Millennials: Timely Credit Card Payments Are Crucial

Between juggling student loan payments, rent, and other bills, you might be tempted to skip a credit card payment. Don’t do it. Missing a payment can lower your credit score, which can lead to difficulty getting a loan or even a job.

Millennials, young adults ages 19 to 29, actually have the fewest number of credit cards and the lowest average balance on them, according to Experian’s annual state of credit report. But, they also have the lowest credit scores and frequently make late payments on their cards.

The average overall credit score in Experian’s report is 681; the average for millennials is 628. Shorter credit histories and high utilization rates are two factors that account for the low scores.

To learn more about your credit score and give it a boost, understand:

* What makes up a credit score—Payment history, amounts owed (especially as a percentage of credit available–the utilization factor), length of credit history, new credit, and types of credit in use determine your credit score.

* How to get your credit report—You can request one free credit report a year from each of the three major credit reporting bureaus by visiting annualcreditreport.com, the only website authorized to provide these free reports. You also can call 877-322-8228 or complete the Annual Credit Report Request Form and mail it to Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281.

* How to improve your credit score—Pay all bills on time, every time. Also consider using a secured credit card. A secured card trades access to credit for your commitment to keep a certain amount of money in a savings account. The professionals at Hopewell Federal Credit Union can set you up with a secured card. Stop by or call today at 740.522.8311.

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A Top Financial Priority After Graduating College

You have put in the work (and the time) and graduated college. Congratulations! According to a Pew study released last year, you have also broadened your shield against the adverse effects the recession has had on the job market. There will be plenty of temptations to spend what you earn in paycheck-to-paycheck fashion during your first few post-grad years. However, opening and contributing to a retirement account with even a small portion of your monthly earnings is worth the requisite diligence (and sacrifice), and here are a few reasons why it should be one of your top financial priorities after college.

Starting and Maintaining Good Habits

Bad habits can form quickly and easily. Conversely, good habits tend to be slow to form. Living paycheck-to-paycheck has its perks – any positive number you see in your bank account can immediately be taken to the store (or the internet) and spent in a short period of time. Re-fund the account, repeat the process, and experience the bliss of consumption.

Even if you are planning to indulge a habit like this for just a season, it could be more difficult than you think to abandon the mentality. Aristotle once said, “Good habits formed at youth make all the difference.” Because you will most likely live beyond the age of 30, solidifying the habit of repetitive saving in your financial youth could be crucial to your financial future.

A Little Becomes A Lot with Time

Once you have begun forming the habit of saving, the idea that time usually adds value to money should be an encouraging prospect. One of the reasons a Roth IRA, in particular, is a great vessel for your savings is because it adds both discipline and incentive to help you take advantage of time value. That discipline comes in the form of certain distribution penalties, and the incentive comes in the form of tax-free earnings (if you are disciplined enough to leave earnings alone until age 59½). A Roth also gives you the flexibility of a savings account by allowing you to withdraw any contributions (not earnings) at any time for any reason. This flexibility may come in handy if you decide to pay off a student loan with one lump sum, for instance.

Take Investing Risks Early

Making retirement savings a top priority after you graduate from college will also give you the chance to make riskier (and potentially more lucrative) investments. The longer you wait, the more likely you will have major things like a family, or a house, depending on your portfolio’s performance. The tendency is to become more conservative with age in terms of one’s personal investing strategy.

Avoid Having to Catch Up Later

A standard savings account tends to be used for shorter-term goals like vacations, cars, and houses. To avoid having to catch up on retirement savings later, and to take advantage of your (probably) lower tax bracket now, a Roth IRA could be a great move in your twenties.

While there are undoubtedly other important parts of your overall financial budget (like student loan repayment management), saving early and often should consistently be at or near the top of your list in your first few years after graduation. The mentality created by your retirement savings efforts, regardless of how monetarily small, will help you sustain this good habit well into your future.

Article courtesy of Patrick Russo, Community Outreach, http://www.depositaccounts.com.

What To Do—and What Not To Do—With Your Tax Refund

So, you’ve got your tax refund – should you save or should you splurge?

The average tax refund so far this year is $3,034, an increase of 5.6% from 2014, according to the IRS. While you may be tempted to go on an all-out shopping spree or take a trip to the Caribbean, there are probably better ways to spend your cash.

What to do with your tax refund

1.      Pay off credit card debt
Paying off your high-interest credit card debt early is one of the best investments you can make.

Let’s say you currently have a credit card balance of $3,000 at an annual percentage ratio (APR) of 14.99%.  By making a minimum $60 payment on the card each month, it will end up taking you 19 years to pay off the balance in full, and you’ll pay $3,906 in interest!

Instead, you can pay off the balance in full to save that $3,906 in interest immediately. Or, to pay off the balance in 1 year, you can make payments of $271 per month for a year.

If you have credit card debt on multiple cards, you should pay off the one with the highest interest rate first, then work on the next one.

2.      Pay off private student loan debt
If you’re feeling trapped by your student loans, it might be time to take some action.

Private student loans often have a higher interest rate than federal loans, so they should be paid off first. Many private loans also have variable rates, meaning that it’s possible the interest rate could go higher in the coming years.

Paying off your student loans in full won’t happen overnight. But using your tax refund to pay them off could help lessen the burden.

3.     Start an emergency fund
A good rule of thumb is to have at least three to six months of living expenses in a savings account in case of emergencies. So if your total expenses are $2,000 a month, you might want to plan to have at least $6,000 in savings.

This fund could go towards things such as rent, food, clothing, gas, auto repairs and emergency medical expenses. It also acts as a safety net in case you lose your job. Having an emergency fund is a smart idea and now might be the best time to start one.

4. Start a Roth IRA
It’s never too early to start thinking about retirement.

A Roth IRA is a retirement account that offers tax-free distributions at retirement. While a traditional 401k allows you to invest pre-tax money, you are taxed when you make your withdrawal. With a Roth IRA, you are investing post-tax money, but receiving a significant tax break at retirement, as you will withdraw your money tax-free.

There are a few rules: both a Roth and a traditional IRA have an annual contribution limit of $5,500 per year, or $6,500 if you’re 50 and older.

For a Roth IRA, your adjusted gross income must be under $191,000 to contribute anything if you are married and under $129,000 if you are single.

 A traditional IRA includes deduction limits, or the amount of your contribution that can be deducted from your paycheck before taxes. The maximum limit you can contribute to a traditional IRA is based on your adjusted gross income and whether or not you are covered by a retirement plan at your job.

 5. Have some fun
Life can be stressful, so it’s always important to relax and have some fun!

You may want to consider taking out 5-15% of your refund for fun. If you’re going to buy something nice for yourself or go on vacation, it’s better to use the cash you have now, rather than using your credit cards. Pick a percentage that you feel is right for you, but wait to spend until after you attend to any outstanding bills or balances.

6. Start an Online Brokerage Account
If you’ve got a healthy emergency fund and have the extra money, why not start an investment portfolio? Investing can help you grow your money more quickly than a savings account.

Before you start investing, you need to ask yourself what types of investments you want to own and what your risk tolerance is. Your investment choices include individual stocks, mutual funds, exchange-traded funds (ETFs), bonds and CDs.

If you are looking for the highest possible returns, you may want to choose individual stocks – just understand that you’ll be taking on the most risk.

If you want to be more conservative, you can opt for an ETF or a mutual fund instead. When choosing an individual ETF or mutual fund, some things you’ll want to look at are the long-term performance of the fund, the performance against major indexes, how long management has been in place, what individual investments or stocks make up the fund, and the fund’s expense ratio.

What not to do with your tax refund

1.      Hit up the casinos
With $3,000 in your pocket, you may be tempted to hit up the blackjack tables in Vegas, or go out and buy hundreds of lottery tickets. But using your tax refund to gamble is not a wise move.  It’s one thing to take $300 to the casino and have some fun; it’s another to blow $3,000 in one night. Remember that with gambling, the odds are always against you.

2.      Take on a financial obligations you can’t afford
Just because you have a few thousand dollars doesn’t mean you can afford a new car, a new home or a swimming pool. Make sure you can actually afford these purchases over the long run, or you could end up in a worse financial position than you were in before.

3.      Splurging on “Stuff”
$3,000 can buy plenty of nice clothes, a new flat screen television, new furniture, and more – but do you really need all of this stuff? Just remember that most of the time, the feelings of joy that these things can bring to us dissipate very quickly.

Steve Nicastro, NerdWallet