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4 Common Credit Card Myths

March 5, 2017

Most people have mixed feelings about credit cards. For some, they are a great tool for building credit. For others, they are the first form of consumer debt that many people incur. Although the majority of Americans own at least one credit card, a surprising number of people struggle with basic information about the terms, requirements, and the multiple ways they impact personal credit profiles. According to a recent survey from NerdWallet, most credit card users are unaware of the effects that many common actions have on their credit scores. More than half of consumers do not know when they begin being charged interest on credit card purchases, and 54 percent do not know that carrying a credit card balance does not help a person’s credit score. These findings support the idea that, while credit cards are widely used, the majority of Americans are unfamiliar with all of the information necessary to use them correctly. Here are four common credit card myths and why you should know about them:

Credit Card Myth #1: Carrying a balance is good for your credit score.

As stated above, more than half of credit card users think that the simple act of carrying a balance from month to month helps build credit. This is simply untrue — at a minimum, carrying a credit card balance often costs you money, and higher balances can actually lower your score by counting against your available credit. Users who only pay the minimum payment each month end up being charged interest on the average daily balance on the card. Increases in credit scores are influenced by factors such as maintaining on-time payments and keeping balances low compared to available credit limits (credit utilization ratio), both of which can be accomplished while still paying off your entire bill each month. Responsible credit card usage can help your credit score, but spare yourself from unnecessary fees and snowballing debt by only charging what you can afford to pay in full on time every month.

Credit Card Myth #2: The amount you charge to your credit card each month is not relevant.

Most credit cards come with a monthly limit. Many credit card users, especially first-time users, see that limit as the maximum amount they are able to spend that month and simply spending less the maximum is acceptable. While staying within your limit is important, the amount you charge to your card each month actually matters. When determining your FICO credit score,  MyFico.com highlights how several factors are taken into consideration:

  • Payment History (35%)
  • Amounts Owed (30%)
  • Length of Credit History (15%)
  • New Credit (10%)
  • Types of Credit Used (10%)

Amounts owed, which accounts for 30 percent of your credit score, is also known as your credit utilization. Your credit utilization is essentially the amount of your credit limit you use — the percentage of the amount you owe relative to the amount you have available. The lower the utilization percentage, the better — the higher the percentage, the worse effect it has on your credit score. For example, say you own a credit card with a $1,000 limit. If you charge $300 a month to your card, and pay it off, you will have a 30 percent utilization ratio, which will be good for your credit score. For a general rule of thumb, you want to stay at 30 percent or less of your overall credit limit.

Credit Card Myth #3: You should not accept a credit limit increase.

This one goes hand-in-hand with Myth #2. Many people believe that a credit limit increase is a way to get them to spend more money. While this could be true, accepting the increase can be advantageous as long as you are disciplined enough to maintain responsible spending habits. Suppose your bank offers you a $500 limit increase from your original $1,000, giving you a new limit of $1,500. If you keep your card usage the same by continuing to charge $300 a month, your credit utilization percentage will decrease from 30 percent to 20 percent. Therefore, accepting the credit limit increase can work in your favor and may help your credit score. On the other hand, if you tend to overspend and think you may be tempted to charge more to your card, declining the increase might be a better idea.

Credit Card Myth #4: Applying for a new credit card will damage your credit score for a long time.

When you apply for a new card, the bank will pull a “hard inquiry” in order to check your credit score before making a decision. Typically, these hard inquiries will result in a temporary dip in your credit score; however, they will only stay on your credit report for around two years. As long as you use the credit card responsibly and stay on top of payments, your new card can actually increase your credit score over time by adding to your credit history. However, try to stay away from applying for new cards too often (or within a short period), as this can have a negative effect on your credit score.

The Bottom Line

People have differing opinions on credit cards, and the abundance of misinformation surrounding them makes finding the right balance challenging. If you know all the facts, and how to use your card correctly and responsibly, they can be an effective tool for building good credit and help you be more likely to get the best rates on home loans, auto loans, education loans, and more.

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2020-03-27
Millennials and Money: Surprising Facts You Should Know

When it comes to millennials and money, they have a bad reputation. The Pew Research Center defines millennials as people born between 1981 and 1996. Despite this wide age range, many stereotypes exist about millennials, including poor work and financial habits, especially when it comes to student loan debt, managing a monthly budget, and saving for the future.    But you may be surprised by how frugal millennials really are. Here are some facts about millennials and money that you should know.   

1. Nearly half of millennials have a side gig

During the 2008 recession, many millennials watched their parents lose their long-time jobs and investments. They learned the importance of diversifying their investments and of having multiple income streams.    With that experience in mind, millennials are leading the charge when it comes to side hustles. In a BankRate survey, 48% of responding millennials said they earned extra money on the side.    On average, people with side gigs earn $1,122 in extra income per month, working 12 hours a week. They use those additional earnings to boost their savings, pay down debt, and even afford their regular living expenses.   

2. Millennials have one of the highest student loan balances of any generation

Millennials are dealing with unprecedented levels of student loan debt. However, that’s not entirely their fault.    In recent years, college costs have skyrocketed. The College Board reported that from 1989-1990 to 2019-2020, the average cost of tuition and fees at a public four-year university tripled. With such high expenses, millennials have had to take out more in student loans to pay for school.   In fact, the average loan balance for millennials is $34,505. That’s the third-highest average balance for student loan debt. Only Gen-Xers and Baby Boomers have more.    Such a high loan balance affects millennials’ ability to pursue other goals, like buying a home, getting married, or starting a business.   

3. Millennial households are earning more than ever before

Despite their substantial student loan debt, millennials have very high earning potential.    According to the Pew Research Center, the median income for millennial households is $69,000. That’s significantly higher than the median household income for all age groups, which is just $61,937.    While that’s good news, much of that higher income goes toward their student loan payments and living expenses, so the economy is not reaping the benefits of millennials’ salaries as much as you’d expect.   

4. Millennial credit card debt is lower than average

After watching their families struggle with debt, millennials are notoriously wary of taking on consumer debt themselves. That’s especially true when it comes to credit cards.    Experian reported that consumers carry $6,028 in credit card debt, on average. But for millennials, the number is much lower; they carry an average of just $4,712.    That’s a good decision. Credit cards often have sky-high interest rates. According to the Federal Reserve, the average interest rates on credit cards that assess interest was 16.88% as of November 2019, the last available data. But some credit cards have interest rates of 25% or higher, which can cause you to owe far more than you initially charged on your card.    Keeping your balances low — and paying off your statement balance in full each month — helps you reap the advantages of credit card rewards without paying interest charges.   

5. Millennials are delaying home ownership

While previous generations considered home ownership a huge step in becoming an adult, millennials are delaying this milestone.    According to CNBC, the home ownership rate for millennials is eight percentage points lower than it was for Gen X-ers and Baby Boomers when they were in the same age group.    There are a few reasons behind their reluctance to buy: 
  • Fear of commitment: Many millennials prize flexibility. They want to be able to take advantage of new opportunities that come along, like a dream job in a new city. They feel like home ownership would prevent them from being able to pursue those opportunities, while renting allows them to be more nimble. 
  • Lack of starter homes: Business Insider reported that there is a massive shortage of starter homes in the real estate market. Baby Boomers looking to downsize and real estate investors making all-cash offers are swooping up available homes, making home ownership unattainable for many millennials.
  • Prevalence of student loan debt: With high monthly student loan payments and a high debt-to-income ratio, millennials struggle to qualify for a mortgage and keep up with their payments. Until they pay off a significant portion of their debt — or eliminate their loans entirely — many millennials simply don’t feel comfortable making such a large investment. 
   

Millennials and money: Maximizing your finances

If you’re a millennial with student loan debt and it’s causing you to put off your other financial and personal goals, there are some steps you can take now to improve your situation: 
  • Create a budget: If you don’t have one already, spend some time creating a budget. Make sure you earn more than you spend each month and look for areas where you can cut back so you can free up extra money to put toward your debt so you can pay it off faster. 
  • Use your side hustle strategically: If you have a side hustle — such as graphic design, driving for a rideshare service, or delivering groceries — set aside your earnings solely for debt repayment. By using your extra income to make additional payments, you can pay off your student loans months or even years ahead of schedule — and cut down on interest charges. 
  • Refinance your student loans: To pay off your student loans even faster, consider refinancing your student loan debt. With this approach, you consolidate your loans together by taking out a loan through a lender like ELFI. The new loan has different repayment terms; you could even qualify for a lower interest rate, helping you save money over time.
        If you think that student loan refinancing sounds like a good idea for you, use ELFI's Student Loan Refinance Calculator to get a rate quote without affecting your credit score.*  
  *Subject to credit approval. Terms and conditions apply.    Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2020-03-23
How to Appropriately Ask for a Raise

So you’ve been taking on more responsibility at work, your boss says you’re a real asset to the company, but your salary hasn’t changed in a few years. If this describes your current work situation, it might be time to ask for a raise.    According to PayScale’s “Raise Anatomy” report, only 37% of workers have asked for a raise. Of those that did ask, 70% received some sort of increase in compensation. Those are pretty good odds so if you’re excelling at your job, you should ask! The average raise in 2019 was 3%, according to the 2020 Compensation Best Practices Report. This means that if you are earning $40,000, your raise would increase your income by $1,200 per year. The amount of a raise depends on the sector of work, location, and demand for the position. Typically, jobs in the private sector usually receive higher raises than jobs in the government. As a best practice, you should usually wait to request a raise after you have worked for the company for at least one year. Additionally, in most cases, you should not ask for a raise more than once a year.    If you feel it is time to ask for a raise, here are some tips on how to appropriately request one.  

Prepare for a Meeting 

When you are ready to ask for a raise, request a meeting with your boss and let them know you’d like to discuss your salary.   

1. Plan your request at the right time

When you want to ask for a raise, pay attention to the timing of the meeting with your boss. An appropriate time for a meeting would be:
  • After you successfully completed a big project that brought value to your company
  • During a performance review meeting when you have exceeded expectations. Performance review meetings are a typical time when companies award raises. Being prepared to ask for a raise during this time could allow you to negotiate for more than the planned raise. 
  Times to avoid a meeting:
  • During a busy season of work when your boss will not be able to focus on your request 
  • When you are behind on your work. If you are not able to perform your current workload, it will be hard to justify a raise to your boss.
 

2. Prepare talking points

Go into the meeting prepared to advocate for yourself. Although you don’t have to memorize a speech, it’s good to be prepared with the following information: 
  • Specific examples of accomplishments you have achieved at work recently. This could be anything from securing a big client to implementing an idea that brings in extra revenue for your company. 
  • How you have exceeded expectations for your position. 
  • Additional responsibilities you have undertaken. If you have taken on more responsibilities by taking initiative, be sure to highlight those. 
  • The value you will continue to bring to the company in the future and examples of how this will be accomplished. 
 

3. Do your research

It’s important to know that the salary you are requesting is realistic for your position and your location. A great resource is Glassdoor. You can compare salaries for your sector or receive a personalized salary estimate based on your market and position.  

4. Practice, practice, practice

Asking for a raise can be a nerve-wracking conversation. By preparing and practicing before your meeting, you can walk in confidently and armed with data to back up your request. In addition to practicing your talking points, you will want to be ready for any questions or negotiations that may arise. While it’s good to have a specific salary in mind, you should also be open to other numbers or benefits that your boss may offer. For example, the company may offer you work from home or extra vacation time in place of a salary increase.  

In the Meeting 

You’ve requested a timely meeting, prepared extensively, and now it’s go-time. Once you’re in the meeting here’s what you should focus on:  

1. Your Demeanor

Pay attention to your tone and body language when speaking. You want to appear confident in yourself and your abilities. Show a positive attitude about the value you bring to the company, but do not appear arrogant. If you get questioned about why you deserve a raise, keep your cool and answer with the talking points you prepared.   

2. Communicate Your Accomplishments

Instead of just rattling off a laundry list of accomplishments, focus on a few incredible examples and, if possible, bring proof of your work. Here are a few ideas of what you can present in the meeting:
  • Two-three examples of big projects you accomplished 
  • Work you did that was beyond the scope of your job
  • Specific examples of when you took the lead and were successful
  • Examples of work brought that brought monetary value to the company
  • Ideas for your future at the company. Companies value loyal workers so be sure to point out how you have demonstrated loyalty and your desire to remain with the company.   
 

3. Explain Why You’ve Earned It

Be sure to avoid talking about why you need the extra money and instead focus on how you have earned a raise. For example, if you are in sales, instead of saying you need the money because of increased living costs, say you have earned this raise because you are the most successful sales associate, have brought in $100,000 in revenue, and receive great reviews.   

4. Bring a Specific Number

It’s best to have a specific number you are requesting, according to a study by Columbia Business School, instead of a range. For example, you want to request $55,000 as opposed to saying $52,000 to $57,000. Provide the reasoning for how you arrived at that number and, if applicable, give examples of how it is in line for the type of work you do.    

Bottom Line

If you have been in your role for over a year and are killing it at your job, you should seriously consider asking for a raise. But before you do so, preparation is absolutely critical. Follow the steps above and you’ll be in a great place to have this discussion with your boss. Good luck!  
  Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.
2020-03-10
5 Mistakes Millennials in Student Loan Debt Make

By Caroline Farhat   Do you have student loan debt? You’re not alone. In fact, 45% percent of millennials are currently dealing with student loans. The average student loan debt amount for the 2018 graduating class was $29,800 per student. With this info in mind, it may come as no surprise that 17% of millennials surveyed regret taking on student loans, according to Bankrate’s May 2019 Financial Survey. But student loans don’t have to be something you regret! After all, they helped you obtain higher education and that’s a major accomplishment. Here are 5 mistakes to avoid while in student loan debt to brighten your financial future.   

1. Not saving for retirement

You may think that you can’t afford to save for retirement while making student loan payments. Or even if you can save, you think retirement is so far off that you can wait to save after your student loans are paid off. However, that’s a huge mistake that could cause you to lose out on thousands of dollars. The earlier you can start putting money away for retirement the better because even a small amount in the beginning is better than nothing. Let’s take a look at an example to see just how powerful saving early can be.   The fix: Let’s say you start saving $60 a month in a retirement account. How much difference can this really make? If you start saving $60 per month at age 23, assuming an interest rate of 7% and increased contributions when your income increases, you could amass $230,417 by the age of 66. But if you wait until age 33 when your loans may be paid off you would only have $106,605 at the age of 66. Starting earlier increases your savings by $123,812!   

2. Not understanding the specifics of their student loan debt

Maybe when you obtained your student loans you were just trying to get your tuition paid and didn’t give a second thought to the terms of your loan. This could be costing you a lot of your hard-earned money. It’s important to know the interest rate of your loan, whether it’s fixed or variable, and the loan’s repayment term. If you have a variable rate your payment could rise if the interest rates rise. Therefore, it’s important to know what you’re facing.   The fix: Read your latest statement or call your loan provider to get the details on your loan. Once you have that information it may help you avoid the next mistake on the list.  

3. Not finding the best student loan repayment options

Just because you have student loan debt doesn’t mean you can’t save some money while paying it off. There are a lot of different repayment plans and programs that can help you save money monthly or over the life of the loan. 
  • If you have federal student loans, an Income-Driven Repayment (IDR) plan may be a good option if you are having a hard time making your loan payments. With an IDR plan, your payment is based on a percentage of your income and your loan term is extended from the standard 10 years to 20 or 25 years in some cases. But be aware that extending your loan length means you will be paying more in interest over the life of the loan. 
  • Student Loan Forgiveness: There are different programs available to have some or all of your loans forgiven based on your sector of work. If you work for a qualifying nonprofit or government entity and have federal loans you may be eligible for Public Service Loan Forgiveness if you are on the required payment plan. It may pay off to do some research on whether you are eligible for any forgiveness programs. 
  • Student Loan Refinancing: Refinancing is obtaining a new loan to pay off your student loan(s). Your new loan presumably has a lower interest rate and can save you money monthly, as well as the total amount you pay. Student loan refinancing can be an easy process with the right company. At ELFI you get a personal loan advisor to help you through the process of refinancing your student loans. To refinance you have to meet minimum qualifications based on your income, credit score and credit history, along with other eligibility requirements that you can find here. Check out our student loan refinance calculator to see what you could potentially be saving.* 
  The fix: Evaluate whether you qualify for any forgiveness programs, if not refinancing may be a great option to not only lower your monthly payment but also save you money in the long term.  

4. Not saving for emergencies

It’s not if an emergency will happen but when. Whether your car has an issue or you end up with unexpected medical bills, it’s wise to put some money aside for when these instances occur. Nineteen percent of those surveyed in Bankrate’s May 2019 Financial survey regret not saving enough for emergencies.   The fix: Try to cut out going out to eat a few times a month (or any other non-essential expense) and put that money into a savings account for emergencies only. After a year you’ll have the beginning of a solid emergency fund. A good rule of thumb is to have an emergency fund with at least three to six months worth of your living expenses.  

5. Incurring credit card debt

When you are just beginning a job after college your salary probably will not be as high as you expected. The average American millennial’s salary is $35,592 per year. With student loan payments and all the other expenses of life, it can be tempting to reach for a credit card to pay the expenses your income is not covering. However, credit cards come with high interest rates that will make getting out of debt harder.    The fix: Create a budget that covers all your expenses so you can begin living within your means and won’t have to rely on credit cards to make ends meet. If you need help creating a budget, this blog post will walk you through the popular 50/20/30 budgeting rule.  

Bottom Line

Having student loan debt doesn't have to prevent you from living your best life and building a solid financial future. Make a plan and you can avoid these mistakes in the future!  
  *Subject to credit approval. Terms and conditions apply.   Notice About Third Party Websites: Education Loan Finance by SouthEast Bank is not responsible for and has no control over the subject matter, content, information, or graphics of the websites that have links here. The portal and news features are being provided by an outside source – the bank is not responsible for the content. Please contact us with any concerns or comments.