How Cosigning On a Student Loan Could Impact Your Finances

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While college students can get their own federal student loans without a cosigner in most cases, there are some situations where a cosigner is required. Federal Direct Parent PLUS loans, for example, can actually be taken out on behalf of dependents to help pay for higher education. Students can also apply for private student loans to pay for college. These loans tend to have high credit requirements that make it difficult for young people to qualify on their own.

But should you really cosign on student loans for your child? And should you cosign on any loans they can’t qualify for on their own? You can certainly consider it, but it helps to enter the situation with eyes wide open and understand all the pros and cons. 

The main advantage of cosigning is the fact that you’re helping your child (or dependent) pay for higher education when they may not be able to otherwise. However, it can also be a huge risk. Here’s everything you need to know before you sign on the dotted line.

You’re obligated to repay the debt no matter what

Whether you take on a Parent PLUS loan or you cosign with your child for a private student loan, the first thing you have to understand is that, no matter what, you’re obligated to pay that debt back. If your child stops making payments, you’ll be required to make them. If your child flat-out refuses to get a job and completely defaults on their responsibilities, you will need to repay that loan.

Cosigning on a student loan is similar to buying a house with someone or cosigning on a car loan. You’re both jointly responsible for repayment regardless of what the other person does. That can be a huge problem if your child doesn’t take their bills very seriously, but it may not be an issue if they treat their credit with care and stay on top of their bills.

Student loans are almost never discharged in bankruptcy

Another detail to understand is the fact that student loans are rarely ever discharged in bankruptcy. For the most part, they’ll stick around forever unless the borrower dies or you can prove you have some inescapable hardship. 

As a parent, you’re probably trying to save for retirement and reach other financial goals, so it’s important to understand that the student loans you cosign for will never go away until you pay them off — once and for all.

There’s no going back

When you cosign on a student loan, you can’t just change your mind and back out of the deal. Your child may be able to refinance their student loans in their name, but only if their credit score is good enough to qualify for student loan refinancing on their own. And if that was the case, they wouldn’t have needed a cosigner in the first place.

Your finances may be perfectly fine right now, but you should think through how they may be in five or 10 years. If you’re nearing retirement, you may not want to put yourself in a situation where you’ll be stuck paying off a child’s student loans. Plus, you never know how your health will be or the status of your career several years from now. Cosigning for student loans leaves you on the hook no matter what, and it’s hard to change that after the fact. 

Cosigning on a loan could affect your credit score

When you cosign on a student loan, you have to remember that you’re jointly accepting responsibility for the debt and any consequences that arise out of late payments or delinquency. So you should only cosign if you know your child or dependent is dedicated to paying their bills on time and avoiding default at all costs.

If you’re not paying attention, you could easily take a huge hit to your credit score without even knowing. Since payment history makes up 35 percent of your FICO score, it’s easy to see how even one late payment could cause major damage. Just think of what could happen if the student loans you cosigned for were paid late month after month. If you’re not also receiving a bill in the mail, you may not find out until the damage is already done.

The bottom line

There are situations where it can make sense to cosign on a student loan, but this decision should never be taken lightly. You may be helping your child earn their degree, but you’re taking a significant risk. (See also: Should You Co-Sign a Loan?)

You may want to assess the career field they plan to enter into and figure out how much they might earn upon graduation before you cosign. Some fields have plenty of promise right now, while others offer almost none, and you should know either way before you make any type of financial commitment. Maybe your college student could even spend time improving their credit score so they can qualify for student loans on their own. 

Cosigning on student loans should be a last resort for parents, not an easy fix for students who don’t take time to consider all their options. 

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Cosigning on a student loan can be a huge risk. Here’s everything you need to know how cosigning on your students college loan can impact your personal finances. | #finances #personalfinance #studentdebt

Source: wisebread.com

Why Financial Productivity Begins with a Positive Mindset

The following is a guest post by Orion Talmay, of Orion’s Method.

Dealing with finances can be stressful and leave you feeling overwhelmed. It’s all too easy to ignore mounting debts or believe you’ll never save up a significant amount of money. But taking control of your life and changing the way you think can make a huge difference. We take a look at why financial productivity begins with a positive mindset. 

The Impact of a Positive Mindset on Financial Productivity 

Whether you want to work your way out of debt or save up to buy a house, with the right mindset and some hard work, those financial goals are possible. However, you have to start by getting out of a negative thought cycle—if you believe there’s no point trying, then you’ll never achieve them. Therefore, you might be tempted to make choices that make your financial position worse.  

Even with a positive mindset, you won’t achieve your goals overnight. But it’ll put you on the right track to take more control over your finances. 

How to Achieve a Positive Mindset 

Achieving a positive mindset can be difficult, but you can adopt some proven techniques that’ll help you:

  • Take care of yourself
  • Know where you stand
  • Set achievable goals
  • Make small changes
  • Try to see the positive

Take Care of Yourself 

If you’re struggling with a negative mindset, you might slip into bad habits throughout your life, not just when dealing with your finances. Learn to take care of yourself and prioritize your own well-being. 

Start with the basics—make sure you’re exercising regularly, eating a balanced diet, and getting enough sleep. These might seem obvious, but a bad routine leaves you tired, stressed, and unhealthy, which all have a big impact on your mind. 

Treat yourself well, and get into a good routine that helps you stay in control. You’ll see an improvement in your physical and mental health, which puts you in a better position to make informed financial decisions. 

Know Where You Stand 

It’s tempting to bury your head in the sand when it comes to finances. However, not knowing exactly where you stand will add to your stress.

Open those bills and credit card statements you’ve been ignoring. Check your bank balance, work out your incoming and outgoings. Get a clear picture of your current financial situation and understand what bills and repayments you need to make and when they’re due. 

It might be hard to start with but it’ll improve your mindset and put you in a better position to get on top of your money. 

Set Yourself Achievable Goals 

It’s easy to feel negative if you can’t see a way out of your current situation. So, once you know exactly where you are, come up with some realistic targets that you can achieve within a certain time frame. 

For example, if you want to save up for something, set a savings goal and decide how much you can realistically put aside each month, and how long it’ll take to reach your target. 

The important thing with your goals is to make sure you’re sticking to them. If you put money towards debt or savings but you don’t have enough left to cover the rest of your bills, you’ll be tempted to borrow money from somewhere else. 

Make Small Changes 

Don’t try to overhaul everything in your life all at once. Make small, manageable changes that you’ll actually stick to and that will help you feel more positive. There are some really simple money moves that’ll make a noticeable difference. Start by looking at all your subscriptions and recurring payments—consider canceling the ones that you don’t use or can live without. 

If you buy your lunch during work every day, get into the habit of making it at home. Make small switches to your grocery choices, and try to stop buying things that you end up throwing out. Cut down on impulse buys—for nonessential purchases, make yourself wait a couple of weeks to consider whether you really want or need it. 

Try to make one or two small changes each week that you can follow through on. It’ll improve your mindset if you can stick with these habits long-term, rather than trying to do everything at once and feeling like you’ve failed when you slip up. 

Try to See the Positive

Often easier said than done, but try to get out of the cycle of negative thoughts. Revisit your goals each day to remind yourself what you’re trying to achieve and what you should be focusing on. 

When you have a negative thought, where something seems impossible or too difficult, stop and think about ways around it. Don’t get stuck on things that can’t or won’t happen and focus on solutions, workarounds, or breaking it down into smaller steps to get through it. If you struggle to focus on the positives, meditation can help you to manage your thoughts and give you more perspective.  

Why a Positive Mindset Matters

Everyone feels unmotivated and disenfranchised from time to time. It happens to the best of us. However, if you really dig deep and find what’s causing your low energy, you’ll be better equipped to find the root and weed it out. Try to channel your energy into more productive outlets, and make changes whenever they take a toll on your mental state. That’s the key that’ll enable your long-term success. 

Having a positive mindset is the foundation for taking control of your money and becoming more financially stable. Setting yourself goals, addressing bad habits, and learning how to get a handle on your thought processes will help you to manage your finances and put you in a better position with all aspects of your life. 

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Stimulus Checks 2021: What You Need to Know

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With two stimulus checks under our belts, planning is currently underway for President Joe Biden’s $1.9 trillion COVID relief package. If passed, it would supply Americans with a third round of stimulus checks.  

A quick recap—the first stimulus checks made the rounds in April 2020. Individuals with an income of up to $75,000 received $1,200. Meanwhile, married couples who made up to $150,000 received $2,400, along with $500 per child. The second wave of stimulus checks, coming in at only $600, arrived in December 2020 and January 2021. Married couples received $1,200, with an additional $600 per child.

With almost a full year between the last stimulus check over $1,000 and now, people’s finances are suffering. In a poll published by NPR in September 2020, 63% of those polled in Houston, TX faced serious financial issues due to the pandemic. Additionally, 57% of those polled reported that someone in their household either lost their job, were furloughed or had their hours or wages reduced since the pandemic started.  

Needless to say, people need financial relief. And while it looks like a stimulus relief package will probably pass, there are a few details still on the table. The biggest points up for debate? Who should get a stimulus check in 2021—and how much they’ll get. 

Who Will Get a Stimulus Check?

President Biden has been adamant that the households that qualify should receive a $1,400 stimulus check. Based on the most recent proposal under consideration, households earning $75,000 or lower would receive $1,400 checks. Meanwhile, married couples who earn $150,000 or less would receive $2,800, along with $1,400 per child. 

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While it looks like this plan will stick, it’s worth noting that a group of Republicans have created a plan that’ll send $1,000 checks to individuals earning $40,000 or less and couples earning up to $80,000. This relief package targets lower-income households while leaving out a lot more people than President Biden’s plan.

When You Can Expect Your Check

In order to speed up President Biden’s stimulus relief package, Democrats are using a budget reconciliation process. In a nutshell, this would allow Democrats to approve the stimulus package without Republican votes. While the stimulus package is being sped up, a few more details have to be ironed out before the package is drafted and voted on.

All that to say—it could take several weeks for you to get your $1,400 stimulus check. Even when the package is passed, it still has to be signed by President Biden and sent out by the IRS. So be on the lookout, but know that you’ll likely have to wait at least a few more weeks. It is worth noting, however, the House is planning to get the stimulus package approved in the next two weeks.

How Should You Spend Your Stimulus Check?

Ultimately, how you should spend your check is up to you. Everyone is in a different financial situation, so you might spend your check differently than others. But if you’re wondering how to spend your third check, you have a few options:

  • Use it to cover the basics. If you’ve been struggling to pay for your basic needs, like groceries and rent, you can use your stimulus check to cover the bills. 
  • Pay down debt. The past year has taken a toll on a lot of our finances. If you’ve racked up debt in 2020, you could use your stimulus check to help pay down some debt. 
  • Put it in savings. It never hurts to save some money for a rainy day. You can put some or all of your stimulus check in a high-yield savings account until you need it.
  • Donate it. If you’re doing pretty well financially, you might want to consider donating your stimulus check to a good cause or to support small businesses.

Again, you should take a serious look at your finances and your needs before you decide exactly how to put your stimulus check to use.

The Next Round of Stimulus Checks Will Probably Happen

As of right now, things are looking pretty good for the third round of stimulus checks. But who qualifies and who doesn’t could still be on the table. In the meantime, if you need some financial guidance, take a look at our COVID financial resource guide.

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Explained: The Adrenaline-Driven Rise to GameStop Stock

January 28, 2021 &• 8 min read by Credit.com Comments 0 Comments

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GameStop, a dying video game retailer, has blown past epic proportions to the point of hitting all-time highs in the stock market.

A few weeks ago, the company (stock trading as ticker: GME) traded around lows of ~$19. As of January 27th, 2021, the GameStop stock has reached an all-time high of $350. That’s a ~1700 percent increase! Currently, GameStop’s market capitalization is $24 billion, previously $500-$700 million.

Before its euphoric rise, GameStop was on a slow demise to bankruptcy, as it faced significant challenges to its business model from the internet. Similar to BlockBuster, people stopped buying video games in-person at retail stores. “Downloads became a thing, and GameStop’s business declined,” says Michael Pachter to BusinessInsider, who covers the video game industry.

Alongside GameStop’s faltering business model, GameStop also ran into issues with its poor business decisions. They embarked on new initiatives, including the acquisition of Spring Mobile in 2013. The company had bet on making money by buying smartphone stores. By 2016, GameStop had owned and operated approximately 1,500 mobile-phone stores under the Spring Mobile name, and in 2018, had sold the whole mobile-phone business.

So how did GameStop rise from the ashes?

Well, A Trading Euphoria Caused By …

An army of traders from the Reddit r/WallStreetBets has been at the center of the GameStop saga. WallStreetBets (WSB), a community of Millennial and GenZ traders, have helped drive a to-the-moon surge of GameStock’s stock price while halting trading multiple times, crashing Reddit, and even forcing the subreddit to go private. With 3.5 million traders following the subreddit, WSB users are known for purchasing extremely risky products, including leveraged ETFs, financial call and put options, as well as shorting equities.

These Reddit users have blown everyone’s expectations out of proportion. No one expected a group of online traders would have a massive effect on the stock market.

Most notably is perhaps the loser of this David and Goliath saga – Citron Research and Melvin Capital. Both of these investment firms took huge bearish bets against the GameStop stock, and even Citron had announced on Twitter that “GameStop buyers at these levels are the suckers at this poker game.” For those of you unfamiliar with stock trading, the two firms had shorted the GameStop stock by borrowing the stock to sell at a given price, with the idea that they will purchase back the stock later.

In this case, assume an individual sells short one share of GME at $19 in their margin account. What happens is they receive $19 from selling the share on the stock market, but they still owe their broker one share of GME. So, in this individual’s ideal scenario, they will want to buy back GME at a lower price to profit on the trade.

But in this trading saga, Reddit users had driven up the price by buying so much. Hence, increasing GME’s stock price. So, the individual holding the short position would have to purchase the stock back at a much higher stock price on the settlement date; thus, losing money.

The Squeeze

Due to the rampant rise in GME’s stock price, Citron Research and Melvin Capital had been taking on significant losses, and with due time, they would eventually have to close their position. Closing their position would squeeze them out of their position. For a short squeeze to happen, the firms’ losses have to be so high that the broker requires more capital to keep the position open. As of January 27th, both firms have closed their positions. Since then, hedge funds Citadel and Point72 have invested $2.75 billion into Melvin Capital.

The Question Still Remains – Why Did r/WallStreetBets Target Melvin Capital and Citron Research?

Greed has been present on Wall Street since the inception of the securities market. During the 2008 financial crisis downturn, banks were giving loans to anyone to make more and more money while selling mortgages to poor credit individuals. Their greed eventually reached a point where many homeowners could not make their mortgage payments causing foreclosures, and eventually, a recession. In the end, the banks received a bailout, and similarly, Melvin Capital received a bailout from other hedge funds.

In this ordeal, the two hedge funds shorting GME had become too greedy as they had driven GME’s share price from $20 to $10 and to $4. There was no means to an end for their greed and their hope for GameStop to go bankrupt. In part, short selling wipes out businesses. Elon Musk has also laid criticism to short-sellers, tweeting “short-sellers are jerks who want us to die.”

So, how does greed tie together with shorting a stock, hedge funds, Reddit users, and a video-game selling retailer?

Well, someone on WallStreetBets had noticed these hedge funds had sold short 140% of all shares available. The rule to short-selling is that ALL the shares they borrow MUST be paid back. Realizing these hedge funds had shorted GME by a ridiculous amount, these retail investors on Reddit (ordinary people like you and me) bought every share they could get their hands on. Thus, driving the price up like crazy and perhaps creating an arbitrage opportunity.

>> Learn more about investing in stocks with our investment guide for beginners.

Why?

These hedge funds would eventually HAVE to buy back these shares at whatever price they could purchase. They don’t have a choice. So, these Redditors bought all the GME shares they could buy and drove the prices up to ridiculous prices. Buying back these shares of GME would cost these hedge funds an arm and a leg.

Fast forward to today, January 27th, 2021, WallStreetBets users are creating memes, as well as notable people, including Elon Musk and Chamath Palihapitiya, who have influenced more people to buy GME stock. Hence, destroying these greedy hedge funds in the process.

Additionally, many Redditors felt crude sentiment towards these financial institutions as numerous Reddit posts complained about these institutions’ predatory actions. Even AOC tweeted, “Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino.”

Notable People’s Influence Behind The GameStop Stock Rally

As it’s been interesting to watch GameStop’s stock rally, there have been notable individuals placing their own opinion. Michael Burry, best known from “The Big Short” as one of the investors who had made money from the 2008 financial crisis, had been holding onto GameStop since 2019. Although he has a 2.4 percent stake in GameStop as of Sept 30, 2020, he has stated, “there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous”.

Contrarian Chamath Palihapitiya has also played a part, as he tweeted his purchase of $125,000 out of the money call options on GameStop.

For those unfamiliar with call options, call options are a financial derivative used to make speculative bets on the rise or fall of stock prices. In this case, Palihapitiya made a speculative bet for the increase of GameStop stock.

Elon Musk, well-known for the tweeting habits that have gotten him in trouble with the SEC, has also taken part in the GameStop rally by tweeting a subtle “Gamestonk!!”

How Does Reddit Feel About This?

Reddit’s r/WallStreetBets have broken all-time traffic records this week as millions of visitors flocked to the subreddit. According to Mashable, r/WallStreetBets received approximately 74 million page views in the past 24 hours. Note, Reddit had 52 million daily active users in October 2020.

One WallStreetBet moderator felt compelled to address the backlash with the narrative that the forum “is disorderly and reckless” and is involved in manipulation. He wrote, “What I think is happening is that you guys are making such an impact that these fat cats are worried that they have to get up and put in work to earn a living.”

Can Regulatory Bodies Do Anything?

The trading activity on GME reminds me of the old pump and dumps that ultimately harmed many traders.  The stock gets hyped up way out of proportion to its actual intrinsic value and essentially benefits the ones who are hyping it.  Will the stock really retain its value over the long haul?  If not, then the people who heard the hype and came late to buy it could suffer. – Eric founder of Mindful Trader

As the trading volatility ensues, regulators are becoming increasingly worried about all the signals this volatility is sending to traders, like TD Ameritrade and Schwab. Both brokerages have restricted certain kinds of trades in GameStop and AMC. TD Ameritrade said there was “an abundance of caution amid unprecedented market conditions and other factors.”

Regulators have been mindful of the action, as William Galvin, Massachusetts secretary of the commonwealth, told Barron’s that he was watching the story play out.

Regulators do monitor trading for any signs of market manipulation and what people say about stocks in public forums, according to Amy Lynch, a former SEC regulator. However, merely announcing to people that you are buying a specific stock and telling people they should as well have no legal repercussions.

The End of the GameStop Saga?

Ultimately, the GameStop saga has not run its full course, as trading is still occurring for the crazy stock. But, the two hedge funds that started all of this? They are entirely out. One hedge fund has wholly gone bankrupt, and other hedge funds have funded the other hedge fund. Will we be seeing this hedge fund enact vengeance on these Reddit users? Most likely not.

The takeaway we can all get from this whole ordeal is don’t mess with Reddit users, and perhaps the next generation of Millenials and Gen Z have more impact than we imagined?

This post originally appeared on Your Money Geek 


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Source: credit.com

Black Friday Shopping During Coronavirus: Tips for Success

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Many people choose to do their shopping on Black Friday to get great deals for the holiday season. It’s one of the biggest shopping days of the year, and consumers make Black Friday purchases both in-store and online. According to research compiled by Adobe Analytics, shoppers spent $7.4 billion on online purchases alone on Black Friday in 2019.

But many people might be wondering if Black Friday will happen in 2020. Read on to find out how COVID-19 might affect this holiday shopping day.

Black Friday Shopping Is Not Canceled: Great Deals Will Be Available Online

You might be wondering if Black Friday will be happening as usual this year. Though it’s not canceled, expect some changes to your typical Black Friday shopping experience.

Because of the COVID-19 pandemic, consumers’ shopping and spending habits are changing. For 2020, it’s recommended that consumers take advantage of online Black Friday deals to avoid visiting crowded stores for safety and health reasons.

The CDC recently issued guidance for Thanksgiving-related holidays. It notes that shopping in-person around the holidays is a higher-risk activity. But don’t worry–it’s pretty likely that your favorite stores are making online accommodations for Black Friday shoppers.

Yahoo! Finance notes that the more traditional Black Friday shopping experience won’t likely happen in 2020. Consumers can expect online sales to begin weeks before Black Friday to be more spread out over time.

As Black Friday approaches, you can also start thinking about how to save and spend when planning your Black Friday shopping. This year, Black Friday weekend will happen on November 27 and will be followed by Cyber Monday on November 30. You’ll be able to take advantage of a number of Black Friday deals both days.

Tips for Smart Black Friday Spending

Even if money is tight because of coronavirus budget cuts and layoffs, you probably still hope to do some shopping during the holidays. Planning carefully can help you save even more money and keep your holiday spending within your means, even during the excitement of Black Friday. Follow some of the following tips for smart Black Friday shopping.

Set a Budget

Having a budget in place helps ensure you spend only what you can afford. Look at your finances and savings to determine how much you can afford to spend on Black Friday deals.

Not sure where to begin? These budgeting tips can help you set and stick to a realistic budget.

Make a Shopping List

When you don’t work from a list when shopping, it can be easy to make mistakes and forget to buy what you need. Take some time to outline a list of your must-have Black Friday shopping items.

Don’t forget to include gifts for the holidays and essentials you’ve wanted to buy, such as kitchen appliances and electronics. That way, you get everything you need and you maximize your spending.

Don’t Stray From Your List

You made a shopping list for a reason. Be sure to stick to it while you shop. It’s also a smart idea to tally up the purchase amounts of your list to make sure the total fits your budget. Refer to your list while you shop.

Compare Sales

Some retailers might offer better deals on products than others, so do your research before Black Friday. This makes it easier to shop at the stores with the best deals and maximize your Black Friday savings. Check your favorite stores to see what Black Friday discounts they’re offering. You can even view Black Friday sales for major retailers on their websites or on sites such as Slickdeals and TechRadar.

If you plan to do your shopping online because of COVID-19, don’t forget to take a look at each retailer’s shipping costs. Ensure the total purchase price, including taxes and shipping costs, fits within your budget.

Use Your Rewards Card Responsibly and Strategically

It’s never a good idea to go into debt over shopping habits. This is true during Black Friday shopping too. When using credit cards to shop, use them responsibly. Don’t spend more than you can afford, and stay within your credit limit.

You might also want to use your credit cards strategically. Choosing to use the right credit cards when buying can help you rack up more rewards points and miles or earn more cash back. Be sure to take a look at the cards in your wallet well before Black Friday, and check each card’s terms and policies before you shop.

Look Into Store Credit Card Options

Another option is to take out a store credit card. Many retailers offer this option, sometimes with a special 0% interest promotion. That means you can make credit purchases on Black Friday without paying interest on them as long as you pay off the total within the introductory period.

Montgomery Ward Credit Card

Apply Now

on Montgomery Ward’s secure website

Card Details
Intro Apr:

Ongoing Apr:
5.75% – 25.99% Variable

Balance Transfer:

Annual Fee:

Credit Needed:

Snapshot of Card Features
  • Buy Now, Pay Later on 1000s of items with Wards Credit
  • Get payments as low as $10 a month.
  • No annual fees
  • Quick approval
  • Secure & confidential online account management
  • Buy now, pay later on a huge selection of furniture, electronics, appliances, shoes and more.

Card Details +

Review Your Purchases Before You Check Out

Before you check out, it’s smart to review your purchases. Ensure you know exactly how much you’re spending and that you’re staying within your budget. This can help you avoid last-minute and unnecessary purchases. Remember not to ignore shipping costs when you’re buying online.

Pay Off Your Credit Card Statements in Full

Carrying a balance results in interest charges if you don’t have a 0% APR offer. Credit card interest can be very costly, especially over long periods of time. It can also add up, making it easy for you to find yourself in a difficult financial situation.

Instead, consider paying your credit card statements in full every month. After you do your Black Friday shopping, pay off the cards you use. This helps keep your finances on track and set you up for continued success. If you struggle with carrying a credit card balance, other tips can help you use your credit cards more responsibly.

Be Smart When Shopping Black Friday Deals

If you’re ready to get some major deals this Black Friday, get ready to do a ton of online shopping. Following the above tips can help you reduce overspending risks and save money on Black Friday shopping. Familiarize yourself with your current financial situation and credit score before making purchases.

You can monitor your credit scores and keep track of your credit history by using Credit.com’s free Credit Report Card tool. If COVID-19 has affected your finances, there are financial resources available. If you plan to apply for a new rewards credit card, Credit.com can help you choose the right one.


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Source: credit.com

What Is Quantitative Tightening?

What Is Quantitative Tightening? | SmartAsset.com

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In the past two years, investors have taken an unusual interest in the Federal Reserve Bank. That’s mostly due to a Fed policy known as ‘quantitative tightening’, or QT. Effectively, QT was the Fed’s attempt to reduce its holdings after it bought huge amounts of debt during the 2008 Great Recession. While some details will interest only economists, QT  may have implications for financial markets and regular investors. It’s useful to explore the backstory, but a financial advisor can be helpful if you’re concerned about how Fed activity can impact your investments,.

What is Quantitative Tightening?

To understand quantitative tightening, it’s helpful to define another term, which is quantitative easing. To do that, we need to go back to the bad days of 2008.

When the Great Recession hit, the Fed slashed interest rates to stimulate the economy. But it was evident that wasn’t nearly enough to stave off crisis. So the Fed provided another jolt of stimulus by buying Treasury bonds, mortgage-backed securities and other assets in huge volume. This combination of slashing interests rates massive government spending was qualitative easing, or QE, and fortunately it worked. Banks had more cash and could continue to lend, and more lending led to more spending. Slowly, the economy recovered.

But in the meantime, QE exploded the Fed’s balance sheet, which is a tally of the bank’s liabilities and assets. Prior to the crisis, the balance sheet totaled about $925 billion. With all the purchased debt, which the Fed categorized as assets, the balance sheet ballooned to $4.5 trillion by 2017. Years past the financial crisis and with a strong economy, the Fed decided to shrink its balance sheet by shedding some of its accumulated assets, effectively reversing QE.

That reversal is quantitative tightening. QE had poured money into the economy, and through quantitative tightening, the Fed planned to take some of that money out again. First it raised interest rates, which it had plummeted to zero during the financial crisis. Then, it began retiring some of the debt it held by paying off maturing bonds. Instead of  replacing these bonds with new debt purchases, the Fed stood pat and let its stockpile shrink. This effectively reduced the quantity of money under bank control, thus quantitative tightening.

Did Qualitative Tightening Officially End?

There was no official beginning or end to quantitative tightening. The Fed began to ‘normalize’ its balance sheet by raising interest rates in December 2015, the first hike in nearly a decade. In October 2017, it began to reduce its hoard of bonds by as much as $50 billion per month. But after four 2018 interest rate cuts and some stock market downturns, many observers worried the Fed aggressive normalization was too much of a shock to the economy.

In response, the Fed ended the interest rate hikes and slowed down on debt retirement. By March 2019, the cap on reductions reduced from $30 billion a month to $15 billion. By October 2019, the Fed announced it would once again start expanding its balance sheet by buying up to $60 billion in Treasury bills a month.

However, the Fed insisted this was not another round of quantitative easing. Some market observers reacted to that announcement with skepticism. But whether this was or wasn’t a new round of QE, the Fed’s action effectively stopped quantitative tightening.

How Quantitative Tightening Impacts Markets

Many investors worry that quantitative tightening would negatively impact markets. During the past decade, returns have shown a relatively high correlation with the Fed’s purchases. Conversely, the Fed’s selloff of assets was a contributing factor to the market dip in late 2018, which left the S&P 500 about 20% below its top price.

Quantitative tightening definitely made some investors nervous. That said, there are a few things to consider if the Fed shrinks the balance sheet in the future. First, it’s unlikely the balance sheet will contract to its pre-2008 level. The Fed hasn’t indicated where a ‘happy medium’ might be, but the balance sheet remained well about the pre-2008 figures when expansion began again in October 2019.

Additionally, it’s unlikely that quantitative tightening will reverse quantitative easing’s impact on long-term interest rates. In part, the Fed purchased long-term bonds and mortgage-backed securities to move money into other areas, like corporate bonds, and lower borrowing costs. Also, the Fed hoped this activity would encourage the productive use of capital. According to the Fed’s research, the use of quantitative easing reduced yields on 10-year treasury bonds by 50, to 100 basis points (bps).

While quantitative tightening may have reversed some of this impact, experts believe it will not undo long-term interest rates by 100 bps. Ultimately, it comes down to the comparative impact of the expansion and contraction of the balance sheet. In October 2019, the contraction was not nearly sufficient to reverse the expansion.

Other Considerations of Quantitative Tightening

Many investors worry that quantitative tightening will have a big impact on inflation and liquidity. This is because changes in inflation and liquidity may occur when there is a discrepancy concerning supply and demand. During the financial crisis, the Fed increased the money supply since the economic system desperately needed liquidity. A decade and strong recovery later, there’s less liquidly preference. In response, the Fed has decreased  cash reserves. In a strong market, this should have no real impact on liquidity and inflation.

The Takeaway

Quantitative tightening is a monetary policy that increased interest rates and reduced the money supply in circulation by retiring some of the Fed’s debt holdings. After qualitative easing expanded the money supply for several years to bring the economy back on track, the Fed used qualitative tightening as a means to normalize its balance sheet.

While quantitative tightening did not completely reverse quantitative easing, it did shrink the Fed’s balance sheet. This strategy left many investors uneasy about future returns and interest rates. That said, balance sheet normalization did not prove to be as disruptive as many investors feared.

Tips for Investors

  • The Fed’s monetary policy quickly becomes complex, but it’s still useful for investors to keep an eye on the bank’s actions. Since interest rate changes can have direct impact on major purchases and investment plans, understanding the Fed’s reasoning for these decisions can be helpful.
  • Financial advisors can help their clients cut through the noise and translate technical analysis of market observers into plain language. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in five minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.

Photo credit: ©iStock.com/drnadig, ©iStock.com/claffra, ©iStock.com/Duncan_Andison

Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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Don’t Let Debt Ruin the Holidays: Proactive Steps

December 2, 2020 &• 6 min read by AJ Smith Comments 0 Comments

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According to numbers for the 2018 holiday shopping season, American shoppers incurred an average debt of just over $1,000. And not everyone could pay that debt off quickly, leading to expensive, long-term credit card debt for some.

But holiday shopping debt isn’t the only financial burden people face. Many enter the season with other debt. If that’s you, don’t let debt ruin the holidays. Instead, consider some of these tips to manage debt before the holidays so you can enjoy the festivities with reduced stress.

1. Find Out Exactly Where You Stand Financially

Before you create a plan to tackle your debt, ensure you’re accounting for all of it. According to a 2019 study, around one in five adult Americans weren’t sure if they had credit card debt when asked.

Even if you think you have a handle on your debt, it’s a good idea to give your reports a once-over. This lets you ensure you didn’t miss something important and that no one has used your identity to run up debt in your name. That could come as a nasty surprise if you try to use or obtain credit for holiday shopping.

You can get a free copy of your credit reports from AnnualCreditReport.com. Normally, you can get one per year from each of the three major credit bureaus. But because of assistance measures put in place for COVID-19, you can get a free copy from each bureau every week through April 2021. You can also get a free Credit Report Card from Credit.com, which includes your Experian VantageScore 3.0 and regular updates on what is affecting your scores.

2. Create a Monthly Budget

Once you know everything you owe, sit down and take a look at your monthly budget. List all of your regular expenses and decide where you can cut to help put more money toward your debt.

Use tools such as credit card debt calculators to determine how much you should pay every month on debt to reduce it in a certain amount of time. This helps you understand how much money you should be putting toward debt to pay it off before the holidays arrive.

3. Choose a Method for Paying Down Debt

Every situation is different, so the way you pay down debt depends on what might work best for your situation. Here are a few tips to consider.

Go with a Basic Snowball Method

The Snowball Method means you line up all your debts by total balance. You make a minimum payment on each while throwing anything extra at the debt with the smallest balance. You do so because you’ll be able to pay off that one the fastest.

Once you pay off the first debt, you take everything you were putting on it each month and add it to what you’re paying on the next-smallest balance. As you pay off each debt, you have more money to put toward the next one. By the time you reach the biggest debt, you can pay it off fairly quickly.

Make Use of Balance Transfer Cards

If it’s not realistic to pay down all of your debt before the holidays, you might want to concentrate on getting your finances in order and ensuring your debt costs as little as possible. One way to do that is to make use of a balance transfer card.

These cards let you transfer existing high-interest credit card debt to a card that has 0% APR for a period of time. If you can pay the debt off within that time—which can range from a year to two years on average—you can save a lot in interest.

Consider Taking Out a Personal Loan to Consolidate Debt

If you’re dealing with high-interest debt or payments that simply add up to more than you can handle every month, you might consider a personal loan to consolidate debt. A debt consolidation loan doesn’t get rid of your debt, but it might make it more manageable. You might end up with a single monthly payment that reduces how much you must worry about during the holidays.

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4. Set a Holiday Budget and Stick to It

Once you have a plan for dealing with your existing debt, ensure you don’t re-create it with your holiday spending this year. Spend smart during the holidays. Make a list of what you want to do, the meals and treats you want to make, and the gifts you want to buy.

Assign everything on your list a dollar amount, and then take another look. Can you realistically afford all of this? You might need to make some priority decisions and reduce your list to fit a holiday budget you can afford without racking up too much debt this season.

5. Use Credit to Your Advantage

If you don’t let debt ruin the holidays, you might be able to use credit as a financial tool to your advantage as you shop or participate in festivities. The right rewards credit cards help you earn points or miles as you spend—and you can earn even more points for spending in certain categories.

For example, you might have a cash-back credit card that gives you more cash back in the final quarter of the year on travel or grocery shopping. You could use that card to fund expenses as you go visit relatives or prepare a feast when they come to your home.

If you spend on your card only what you were going to spend with cash anyway, you can pay your balances off immediately. That means you get those rewards without any interest cost for doing so. If you don’t have a rewards credit card, you can find options to consider in the Credit.com credit card marketplace. Here are a couple to start with.

Blue Cash Preferred Card from American Express

Blue Cash Preferred® Card from American Express

Apply Now

on American Express’s secure website

Card Details
Intro Apr:
0% for 12 months on purchases

Ongoing Apr:
13.99%-23.99% Variable

Balance Transfer:

Annual Fee:

Credit Needed:
Excellent-Good

Snapshot of Card Features
  • Earn a $250 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
  • 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%).
  • 6% Cash Back on select U.S. streaming subscriptions.
  • 3% Cash Back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more).
  • 1% Cash Back on other purchases.
  • Low intro APR: 0% for 12 months on purchases from the date of account opening, then a variable rate, 13.99% to 23.99%.
  • Plan It® gives the option to select purchases of $100 or more to split up into monthly payments with a fixed fee.
  • Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit.
  • $95 Annual Fee.
  • Terms Apply.

Card Details +

This card gives you 6% cash back at U.S. supermarkets, up to $6,000 per year in purchases. You can also get 3% cash back at U.S. gas stations and transit, making it a potentially good card to use when you’re traveling. The Blue Cash Preferred® card allows you to earn a $250 statement credit after you spend $1,000 in purchases on your new card within the first 3 months.

Amalgamated Bank of Chicago Platinum Rewards Mastercard

Amalgamated Bank of Chicago Platinum Rewards Mastercard® Credit Card

Apply Now

on Amalgamated Bank of Chicago’s secure website

Card Details
Intro Apr:
0% on Purchases for 12 months

Ongoing Apr:
12.90% – 22.90% Variable APR on purchases

Balance Transfer:
12.90% – 22.90% Variable APR on balance transfers

Annual Fee:

Credit Needed:

Snapshot of Card Features
  • 0% Intro APR on Purchases for 12 months; after that the variable APR will be 12.90% – 22.90% (V), based on your creditworthiness
  • Earn $150 Statement Credit after you spend $1,200 on purchases within the first 90 days from account opening
  • Earn 5x rewards on up to $1,500 in combined purchases each quarter in popular categories such as dining, groceries, travel, and automotive
  • No upper limit on the points you can accumulate, and since points never expire, you can save up for a big award!
  • Earn Points on Every Purchase! It’s simple: $1 = 1 Point
  • No Annual Fee or Foreign Transaction Fee
  • Select Your Rewards Your Way
  • No Foreign Transaction Fee

Card Details +

The Amalgamated Bank of Chicago Platinum Rewards Mastercard® allows you to earn 5X rewards up to $1,500 in combined purchases each quarter in popular categories. Categories include dining, groceries, fuel, travel, and other popular spending areas. If you’ll be spending in a certain category during the holidays, you could earn extra rewards points to redeem on travel or other purchases.

Reward Yourself

It’s never too early or too late to start planning financially for big seasons such as the holidays. If you’re ready to take a step toward that plan today, consider signing up for ExtraCredit. Reward It from ExtraCredit connects you with personalized offers and offers cashback rewards when you sign up and are approved for them.



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Source: credit.com

How Can You Support Small Business During the 2020 Holidays?

November 20, 2020 &• 5 min read by Credit.com Comments 0 Comments

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Small businesses are a huge part of the American economy. They make up 99% of all businesses in the nation. But even in good times, small businesses have around a 50% long-term survival rate, making economic uncertainty and a global pandemic extremely worrisome for many small-business owners. Find out how you can support small businesses in your community this holiday season to help make your local economy a bit merrier and brighter.

How Are Small Businesses Struggling in 2020 and Beyond?

COVID-19 has hit the bottom line hard for businesses and consumers alike. Businesses of all sizes were overwhelmed by the increased consumer demands for shipping, delivery, and curbside service, and many were forced to close for weeks or even months in 2020. Many are looking to the holidays to make up for lost revenue earlier in the year.

Bluehost conducted a State of Small Business Marketing in August 2020 to find out small-business owners’ outlook for the future. While more than 70% of business owners said they were optimistic about the future, they do have concerns:

  • 44% are worried about finding new customers through 2021
  • 30% are worried about long-term economic impacts from the pandemic
  • 21% are worried about lower-than-normal sales or consumer demand

At the same time, many consumers have experienced negative impacts to their personal budgets during COVID due to lost jobs and reduced salaries. As a result, some might be planning to scale back on total holiday spending, and others might be turning to different shopping habits to help keep themselves and their families safe.

How Can I Help a Small Business?

Whether you want to shop online to stay safe during potential outbreaks or you’re reducing how much you spend in 2020 to make up for financial shortfalls, you can still support small businesses. Here are a few tips on how to do that.

  1. If you’re going to spend, choose to shop local instead of buying with big-box retailers or huge e-commerce platforms. Not sure if there’s a small business offering what you need? In the next section, you can get tips for finding local companies. Skip ahead >>
  2. Check local small business websites to see if there are options for shopping online. Many offer free shipping opportunities or curbside pickup, so you can get what you need without entering stores.
  3. Call ahead to ask about the best times to shop. Going out during slow times can limit your contact with people and can help you get the best possible service from local businesses.
  4. Spread your shopping out. Starting as early as possible and buying a little at a time can take the sting out of holiday costs while letting you enjoy the festivities and support small businesses. According to the National Retail Foundation, around 74% of businesses expect shoppers to spread out their spending in 2020.
  5. Plan ahead to take advantage of Small Business Saturday deals. Though stores might spread out the deals this year, Small Business Saturday is still occurring. This is the day after Black Friday, and many small businesses offer specific deals on that day.

Other ways to support local small businesses include dining out, using local bakeries and caterers if you need help with holiday feasts, and buying tickets for nearby festivities and events if it is safe to do so. While many are still worried about COVID-19 risks, businesses have had time to prepare new ways of serving customers and holding events in a safe manner.

How Do I Find Local Businesses?

Word of mouth—simply asking your friends and family—can be a great way to find small businesses to support. But if you have a limited social circle, you just moved to an area, or you’re trying to expand your options, here are other ways you can find stores and businesses to support during the holidays.

  1. Use the Small Business Saturday site. There’s an entire site dedicated to Small Business Saturday, which includes a map for locating small businesses near you. They’ve also created a map of 100 Black-owned businesses to support around the country.
  2. Search Yelp. You can search Yelp for specific types of businesses in your area and easily see whether people are having good experiences with each company.
  3. Check social media. Many small businesses have pages on Facebook or Instagram. You may be able to browse some products right on social or connect with a business to understand what services it offers. Social is also often a good way to find out the most current details on COVID-19 hours, restrictions, or safety protocols each business is observing.
  4. Begin with the search engines. Google especially can be helpful because it offers map results and access to consumer reviews a click or tap away from the immediate results page.
  5. Visit your local chamber of commerce, digitally or in person. Your chamber of commerce may provide a list of reputable local businesses, and you can also call or speak to someone in person about businesses specific to your needs.
  6. Search Etsy, Redbubble, and Society6. Many small businesses and independent artists sell their goods on sites like Etsy and Redbubble.
  7. Support small businesses via Amazon. The company’s Support Small initiative highlights small companies you can shop with and provides local directories. You can also buy hundreds of products from small businesses on Amazon and take advantage of Prime and free shipping offers.

If you want to support small businesses with your holiday shopping while also benefiting yourself or your family, consider getting a rewards credit card. You can earn points or cash back on spending and use those benefits to fund more holiday fun or future travel or spending.

Blue Cash Preferred® Card from American Express

Apply Now

on American Express’s secure website

Card Details
Intro Apr:
0% for 12 months on purchases

Ongoing Apr:
13.99%-23.99% Variable

Balance Transfer:

Annual Fee:

Credit Needed:
Excellent-Good

Snapshot of Card Features
  • Earn a $250 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
  • 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%).
  • 6% Cash Back on select U.S. streaming subscriptions.
  • 3% Cash Back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more).
  • 1% Cash Back on other purchases.
  • Low intro APR: 0% for 12 months on purchases from the date of account opening, then a variable rate, 13.99% to 23.99%.
  • Plan It® gives the option to select purchases of $100 or more to split up into monthly payments with a fixed fee.
  • Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit.
  • $95 Annual Fee.
  • Terms Apply.

Card Details +

Sign up for ExtraCredit to get access to 28 of your FICO scores and a Reward It feature that helps you find credit card offers and earn even more perks when you successfully apply.


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