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Are Christmas Club Accounts a Good Idea?

By | Ask a Credit Expert, Featured, Revolving Debt, Save Money

A Christmas club savings account is a special account you can set up to help fund Christmas gift purchases. Many employers offer these accounts, making it easy to have the money automatically withdrawn from your paycheck, while many banks have stopped offering Christmas club accounts. It is possible that the lack of profitability in offering such an option to consumers has come into play. Why offer a way for consumers to save money to fund Christmas when you really want them to use their credit cards?

Fortunately, credit unions still believe in the Christmas club account – and so do we, especially if it means you’ll set aside cash to pay for Christmas instead of charging everything you buy.

While Christmas club accounts will not earn you a lot of interest, they do provide the discipline that most of us are lacking, because you typically cannot withdraw the money from the account before the holiday season begins. Whether you set aside $5 a week or $100 a month, putting money into a Christmas club account might be a good idea. If you have existing credit card debt, however, you’ll be further ahead in the long run if you take the money you would have set aside in a Christmas club account and pay it toward the balances on your credit cards instead.

Christmas club accounts earn little, if any, interest, so if you are paying 14 to 28 percent interest on your credit card balances, you save a lot more by paying down that debt. The question is: Can you pay down your credit card debt and still have the discipline to avoid using credit cards to fund your holiday spending?

If discipline is an issue (and don’t feel bad, it is for most of us during the holiday season!), then opening a Christmas club account might be a New Year’s Resolution you want to make. But if you choose to pay off your credit debt and can keep from maxing out your credit cards again, you may be giving yourself the best Christmas gift of all: better credit scores and less of your monthly income earmarked for making credit card payments

If you are looking for the best way to pay off your credit card debt and give yourself the gift of more available income each month, check out Ovation’s credit card payoff tools. We have tools to help you achieve your goals, whether you need to get rid of high-balance cards, cards with high interest rates, or a combination of the two.

You Don’t Have to Buy Dom Pérignon Just because You Can Afford Dom Pérignon

By | Personal Finance, Save Money

Raise your hand if you would like to be a millionaire.

Now put down your hands and get to work.

Most of us are driven to make money, if for no other reason than to earn a comfortable living. How a person defines “comfortable living” is certainly relative, because each of us has a unique idea of what it means to live well. So how much money is needed to establish and maintain a comfortable living varies from one person to another. Still, we can probably all agree that the idea of becoming a millionaire is attractive.

While many people have made their fortune through real estate ventures, during the dot-com boom or by winning a lottery, there is only one sure-fire way of becoming a millionaire.

If you want to be a millionaire, you must not only make money, you must adopt a mentality and a lifestyle that demands you live frugally. The research of Thomas J. Stanley, Ph.D. shows that 25 percent of engineers who are millionaires drive a Toyota vehicle, the author maintaining that “millionaires buy for quality and value.” Millionaires get rich and stay rich by making practical buying decisions, by managing their credit and by using spending discipline.

You, too, can be a millionaire, but you have to forget get-rich-quick schemes and get down to business. Once you have a job or a career that makes you money, you are ready to start. Regardless of the job you have or the income you have, much of your success will depend on your attitude. Even if you do not have a job that generates great sums of income or has opportunities for advancement, you can establish habits that will help you build your assets.

Regardless of what your income level is, you should live within your means. Just because you can afford a Lexus does not necessarily mean that you should buy a Lexus. Millionaires who drive Toyota’s know this. They also benefit from some of the least expensive insurance rates. As well, you do not need to live in the most expensive apartment or dine out regularly. You can live comfortably in a clean apartment that has few amenities such as a pool or an exercise room, and you can entertain friends at home, cooking some wonderful meals.

Save the money that you would spend on extravagances. Pay yourself first. Whether your budget allows you to save $100 or $1,000 a week, make a habit of saving that amount first. If you know yourself well enough to know that you do not have the discipline to save money, then set up an automatic savings account that will deduct a set amount from each paycheck.

Having established a method of saving money and a savings account, you must then invest your savings. Explore possible investment options, but realize that your investment strategy should not be one in which you put all of your savings into one stock option or into real estate alone. Divest your investments.

When you have established a process of making money, saving money and investing money, the next step is to repeat the cycle. Stick with it. Your hard work, wise financial decisions and perseverance are the best way to become a millionaire.

Gain More through Frugal Living

By | Debt, Personal Finance, Save Money

Each day you spend more money than you realize. A few dollars here and a few dollars there is hard to notice, but it adds up quickly by the end of the month. If you’re getting to the end of the month finding it hard to make ends meet, you may need to embrace a frugal lifestyle, to discover what that can do for your bottom line.

There are several ways to live frugally and save money, without depriving yourself of the luxuries you’ve grown accustomed to. Choosing to be frugal does not need to mean restricting yourself to ramen noodles for every meal, and we definitely are not suggesting that you cut your water bill by showering once a week. You can embrace a more frugal lifestyle, however, by making the conscious decision to live without certain things or to do it yourself.

A less-than-thrifty lifestyle begins in the morning, with the purchase of a pastry from your favorite bakery on the way to work ($6-10). Then as your lunch break approaches, you and some coworkers head to a local deli or café for a quick meal ($5-12). As you are driving home from work, you swing through a fast-food restaurant to bring home dinner for the family, because you’re too tired to cook ($25-30). In one day you have spent $30 to $50 or more – and that is only on fast food!

You can make some fast changes to your lifestyle that put more money in your pocket:

  • Choose to make homemade muffins or smoothies for breakfast on-the-go each morning, rather than buying a pastry that not only costs more but is packed with calories.
  • Pack a lunch for work each day. Better still: pack your lunch, and walk to a nearby park during your break,  so that you can follow your meal with a little exercise.
  • Prepare meals for your family in advance for quick and healthy dining later on.

These simple changes not only save you money, but they also offer healthier alternatives. Neither your wallet nor your waistline needs items such as a gourmet coffee every day.

As well as making changes in where and what you eat, there are a number of other ways you can stretch your budget:

  • Rather than watching every new movie in the theater, choose only your favorites and wait for the others to be released on video.
  • Forgo the expense of movie popcorn, drinks and candy, and you will instantly save at least $20.
  • Consider carpooling, if you and your coworkers take a similar route to work. Not only will you save gas, but you can feel good about helping the environment.

Reflect on your daily habits and start with small changes. You will be surprised at how much more money you have at the end of each month, which can be put towards paying off credit card debt. Choosing to live frugally is more than a tool to save money; it is a step towards a better lifestyle.

Easiest Way to Pay Student Loans? Don’t Have Them!

By | Debt, Loan, Personal Finance, Save Money

Most well-paying jobs require a college education, but graduates spend the bulk of their first few years just paying off their student loans. After four or five years of endless studying and late-night pizza deliveries, you have a diploma – and about $100,000 in student loan debt.

In a depressed economic climate, student loan debts are being put aside just to pay the bills; this causes many loans to go into default. Do not be a victim of high education debt! With hard work and excellent time management skills, you can graduate from college without student loans.

While the full-ride scholarship is rare, there are many partial and specialized scholarships available. The college itself often has many different scholarships available for everything from sports to academic majors. Some high schools have scholarships contributed by various alumni and can be based on scholastic merit or activity.

Various organizations and charities also provide scholarships. If you are or a parent is a member of veterans, social or other organizations, you can check to see if they have scholarships. A scholarship doesn’t have to be paid back and can be as little as fifty to several thousand dollars. Attending the school where your parents attended may also give you access to alumni scholarships.

You may be able to pay your way through college using monthly payments. This requires having a job while you are enrolled, and it can be challenging to work and study simultaneously, but many students find the right balance. You can also save money by only going to college half-time or by starting at a community college. Most financial aid offices offer monthly payment plans to help you manage the cost. You can spend a few years flipping burgers during college and go into your corporate job debt free.

For some, delaying college and working prior to attending, to save up money for tuition, might be the right choice. You can even work during high school. Many high schools partner with local community colleges so that students can earn college credit at a much lower price. Exploring these options, as well as taking AP classes that grant college credit when you successfully pass the AP test can also reduce your overall student debt burden.

While these tips won’t help those currently straddled with the heavy burden of student debt, these tips can help those who are just beginning to consider college:

  • Attend a state school instead of a private school, to benefit from lower tuition rates
  • Rent books instead of buying them, to save hundreds of dollars each semester
  • Get hired by a company that offers a tuition reimbursement program
  • Live at home instead of in dorms and save $5,000 – $8,000 a semester or more

If you want to graduate with no student loans, then you need to exhaust every cost saving measure before and during your college career.

Plan Ahead for Larger Purchases

By | Budgeting, Personal Finance, Revolving Debt, Save Money

It is ironic that the items we desire most are consistently the most expensive on the store shelf. Coincidence? Not really. Companies spend thousands of dollars researching exactly which items consumers are most willing to spend their hard-earned cash on. Even without their fiendish advertising ploys, we find ourselves submitting to the newest trend of cars, televisions and other expensive products in the attempt to satisfy our craving for new things.

We all feel the urge to make purchases that we either do not need or are not financially ready to afford. However, the credit card industry (a willing and able partner of the retail industry) has made it all too easy to drown ourselves in debt. Using a credit card to make large purchases is one of the biggest mistakes people make, yet it happens all the time. The drive for instant gratification often overshadows the practicality of refraining from using the credit card, but there are several reasons as to why paying with cash is the best decision in the long run.

Making large purchases with your credit card only make you more susceptible to the fees and extra costs associated with credit card use. Any time you purchase an item with a credit card, there is interest that must be paid as well, making the item more expensive than it would have been if paid for with cash. That interest only increases with time, and the larger the purchase, the longer it takes to pay it off. A continually high balance on a card can easily ruin your credit and reduce your purchasing power in the future. Large purchases also risk pushing you over your spending limit, and over-the-limit fees are unforgiving.

You can have the items you desire without the mess and stress of credit problems, by simply planning ahead. Making a large purchase with cash not only protects you from any random fees or blows to your credit, but choosing to use cash also gives you the time to research the purchase and make sure you are getting the right model, style or version you need. Paying with cash is also proof that you are financially capable of purchasing the item, because handing over a wad of cash, knowing full well that there are bills to pay and your cupboards are empty, is much harder to do than sliding a piece of plastic through a machine. Cash is tangible and can force you to consider the necessity of your purchases.

Credit can be a powerful tool. However, large purchases enter the danger zone of credit spending. The simplicity of cash creates a platform in which planning and prioritizing can take place. This allows you to curb impulse, stick to your budget and maintain good credit.

If you are considering a large purchase, take the first step and put down the credit card.

Saving Time will not Save you Money with Refund Anticipation Loans

By | Ask a Credit Expert, Personal Finance, Save Money

Meatloaf sings it best: “Life is a lemon and I want my money back.” It might not be life that’s a lemon, but when it comes to taxes, even the best of us tend to sour a bit.

Does anyone enjoy paying taxes? We work hard year-round, and we pay taxes year-round, begrudgingly contributing to our local, state, and federal treasuries in exchange for community services, road maintenance, and the like.

We can rationalize the validity of taxes, patting ourselves on the back for our benevolent contribution to society. Let’s be honest: there are many things that we would rather do with our money. While we often cringe at the amount that we regularly see sifted away from our gross earnings, many of us look forward to the new year and discovering how much we’ll get back in the form of a tax refund.

Lemon-flavored life or not, we want our money back, and we want it sooner than later.

For those of us with little patience and even less money, the refund anticipation loan (RAL) has been an option that permits the tax payer to receive money in advance while waiting for the tax refund to be processed. The National Consumer Law Center of the Consumer Federation of America released a 2012 report detailing the history of the refund anticipation loan (RAL) and the risks associated with RALs.

According to this report, the target audience for RALs is typically low-income tax payers, those individuals accounting for 92% of applicants in 2010. Further, those tax payers benefiting from the Earned Income Tax Credit (EITC) were most likely to seek immediate gratification from the use of an RAL.

Those that did receive RALs paid additional fees ranging from $99 to almost $300!

While the FDIC has actively been discouraging lenders from offering RALs (the 2012 tax season marking the cessation of RALs), a void remains that will allow the growth of the refund anticipation check (RAC) industry.

Refund anticipation checks will burden the eager tax payer with additional tax preparation and add-on fees. The National Consumer Law Center report cites a mystery shopper test that revealed a $540 by Liberty Tax in 2011. The Better Business Bureau confirms these findings, reporting that fees associated with processing RALs can range between 40% and 700% of your refund.

You have waited approximately fifty-two weeks to recoup some of the money you allowed the IRS to withhold from your earnings free of interest. Do not throw away additional money by gambling that your tax return is processed correctly, do not gamble that your return will be processed on time, and do not spend money borrowing your own money. With the ability to file electronically and to have your return deposited directly into your bank account, your tax return can be available to you between 10 and 21 days on the average.

Start Saving for Christmas Now

By | Debt, Featured, Revolving Debt, Save Money

People may cringe at the idea of Christmas this early in the year, but in all reality it is the time to put a lock on that checkbook in preparation for the upcoming holiday season. In this economy, Christmas shopping often sneaks up, and being tied down with even more debt is sure to turn you into a first class Ebenezer Scrooge.

By September and October, many people are trying to clean up their debt, either to tie up loose ends by the end of the year or in preparation for the holidays. Whatever the motivation is, ridding yourself of debt is always a good idea. However, many people will open a credit card for Christmas – only to find themselves greeting the next year in an even bigger hole. Better cross your fingers that someone buys you a shovel!

There are several things that you can do to avoid debt during the holiday season. If there is a must-have item that you absolutely cannot pay for with cash, consider layaway. Many stores are reinstating the layaway policy due to the economy. Layaways allow you to make weekly or bi-weekly payments rather than paying the entire price upfront, without the hefty interest rates. Don’t treat layaway as a new form of credit card, though.

The “gotta have it right now” mentality is not a healthy one for the wallet, no matter how the payments are structured.

For those who prefer to save their money ahead of time, many banks have Christmas savings accounts, in which a small sum of money is drawn out of each paycheck and made unavailable until closer to the Christmas season. Savings accounts can work similarly, although you have to discipline yourself not to spend it and not rely on the bank to keep it out of your reach. You can even partition your direct deposit so that part of each check is deposited directly into savings.

Another easy way to save money around the holiday season is to buy gifts here and there throughout the year, rather than having to come up with a large sum of money at a single time. Christmas in July is the newest marketing effort most retailers are using, with many stores offering sales and discounts for those shopping early. Items that do not expire, such as gift cards, can be bought at any time and will hold until Christmas without a problem.

The holiday season does not have to be stressful. By purchasing gifts early, buying on layaway, and using a Christmas savings account, you can avoid high interest payments that bury you in debt throughout the next year.

DIY Debt Consolidation

By | Credit Cards, Credit Repair, Debt, MasterCard, Revolving Debt, Save Money, Visa, Your Credit

With the U.S. economy still trying to find its sea legs, it’s no surprise people might sometimes need to turn to professionals for assistance with debt consolidation or credit repair.

But what if you’re not struggling to make monthly payments and have reasonably good credit? Is debt consolidation even worth thinking about?

Absolutely.

At the very least, examining and managing your debt may help you save money (you like money, don’t you?), and at best it could forestall a creeping credit slide that leads to late payments, a damaged credit rating, or worse. Given the do-it-yourself craze that seems to have swept the land, with people making everything from marshmallows to homes on their own, there’s no reason you can’t take on debt consolidation yourself.

First, you’ll need to inventory all your debt. Sites like AnnualCreditReport.com can provide you with a free credit report to get started. Once you’ve listed all your debt sources, including interest rates, payments, and balances, you can develop a strategy for consolidation.

One approach is to divide your debt into groups, like good, bad, and neutral. “Good” debt might be such things as mortgages, business loans, and student loans (provided they don’t have high or variable rates). These have the potential to help your income down the road and are often tax deductible, so they have the lowest priority.

“Neutral” might include vehicle loans or fixed-rate personal loans. They don’t necessarily hurt you in terms of credit or finances, but they’re not necessarily doing you any favors either.

The debt you’ll want to concentrate on first is the “bad” stuff, which usually means they have variable or high rates, like credit cards or payday loans. Start with those with the highest rates, transferring them to accounts with lower rates. You might be tempted to transfer some of these to a new credit card with an attractive low teaser rate, but think twice about this. Will you be able to pay off the balance before the “real” rate kicks in? How high will that rate be? Also, you’ll effectively be adding more capacity for debt to your credit situation — is that really what you need?

If you have good credit, another option might be to call your card issuer and politely try to negotiate a new rate. Even if you shave off just 1 percent, that represents money you’ll be saving later. Transferring to a fixed-rate personal loan from a credit union or bank is another option.

If you’re carrying student loans, see where those rank on your hit list in terms of rates. Remember that federal student loans typically have lower rates, as well as deferral or forbearance options, so those will likely take a lower priority. That said, the federal government does have a site where applicants can attempt to consolidate their federal student loans and possibly lower their monthly payments.

Consolidating your high-interest loans into more reasonable ones — and strategically paying off the most expensive debt first — can reap dividends by saving you money and protecting your good credit rating in the future. By going DIY now, you can prevent your credit from being DOA later.

Make Your Tax Return Work for You

By | Credit Cards, Credit Repair, Credit Reports, Credit Scores, Debt, Revolving Debt, Save Money

Just like the stores had Easter candy out before Valentine’s Day was over, tax time is coming soon. April 15 – or 17 – thanks to that oh-so-generous government extension that was granted for the filing of 2011 returns – is only a couple months away.

For many families, tax time is not as painful as it could have been, since last minute measures were enacted to protect some tax credits that may put money in your pocket. But before you get too excited about how to spend that money, we’d like to suggest doing something painfully responsible with your tax return.

We know, the dream vacation or the new car would be a lot more fun.

But a good tax return can really help to turn a bad credit score into a good one, and taking advantage of tax time in such a practical way doesn’t mean you have to give up your dream – just postpone it for a year. You’ll not only improve your credit score, but what financing you do get the next year will cost you less because of it. And really, given how quickly tax time comes each year, the time will fly by.

Depending on the size of your return, you can either pay off some smaller credit card balances completely or you may want to pay off enough on the balance of each of your credit cards to make sure they are each at less than 50% of the limit available. There is no one measure more critical to your credit score than keeping at least 50% of the credit line free.

In the short term, your tax return might by you some fun, but in the long term, if you put it to work for you by putting the return toward your credit card balances, it can significantly change your financial future. Better credit scores mean lower interest rates, better auto insurance rates, and better refinancing options for your home. Better credit ratings can even mean getting that job versus being overlooked (except in California, where it is now illegal to use credit scores in making hiring decisions).

This tax season, invest in yourself and your financial future. And next year, you can send us a postcard from Europe as you enjoy your dream vacation that is costing you less thanks to better credit!

Get Creative About Finding Money in the Budget to Pay More to Credit Debt

By | Budgeting, Credit Cards, Personal Finance, Revolving Debt, Save Money

If you didn’t know any better, you might suspect that credit cards were the insidious invention of a Las Vegas casino conglomerate. Certainly, the odds of “winning” in the game of credit spending are in favor of the “house.”  Getting ahead of credit card debt demands that you get ahead of interest payments in your effort to pay down the principal amount – the amount you actually charged.  While it may seem that every dime in your spending budget is accounted for, preventing you from making larger credit card payments, you can find ways to cut back personal spending. You can indeed spend less day-to-day, ultimately saving you more money in the long run by paying down your monthly credit card debt sooner rather than later.

One of the best ways to curtail your discretionary spending is to examine how often you eat outside the home. Your job may demand a daily quick trip through the doughnut shop or coffee shop drive-through, you may make enough money to afford lunch out each day with your co-workers, and your family schedule may be hectic enough to make pizza delivery or fast food a blessing. These combined expenses, however, dramatically impact your household budget. Some research suggests that half of our food budget is allocated to eating outside the home. You can save money by avoiding the daily latte, the lunch with co-workers, and the fast food hamburgers. Pack lunches and plan meals ahead of time to better manage your time, expenses, and your diet.

As you examine your dining habits, also take a look at your entertainment expenses. Do you need 200 or more stations, or are you paying $50 per month for the privilege of watching your two favorite channels? Consider online websites that often offer free streaming movies and television programming. Alternatively, you can pay a monthly fee that is a fraction of what you might pay your local cable or satellite provider for streaming services like Hulu and Netflix. As well, the expense of renting a movie and making popcorn at home is far less costly than taking the family to a movie theater. Your family evening is also more intimate when sharing a movie at home, and you can avoid twenty minutes of advertising and movie previews.

Other methods of reducing spending include walking or riding a bike instead of driving your vehicle, monitoring your utility use (electricity, water, and heating are often wasted, yet controllable expenses), and cutting back on impulse buying that is often triggered by sales found in department stores (get what you went to the store for, and get out!).  All of these items by themselves might seem trivial, as may the relative cost of a cup of coffee, one food item, or a quick drive to the store. These items calculated collectively, however, represent a significant portion of your budget that would best serve you by being assigned to your monthly credit card payment.

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