Credit Cards Are A Necessity, If You Are Responsible

Credit Cards Are A Necessity, If You Are Responsible63% of people 18-29 do not have even one credit card. The aftereffects of the recession, the increase in debit card use, and the media focus on credit card debt have all been cited as factors contributing to millennials aversion to credit cards. This situation is unfortunate because credit cards offer a host of benefits if you use them correctly.

How Credit Cards Work

Unlike debit cards that take money out of your bank account, a credit card is a separate line of credit. You use it to make purchases or obtain cash advances. You then pay off your balance or the credit card company charges you interest. The issuer requires at least a minimum payment to keep your account in good standing and then charges interest on the unpaid balance each month.

Opening a credit card is different for millennials than other generations. The CARD Act means that anyone under 21 must have independent income or a co-signer to get a card in his or her name now. Banks now offer secured credit cards. These cards allow you to deposit cash in an account and then that amount becomes your credit line. For example, a $1,000 deposit translates in to a credit line of $1,000. This option really helps if you are worried about overspending, but in reality acts very similarly to a debit card.

Why Credit Cards are Great

You build your credit score with a credit card. A debit card, by contrast, does not impact on your credit score. A strong credit score is critical to getting favorable terms for big ticket items such as car loans and mortgages. You save yourself high interest charges in the long-term if you take a disciplined approach to credit on smaller purchases like clothing and gas now.

Credit cards are convenient and offer benefits. If you are uncomfortable with carrying a large amount of cash, you can carry a credit card. You replace a lost credit card; however, you cannot replace lost cash. You can use credit cards to hold a hotel room or a rental car. Many credit card companies also offer perks such as frequent flier miles to persuade you to sign up for their card and most give 1-2% of each purchase in the form of rewards points that can be redeemed for cash, gift cards, or airline miles.

Pay Them Off On Time

Credit cards are a great tool to build a credit history if you pay them off on time. There are serious negative consequences to not paying off your credit cards on-time and in full.

  1. Late fees – Issuers charge a fee if you do not make at least the minimum payment.
  2. Interest charges – You need to pay off the balance to avoid interest charges. Per bankrate, the average APR is 13.02% on a fixed rate card or 15.82% on a variable rate card.
  3. Lower credit score – Issuers notify the credit reporting agencies if a borrower does not pay as agreed. This act reduces your credit score.
  4. Reduced employment prospects – Employers in most states can check your credit report. Some states such as California and Illinois restrict the practice. It is best to develop a strong background using credit to prevent harm to your career.

Overall, They Are a Plus

Credit cards can be a fantastic financial tool if you use them responsibly. You can earn a discount for every purchase you make, and the bonuses alone for signing up can make signing up for a credit card worth it. We earned over $2,500 in rewards in one year by signing up for and using credit cards responsibly, and if you know how to control your spending and pay off the balance each month, credit cards are certainly worth it!

Roth IRAs Are Great Options for Young Professionals

Roth IRAs Are Great Options for Young ProfessionalsSaving for retirement may seem like a low priority if you are in your 20s. The pressures to pay off your student loans and save for a house seem more urgent. But the benefit of compounding interest is on your side and there is one financial product that stands above the rest – the Roth IRA. The benefits are so significant that every young person should take advantage and work hard to fully contribute each year.

The Benefits of a Roth IRA

A Roth IRA allows you to set aside money after taxes. You can contribute up to $5,500 in a Roth for 2015 if you are a single filer making less than $116,000 per year or a married couple making less than $183,000 per year. There are many great benefits to a Roth.

Tax-free income in retirement – Let’s start with the biggest benefit first. As noted earlier, people contribute to a Roth after taxes. The benefit to the saver is that he or she gets to draw the contributions and earnings tax free starting at age 59 ½. This fact means you get a tax free income stream in your retirement. If you contribute $5,500 annually (and the maximum contribution will increase from age 27 to age 67 (full retirement age for Social Security for anyone born in 1960 or later), your $220,000 in contributions is now worth over $1 million dollars. You are now a millionaire even before you count home equity, 401(k), or other assets. This scenario even assumes a very high marginal tax rate.

Withdraw contributions tax free – You might find yourself in a severe financial pinch at some point in the future. Unlike other savings vehicles, you can withdraw contributions (but not earnings) tax free. The after tax nature of Roth contributions means that you already met your tax obligations. Be aware that if you withdraw earnings you will face tax penalties.

Flexibility – You pick from an array of investments that are best for you, whether that’s stocks, bonds, real estate, or something else. You can still (and should!) participate in other retirement accounts such as a 401(k) and traditional IRA too. Just keep in mind your IRA contributions (Roth and traditional) cannot exceed $5,500 in 2015.

Other People Can Contribute to Your Roth – Generally, a person needs to have taxable compensation in order to fund a Roth IRA. There is an important exception. A spouse with taxable compensation can contribute to the Roth of the spouse with no taxable compensation. For instance, someone who makes $70,000 in a year can contribute up to $5,500 to the Roth of his stay-at-home mom.

If you are single, there is a way for relatives to contribute to your Roth. The key rule here is that a contribution cannot exceed a person’s taxable income. This statement means that if you are a college student making $4,000 a year in taxable compensation from summer and part-time employment, a parent or grandparent, per the IRS website, can contribute up to $4,000 to your Roth.

An All-Around Great Deal

A Roth IRA is a great way to build a retirement nest egg. It really rewards people who plan ahead and diligently save for retirement. You get the benefit of a tax free pool of money to finance your retirement expenses. Start saving today, saving in your 20s is way easier than saving later in life!

Other Roth Options

The Roth IRA is definitely the first-stop for retirement contributions for young people, but not the only place you can get the Roth advantages. There are Roth versions of 401(k), 403(b) and 457(b) plans, so if you are offered one of these by your employer, you should consider taking advantage! They’re not quite as flexible as the Roth IRA, but they do provide a great tax benefit if you’re in a low tax bracket.

The Fantastic Benefits Of Health Savings Accounts

The Fantastic Benefits Of Health Savings AccountsEven Americans with health insurance worry about medical expenses. The reason is high deductibles and other out-of-pocket costs. Here are facts about expenses paid by the insured.

A Way to Pay – HSAs

Health Savings Accounts (HSAs) were designed to help people with high deductible health plans pay for their uncovered medical expenses. At this point, you probably wonder what constitutes a “high deductible health plan.” For 2015, the deductible needs to be at least $1,300 for an individual policy or $2,600 for family coverage for it to meet the definition of a high deductible health plan.

Many banks and brokerages offer HSAs to their customers, and employers often make contributions if you use their chosen administrator. According to the IRS, the 2015 contribution limits for people under 55 are $3,350 for an individual and $6,650 for a family.

HSA Benefits for You

There are several good reasons for you to start on HSA.

  1. Tax Advantages – There are three tax benefits of HSAs. First, you can deduct all of your contributions from your taxes. Second, any money you get from an employer is tax free. Third, the growth is tax free. This is the best of both worlds, if you have access to an HAS, you should definitely take advantage!
  1. Use it for a Wide Range of Medical Expenses – You can use it to pay for medical expenses you incur before you meet your deductible. HSA funds can also help pay medical expenses that include prescription drugs, insulin, and dental procedures.
  1. Flexibility / Portability – When you set aside money in an HSA, you do not need to use it all within a calendar year. The amount rolls over and grows from year to year. This means you can use HSA money for retirement expenses. HSAs have some portability benefits. If you leave your job and become self-employed, you can take the HSA with you. Your spouse can inherit your HSA. You can even change administrators.
  1. Your Account Will Grow – With an HSA account, you can invest in a wide array of investments. You’re only limited by what your administrator offers. HAS Bank, for example, lets you invest in Vanguard funds.

Ask about HSAs

HSAs are only for qualified medical expenses. There are tax penalties if you use the funds for non-medical purposes. Make sure you comply with your plan’s record keeping requirements. Also, the plan needs to clearly communicate what does and does not count as a “qualified medical expense.”

Not only can you or your employer make contributions, parent can contribute too. This way the can help you start a nest egg for healthcare expenses. HSAs are a great tool to help with medical expenses. Look in to HSAs and take action if it is right for you.

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