owned by large property management companies typically require a credit check prior to handing over a set of keys. If you have late or missed payments on your credit report, your landlord may be concerned that you’ll default on your rent payment, too.

The Final Word

If you’re ready to start building and maintaining your credit, check your credit score and analyze your Credit Report Card on CreditKarma.com. Hone in on the areas that need work, such as your payment history or total number of accounts. By staying on top of your credit and maintaining responsible credit habits, you’ll be prepared next time you want to apply for a loan, a job, and even an apartment.

Credit Karma™ is a completely free credit management service that provides free credit scores, financial education, and personalized savings recommendations. We help more than 3 million consumers realize the everyday cost savings of having a good credit score.

3 Things to Consider Before Applying for a Credit Card

When you’re ready to get a new credit card, here are the three must-do steps to take before you click that “Apply Now” button. Take these three things into consideration before you apply for your new card to help you save money and find the best-fit card for you.

1. Consider your credit rating.

Don’t apply for just any credit card that piques your interest; find the ones you’re more likely to be approved for. Since your credit score gets knocked a few points every time you apply for a credit card, you should be very selective about what card you apply for. Check your credit score so you know where you stand. If your score isn’t where you want it to be, and you don’t need a credit card right away, spend some time building up your credit before you apply for a credit card. Or, try a secured credit card first to help boost your credit.

When you’re ready to apply for an unsecured credit card, use Credit Karma’s Approval Odds (find it in the “My Savings” section), to find out which cards are recommended for your credit score range.

2. Consider the APR.

A credit card’s APR is its annual percentage rate of interest. In other words, the APR tells you how much you’ll be charged if you don’t pay your full credit card balance by the due date. If you only pay the minimum each month, you’ll accrue interest charges; so the lower your APR, the less your outstanding debt will cost you. The national average APR is 14.94 percent.

So, how is a credit card’s APR determined? It’s based largely on your credit score. A higher credit score typically means a lower APR.

In your search, make sure to check out some credit cards that have low or zero percent introductory APRs, which will help you save money on interest if you are carrying debt. For instance, the Chase Freedom Visa has an APR as low as 9.99 percent.

3. Consider the rewards.

When it comes to choosing the right credit card, find one that’s going to work for you. Look for a card that gives cash back or rewards that are useful for your lifestyle, and avoid cards whose rewards aren’t realistic for you.

For instance, the Chase Sapphire Credit Card gives you 25,000 bonus points after you spend $3,000 in your first three months, which is good for $250 toward a round-trip flight. But if you’re not one to put that much on your credit card, you may miss that initial reward.

Instead, go for a card that will earn you rewards that you’re likely to get and use. A trusty cash back card is a great choice, like the Citi Dividend World MasterCard, which gives you $100 cash back after $500 in purchases within the first three months and 5 percent cash back on seasonal categories.

Bottom Line: A credit card is a powerful piece of plastic, and it’s one of the best tools out there for building and maintaining good credit health. So make sure you know which card will suit you best before you apply.

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Credit Karma™ is a completely free credit management service that provides free credit scores, financial education, and personalized savings recommendations. We help more than 3 million consumers realize the everyday cost savings of having a good credit score.