US Credit Card Debt Sets New Record—But Is That a Problem?

Toy car and calculator on the table.

US consumers broke through quite a barrier earlier this year, when total credit card debt topped $1 trillion for the first time since the Great Recession. Then in June, total credit card debt reached $1.021 trillion, besting the previous record set back in April 2008, just as the Great Recession began.

There’s a natural impulse to see this as a bad sign: the last time credit card debt hit $1 trillion, things didn’t end so well. High revolving-debt levels can be an indication that consumers are struggling to make ends meet or that their incomes aren’t keeping up with expenses. It can also indicate that lenders are giving away credit too easily.

Or, it might mean that economic activity is increasing and consumers are optimistic about the future.

Underlying data suggest a bit of both. Read on to learn more about the good and bad, as well as where there may be reason for concern.

The Good: Responsible Consumers Are Building Credit

The credit card debt record isn’t a surprise to people who have been following the industry. In May, TransUnion revealed that access to credit cards had reached its highest level since 2005: a total of 171 million consumers had access to a card, the credit bureau said. Meanwhile, credit limits for the best credit card customers—those with particularly high (or super-prime) credit scores—have also risen quickly; the average total credit line for super-prime consumers rose from $29,176 in 2010 to $33,371 earlier this year. More cards and higher credit limits lead to more spending and more borrowing—and the new debt record.

“The card market went through a transformation after the recession as more lenders opened up access to subprime and near-prime consumers. The competition for super-prime consumers has become fierce, and we are seeing it manifest in higher total credit lines,” said Paul Siegfried, senior vice president and credit card business leader for TransUnion.

The American Bankers Association (ABA) released similar data in late July. It found that the number of new accounts had increased by 8.8% in Q1 compared with the same period the previous year.

“A stronger labor market continues to serve as a bright spot in the US economy, putting more Americans in a better position to establish and build credit,” according to Executive Director of ABA’s Card Policy Council Jess Sharp.

More consumers with access to more credit is generally a good thing. It’s hard to be a US consumer—to rent a car, to book a hotel, and so on—without access to credit cards.

But within these reports lurk some ominous signs.

The Bad: Subprime Card Holder Numbers Are Growing Fast

Subprime credit consumers are the fastest-growing segment of the credit card market, TransUnion found. There are now 2.3 million more subprime credit card holders than there were in early 2015. The growth rate for subprime card holders was 8.9%—much higher than the 2.6% rate of all other consumers. And the ABA found that the average size of initial credit lines being granted to new subprime borrowers was growing at a faster rate than all other categories.

In other words, the increase in card debt might be the result of this fast-growing subprime borrower market.

Credit card delinquency rates are also growing—from 1.50% in 2016’s first quarter to 1.69% in 2017’s first quarter. TransUnion attributes this to the increase in subprime card users but also notes that it wasn’t unexpected.

“The recent surge in subprime cards has contributed to an increase in the card delinquency rate at the start of the year, but from a pre-recession, historical perspective, we are still at low levels of delinquency,” Siegfried said.

That was little comfort to investors earlier this year, when both Discover and Capital One announced a surprise increase in defaults. Shares of both fell about 3% in one day on “here we go again” fears.

The Larger Context: Credit Debt Doesn’t Exist in a Vacuum

All this is happening with the backdrop of recent concerns about the suddenly slumping auto sales market. A huge increase in subprime car loans helped fuel record auto sales in the past several years, but rising delinquencies have contributed to an alarming slowdown in overall auto sales—and loose comparisons to the subprime mortgage bubble that fueled the Great Recession.

However, it’s far too early to suggest that subprime credit card lending is a sign of trouble, let alone big trouble. Credit card debt is easy to misinterpret because those numbers are meaningless without context. A consumer who charges $6,000 and pays that balance off each month is much better off than one who charges $1,500 and struggles to make minimum payments.

It’s important to remember that the majority of Americans don’t carry a credit card balance from month to month. The ABA says 28.8% of account holders pay their balance in full each month (the so-called “transactors” in the image below), and another 27.2% don’t use their cards at all. The remaining category is the one to watch: the “revolvers,” who carry a balance and often pay high rates. Currently, 44% of card holders carry a balance each month. Their ranks rose 0.3% in the most recently reported quarter, while the share of transactors fell by 0.3%.

So that’s a number to watch—much more important than average balances or total credit card debt. If more people can’t pay their whole credit card bill every month, there’s a real problem brewing. And while that group has increased slightly, it’s still below the recession peak.

Perhaps the most positive finding from the ABA report is that outstanding credit card debt as a share of consumer disposable income isn’t climbing. In fact, it fell by a small fraction, to 5.3%. That’s a good indicator that consumers aren’t struggling to pay their credit card bills or increasing their plastic spending at a rate faster than their incomes are growing.

Protect Yourself from Whatever the Market May Hold

So the new record credit card debt is truly a mixed signal. With subprime lending and defaults up, auto loans in a bit of trouble, and some investors worried, this milestone is a good time to pause and evaluate whether America is once again heading down the road of too-easy credit followed by recession. But by itself, $1.02 trillion is just a number, and it might not indicate anything.

Either way, it’s a good idea to stay on top of your credit report—which you can check for free at Credit.com—to ensure you’re in a good place, regardless of what the coming years might bring.

Image: istock

The post US Credit Card Debt Sets New Record—But Is That a Problem? appeared first on Credit.com.

Sick of Overdraft Fees? There’s an App for That

Whether you’re building a top-notch gaming PC or itching for the latest smartphone, there are credit cards that can help tech nerds.

Remember when banks feared that new consumer protections would make it harder to charge overdraft fees? That those protections would imperil the financial industry and lead to the death of free checking accounts? Well, overdraft fees set something of a record in 2016, with banks collecting $33.3 billion last year—their highest level since 2009, according to a report by Moebs Services Inc.

So why are overdraft fees on the rise? Jonathan Morduch and Rachel Schneider, in their book “The Financial Diaries: How American Families Cope in a World of Uncertainty,” conclude that much of American financial suffering (and budgeting missteps) are the result of month-to-month cash-flow problems and income volatility.

Fortunately for anyone who has struggled with money management, there’s an app to help with that. In fact, there are several. Here’s a closer look at four cash-flow management apps—and what they can do to help you better manage your monthly money.

1. Dave Warns of Impending Overdrafts

One of the apps making the most noise right now goes by the name Dave. It launched with a bit of fanfare in April, thanks to an investment (and loud endorsement) from billionaire Mark Cuban. While Dave has a feature that works like a cash advance, its main purpose is to warn users before they make a purchase or pay a bill that sends their account into the negative, according to CEO Jason Wilk. The app links to consumers’ checking accounts and watches spending patterns and upcoming automatic payments, then tries to give seven days’ notice of a coming cash crunch.

“We don’t consider ourselves in the same market as other credit products,” Wilk wrote in an email. “First and foremost we are a product that alerts people about their upcoming bills and expenses so they have plenty of time to make a decision about their options. We consider this as much to be a smart budgeting app to avoid a negative balance.”

Consumers pay $1 a month for the app. Dave offers small cash advances (up to around $75, Wilk says) to cover what could have been an overdraft. Dave pays itself back as soon as the checking account has enough money in it. Right now, per-transaction fees are $3.50—the fee the firm pays the bank—and Dave asks only for a donation in the form of a tip. While some have raised concerns that the “tip” could end up being as expensive as payday loan interest, or that consumers who rely on Dave could end up stuck in a payday-loan-like cycle of repeat borrowing, Wilk argues that is unlikely.

“We don’t charge interest and we don’t run credit,” he noted. “We also don’t have a set payback period either, so our customers don’t get caught in a cycle of late fees or interest penalties.”

2. Propel Offers Easy Government Benefit Management

Other apps also try to help consumers understand their month-to-month spending habits. The Common Cents Lab at Duke University recently released a report on an experiment run using an app called Propel, which helps lower-income consumers manage their SNAP benefits. The researchers found that many consumers fall prey to what they call the “windfall” state of mind when a paycheck (or government assistance) arrives, leading them to overspend in the first few days after their money is deposited. By simply measuring out payments on a weekly—rather than a monthly—basis, Propel users stretched their food benefits an extra two days, the researchers said.

“For a family depending on SNAP to put food on the table, this can equal about six extra meals that month, just from this simple intervention,” Common Cents said in the report.

3. Float Provides Small Loans without Hard Credit Inquiries

Float, an app that launched in February of 2017, offers what feels like traditional payday loans—but with a twist. Instead of looking at credit scores, Float links to consumers’ checking accounts and examines spending habits to make lending decisions “without the negative effects of a hard credit inquiry,” the firm’s website says.

Users qualify for something like a small-dollar line of credit they can access with a simple text message like “get $100.” Most loans come with a 5% fee and must be paid back in less than a month. While it’s not the same as Dave’s tip-based fee system, that small transfer fee—and the similarly small late fee of $15—is much less than many payday loan companies charge.

According to Float’s website, the app is available only to residents of California and Utah at the moment.

4. Activehours Grants Easy Payday Insights and Advances

Like Dave, Activehours fronts the money for its users and asks only for tips. It links to hourly workers’ accounts and advances pay they’ve already earned but haven’t yet received in a paycheck. Employees from over 25,000 companies are using it, said spokesperson Kate Austin in an email. The app is designed to help cash-poor consumers get access to money they’ve earned more quickly. The only fee is a voluntary “tip.”

“We’re actually not a loan at all,” Austin said. “We believe people should be given access to the money they earn as they earn it. So, we created an app that lets people see how much they have in their bank account as well as what they’ve earned but haven’t yet been paid for,” she said. “Then, if they need access to their earnings, they can use the Activehours app to move it immediately to their checking account.” She stressed that users always have the option to pay nothing for the paycheck advance—certainly a better option than some payday advance products offered by banks and non-bank lenders.

Fighting the Ongoing Cash-Flow Problem

None of these apps solve the fundamental problem facing consumers who might be tempted to use them: not enough income to escape the “just make it to the end of the month” cycle. Any cash-infusion tool is just a stop-gap solution. It might work once or twice a year—and “The Financial Diaries” suggests some consumers could benefit from such occasional cash-crunch help—but payday borrowers often find they can’t repay their loans when payday arrives. Back in 2014, the Consumer Financial Protection Bureau found that four out of five payday borrowers rolled their loans over at least once, and over one-fifth of the loans were renewed six times.

Users of any cash-flow stop-gap solution face the same issue: borrowing money just in time to make this month’s rent isn’t going to solve the problem of next month’s rent.

Consumers intrigued by the balance-monitoring features of apps like Dave might find similar tools offered directly by banks or by services like Mint.com. And while it may not be the long-term solution some may desperately need, anything that provides alternatives to triple-digit payday loans is probably a welcome addition to the marketplace.

Worried about Overdrafts? Do This Right Now

You can take more direct steps to avoid overdraft fees at your bank. Most banks allow you to link savings accounts or credit cards (from the same institution) to your checking account, which provides you with an extra layer of backup in the event of an overdraft. There is usually a fee to use it, but it’s far less than overdraft fees or bounced check fees.

Finally, make sure you opt out of your bank’s overdraft protection, a service that will cover transactions you don’t have the money for—at the cost of a $20+ fee. Even if you think you are opted-out, it’s worth double-checking. This prevents only certain kinds of overdrafts, such as withdrawing more cash at an ATM than is available in your balance. You can still “go negative” if you write a too-large check, for example, but reducing the ways you can accidentally overdraft (and get hit with hefty overdraft charges) is always a good idea.

If you’ve taken all of the above steps and are still having trouble managing income flow, it might be time to consider applying for a credit card. Before you settle on a card, though, it’s wise to check your credit report first—which you can do for free at Credit.com—so you can find a card that matches your credit rating.

Image: Peopleimages

The post Sick of Overdraft Fees? There’s an App for That appeared first on Credit.com.

How to Get ‘Unstuck’ From Your Starter Home

Source: iStock

Andrew Cordell bought his first home at the worst possible time — 10 years ago, right before the housing bubble burst.

He’s not going to make that mistake again.

“We had immediate fear put in us as homeowners,” says Cordell, 40. “We know how dangerous this can be.”

So the small “starter home” he purchased in Kalamazoo, Michigan back in 2007 now feels just about the right size.

“When we bought, we figured we’d get another home in a few years,” he says. “But the more we settled, the more we thought, ‘Do we really need more space?’ We don’t actually need a large chest freezer or a large yard. Kalamazoo has a lot of parks.”

Apparently, plenty of homeowners feel the same way.

It’s a phenomenon some have called “stuck in their starter homes.” Bucking a decades-long trend, young homeowners aren’t looking to trade up — they’re looking to stay put. Or they are forced to.

According to the National Association of Realtors, “tenure in home” — the amount of time a homebuyer stays — has almost doubled during the past decade. From the 1980s right up until the recession, buyers stayed an average of about six years after buying a home. That’s jumped to 10 years now.

Expected Median in Tenure in Home
Source: 2017 National Association of Realtors® Home Buyer and Seller Generational Trends

 

Other numbers are just as dramatic. In 2001, there were 1.8 million repeat homebuyers, according to the Urban Institute. Last year, there were about half that number, even as the overall housing market recovered. Before the recession, there were generally far more repeat buyers than first-timers. That’s now reversed, with first-time buyers dwarfing repeaters, 1.4 million to 1 million.

This is no mere statistical curiosity. Trade-up buyers are critical to a smooth-functioning housing market, says Logan Mohtashami, a California-based loan officer and economics expert. When starter homeowners get gun-shy, home sales get stuck.

“Move-up buyers are especially important … because they typically provide homes to the market that are appropriate for first-time buyers,” he says. When first-timers stay put, the share of available lower-cost housing is squeezed, making life harder for those trying to make the jump from renting to buying.

Getting unstuck from your starter home

There are plenty of potential causes for this stuck-in-a-starter-home phenomenon — including the fear Cordell describes, families having fewer children, fast-rising prices, and flat incomes. But Mohtashami says the main cause is a hangover from the housing bubble that has left first-time buyers with very little “selling equity.”

Buyers need at least 28 to 33 percent equity to trade into a larger home, and often closer to 40 percent, he says. Those who bought in the previous cycle might have seen their home values recover, but many purchased with low down payment loans, leaving them still equity poor.

That wasn’t such a problem before the recession, as lenders were happy to give more aggressive loans to trade-up buyers. Not any more.

“In the previous cycle you had exotic loans to help demand. Now you don’t. [That’s why] tenure in home is at an all-time high,” Mohtashami says. “Even families having kids aren’t moving up as much.”

Fast-rising housing prices don’t help the trade-up cause either. While homeowners would seem to benefit from increases in selling price, those are washed away by higher purchase prices, unless the seller plans to move to a cheaper market.

“You’re always trying to catch up to a higher priced home,” Mohtashami says.

Cassandra Evers, a mortgage broker in Michigan, says she’s seen the phenomenon, too.

“It’s not for lack of want. It seems to be the inability to afford the cost of the new home,” she says. “It’s not the interest rate that’s the problem, obviously because those are at historic lows and artificially low. It’s because to buy a ‘bigger and better house,’ that house costs significantly more than their current home. The cost of housing has skyrocketed.”

U.S. Homebuyers and Student Loan Debt (by Age)
Source: 2017 National Association of Realtors® Home Buyer and Seller Generational Trends

There’s also the very practical problem of timing. In a fast-rising market, where every home sale is competitive, it’s easy to lose the game of musical chairs that’s played when a family must sell their home before they can buy a new one.

“Folks are concerned about selling their current house in one day and being unable to find a suitable replacement fast enough,” Evers says.

Cordell, who lives with his wife and eight-year-old son, says the family considered a move a few years ago and briefly looked around. But they quickly concluded that staying put was the right choice.

“We looked at some homes and we thought, ‘I guess we could afford that. But we don’t want to be house broke’,” he says. “We don’t want to take on so much debt that ‘What else are we able to do?’ What if one of us loses our job? I guess you could say we have a Depression-era sensibility. … Who would want to get upside down on one of these things?”

The Urban Institute says this stuck-in-starter-home problem shows a few signs of abating recently. Repeat buyers were stuck around 800,000 from 2013 to 2014. Last year, the number pierced 1 million. But that’s still far below the 1.5 million range that held consistently through the past decade.

There are other signs that relief might be on the way, too. ATTOM Data Solutions recently released a report saying that 1 in 4 mortgage-holders in the U.S. are now equity rich — values have risen enough that owners hold at least 50 percent equity, well above Mohtashami’s guideline. Some 1.6 million homeowners are newly equity rich, compared to this time last year, and 5 million more than in 2013, ATTOM said.

“An increasing number of U.S. homeowners are amassing impressive stockpiles of home equity wealth,” says Daren Blomquist, senior vice president at ATTOM Data Solutions.

So perhaps pent-up repeat homebuying demand might re-emerge. Evers isn’t so sure, however.

“Most folks I talked with are no longer interested in being house poor and maxing out their debt to income ratios. They seem to be staying put and shoving money into their retirement accounts,” Evers says.

The Cordells are content where they are in Kalamazoo and plan to stay long term. If anything would make them move, it’s not growing home equity but a growing family.

“If we ended up with a second (kid), I suppose we’d have to look,” Cordell mused. “But we have no plans for that.”

4 Signs You’re Ready to Trade Up Your Home

  • YOU’VE GOT PLENTY OF EQUITY: Your home’s value has risen enough that you safely have at least 28 percent equity and, preferably, more like 35 to 40 percent.
  • YOU’RE EARNING MORE: Your monthly take-home income has risen since you bought your first home by about as much as your monthly payments (mortgage, interest, insurance, taxes, condo fees, etc.) would rise in a new home.
  • YOU STAND TO MAKE A HEALTHY PROFIT: You are confident that if you sell your home, you’d walk away from closing with at least 30 percent of the price for your new home — or you can top up your seller profits to that level with cash you’ve saved for a new down payment. That would let you make a standard 20 percent down payment and have some left over for surprise repairs and moving costs that will come with the new place. Remember, transaction costs often surprise buyers and sellers, so be sure to build them into your calculations.
  • YOU CAN HANDLE THE RISK: You have the stomach for the game of musical chairs that comes with selling then buying a home in rapid succession. Also, if you are in a hot market, you have extra cash to outbid others or a place for your family to stay in case there’s a time gap between selling and buying.



The post How to Get ‘Unstuck’ From Your Starter Home appeared first on MagnifyMoney.

How to Get ‘Unstuck’ From Your Starter Home

Source: iStock

Andrew Cordell bought his first home at the worst possible time — 10 years ago, right before the housing bubble burst.

He’s not going to make that mistake again.

“We had immediate fear put in us as homeowners,” says Cordell, 40. “We know how dangerous this can be.”

So the small “starter home” he purchased in Kalamazoo, Michigan back in 2007 now feels just about the right size.

“When we bought, we figured we’d get another home in a few years,” he says. “But the more we settled, the more we thought, ‘Do we really need more space?’ We don’t actually need a large chest freezer or a large yard. Kalamazoo has a lot of parks.”

Apparently, plenty of homeowners feel the same way.

It’s a phenomenon some have called “stuck in their starter homes.” Bucking a decades-long trend, young homeowners aren’t looking to trade up — they’re looking to stay put. Or they are forced to.

According to the National Association of Realtors, “tenure in home” — the amount of time a homebuyer stays — has almost doubled during the past decade. From the 1980s right up until the recession, buyers stayed an average of about six years after buying a home. That’s jumped to 10 years now.

Median Tenure in Home by Age
Source: 2017 National Association of Realtors® Home Buyer and Seller Generational Trends

 

Other numbers are just as dramatic. In 2001, there were 1.8 million repeat homebuyers, according to the Urban Institute. Last year, there were about half that number, even as the overall housing market recovered. Before the recession, there were generally far more repeat buyers than first-timers. That’s now reversed, with first-time buyers dwarfing repeaters, 1.4 million to 1 million.

This is no mere statistical curiosity. Trade-up buyers are critical to a smooth-functioning housing market, says Logan Mohtashami, a California-based loan officer and economics expert. When starter homeowners get gun-shy, home sales get stuck.

“Move-up buyers are especially important … because they typically provide homes to the market that are appropriate for first-time buyers,” he says. When first-timers stay put, the share of available lower-cost housing is squeezed, making life harder for those trying to make the jump from renting to buying.

Getting unstuck from your starter home

There are plenty of potential causes for this stuck-in-a-starter-home phenomenon — including the fear Cordell describes, families having fewer children, fast-rising prices, and flat incomes. But Mohtashami says the main cause is a hangover from the housing bubble that has left first-time buyers with very little “selling equity.”

Buyers need at least 28 to 33 percent equity to trade into a larger home, and often closer to 40 percent, he says. Those who bought in the previous cycle might have seen their home values recover, but many purchased with low down payment loans, leaving them still equity poor.

That wasn’t such a problem before the recession, as lenders were happy to give more aggressive loans to trade-up buyers. Not any more.

“In the previous cycle you had exotic loans to help demand. Now you don’t. [That’s why] tenure in home is at an all-time high,” Mohtashami says. “Even families having kids aren’t moving up as much.”

Fast-rising housing prices don’t help the trade-up cause either. While homeowners would seem to benefit from increases in selling price, those are washed away by higher purchase prices, unless the seller plans to move to a cheaper market.

“You’re always trying to catch up to a higher priced home,” Mohtashami says.

Cassandra Evers, a mortgage broker in Michigan, says she’s seen the phenomenon, too.

“It’s not for lack of want. It seems to be the inability to afford the cost of the new home,” she says. “It’s not the interest rate that’s the problem, obviously because those are at historic lows and artificially low. It’s because to buy a ‘bigger and better house,’ that house costs significantly more than their current home. The cost of housing has skyrocketed.”

U.S. Homebuyers and Student Loan Debt (by Age)
Source: 2017 National Association of Realtors® Home Buyer and Seller Generational Trends

There’s also the very practical problem of timing. In a fast-rising market, where every home sale is competitive, it’s easy to lose the game of musical chairs that’s played when a family must sell their home before they can buy a new one.

“Folks are concerned about selling their current house in one day and being unable to find a suitable replacement fast enough,” Evers says.

Cordell, who lives with his wife and eight-year-old son, says the family considered a move a few years ago and briefly looked around. But they quickly concluded that staying put was the right choice.

“We looked at some homes and we thought, ‘I guess we could afford that. But we don’t want to be house broke’,” he says. “We don’t want to take on so much debt that ‘What else are we able to do?’ What if one of us loses our job? I guess you could say we have a Depression-era sensibility. … Who would want to get upside down on one of these things?”

The Urban Institute says this stuck-in-starter-home problem shows a few signs of abating recently. Repeat buyers were stuck around 800,000 from 2013 to 2014. Last year, the number pierced 1 million. But that’s still far below the 1.5 million range that held consistently through the past decade.

There are other signs that relief might be on the way, too. ATTOM Data Solutions recently released a report saying that 1 in 4 mortgage-holders in the U.S. are now equity rich — values have risen enough that owners hold at least 50 percent equity, well above Mohtashami’s guideline. Some 1.6 million homeowners are newly equity rich, compared to this time last year, and 5 million more than in 2013, ATTOM said.

“An increasing number of U.S. homeowners are amassing impressive stockpiles of home equity wealth,” says Daren Blomquist, senior vice president at ATTOM Data Solutions.

So perhaps pent-up repeat homebuying demand might re-emerge. Evers isn’t so sure, however.

“Most folks I talked with are no longer interested in being house poor and maxing out their debt to income ratios. They seem to be staying put and shoving money into their retirement accounts,” Evers says.

The Cordells are content where they are in Kalamazoo and plan to stay long term. If anything would make them move, it’s not growing home equity but a growing family.

“If we ended up with a second (kid), I suppose we’d have to look,” Cordell mused. “But we have no plans for that.”

4 Signs You’re Ready to Trade Up Your Home

  • YOU’VE GOT PLENTY OF EQUITY: Your home’s value has risen enough that you safely have at least 28 percent equity and, preferably, more like 35 to 40 percent.
  • YOU’RE EARNING MORE: Your monthly take-home income has risen since you bought your first home by about as much as your monthly payments (mortgage, interest, insurance, taxes, condo fees, etc.) would rise in a new home.
  • YOU STAND TO MAKE A HEALTHY PROFIT: You are confident that if you sell your home, you’d walk away from closing with at least 30 percent of the price for your new home — or you can top up your seller profits to that level with cash you’ve saved for a new down payment. That would let you make a standard 20 percent down payment and have some left over for surprise repairs and moving costs that will come with the new place. Remember, transaction costs often surprise buyers and sellers, so be sure to build them into your calculations.
  • YOU CAN HANDLE THE RISK: You have the stomach for the game of musical chairs that comes with selling then buying a home in rapid succession. Also, if you are in a hot market, you have extra cash to outbid others or a place for your family to stay in case there’s a time gap between selling and buying.



The post How to Get ‘Unstuck’ From Your Starter Home appeared first on MagnifyMoney.

7 Surprising Facts about Food Prices

Cash-back credit cards can help earn money back when you spend at the grocery store.

Many people believe that Americans waste a bunch of money eating out — that avocado toast and lattes are budget wreckers, for example — and that’s sort of true. In 2014, an important line was crossed — for the first time since the government tracked this sort of thing, families spent more eating out than eating at home.  But when you really look into the numbers about the way Americans spend money on food, a far more complex picture emerges.  Like many other typical household purchases — such as refrigerators or clothes — many food items are actually much cheaper than they were a generation ago. And overall, food isn’t nearly the budget-busting line item it used to be.  In fact, according to government statistics, U.S. families are spending much LESS overall on food than they did a generation or two ago. Food now eats up about half as much of the family budget than it once did.

Even that fact is a good news/bad news story, however, according to Annemarie Kuhns, a food economist at the U.S. Department of Agriculture.  Part of the reason food consumers less of household spending is because housing costs and health care consumes so much more.

“It really depends on the food you are purchasing,” Kuhns said. “Processed food is less expensive, but fresh fruits and vegetables are much more expensive.”

To get a better picture of what’s really going on with your budget, here are 9 surprising facts about food spending. As you read them, remember, it’s always easy to find an anecdote or two that confirms a belief you might have — most of us have a friend who complains about not being able to afford a home, but does indeed indulge in avocado toast regularly. That’s just an anecdote, however, a narrow view of things.  To really understand the issue, you have to look at the broader picture.  Most of the data below comes from the Consumer Price Index maintained by the U.S. Bureau of Labor Statistics, which follows food prices by pricing a representative market basket of goods periodically.

1.) Yes, food is generally getting more expensive

First off, you aren’t crazy. Your grocery bill keeps getting bigger — and the cost of food is rising faster than most things. From 2012-2016, food prices rose 6.1%, but the overall consumer price index rose only 4.5%.  NOTE:  That’s bad, but it’s less than the 9.5 percent rise in housing costs and 11.7 percent increase in medical care costs.   This is a long-term trend, too. The USDA says grocery store prices are up 4.5% faster than economy-wide prices during the past 30 years.

2.) Food is cheaper this year, though (Eggs are a HUGE bargain)

Last year, for the first time in nearly 50 years, so-called “food-at-home” prices dropped. The USDA says retail food fell 1.3 percent. Some items fell far more. The price of eggs, for example, dropped almost 20 percent in a year, thanks to lingering impacts of the avian flu. That’s good news for you, but bad news for grocery stores, and we’ve seen plenty of them punished on Wall Street as a result. Kroger, the nation’s largest supermarket chain, said in March that its same-store sales had fallen 0.7% during the end of 2016.

3.) Yes, we are eating out a lot more

Economists call eating out “food away from home” — as opposed to food-at-home — and it’s true that Americans are spending more while eating out than ever.  This has something to do with the state of the economy: During the 2007-2009 recession, food away from home share fell, for example.

Don’t be so quick to judge this consumer behavior, however. It’s true that many Americans don’t take the time to cook any more, but rising restaurant prices are partly to blame, also. Higher food-away-from-home prices mean more overall spending, whether or not people spend more nights at restaurants. And there’s some indication American’s love affair with certain kinds of restaurants has ended.  Back in 2014 — the same year Americans eating at home fell into second place in the BLS data – NPD Group said the average American dined at a restaurant 74 times annually, the lowest reading in more than 30 years.

Continued trouble at fast-casual chains seems to confirm that finding. Restaurant analyst TDn2K says that overall, restaurant same-store sales have now fallen for five straight quarters, and traffic fell more than 3% in the first quarter of this year, compared to the prior year.

4.) No, food isn’t the budget killer you might think

Overall, food consumes a lot less of a family’s earnings than it did back in the 1960s, or even the 1980s. Between 1960 and 2007, the share of disposable personal income spent on total food by Americans, on average, fell from 17.5 to 9.6 percent, driven by a declining share of income spent on food at home.

This seems hard to believe, but it’s true, says Kuhns.

“You have to think of it in terms of relative vs nominal terms,” she said.  “It’s one of those things were prices go up each year, but so does income.”

The share of income spent on total food began to flatten in 2000, however — partly because food prices began to rise, and partly because incomes have stagnated.

In the end, if you are still convinced that Americans eating out too much is the cause of many personal finance problems, consider this: The Agriculture Department says that in 2014, Americans spent 4.3 percent of their disposable personal incomes on food away from home. That’s not a budget buster.

5.) Food is a budget killer for the poor, however

The richer you are, the less you care about the price of food, for obvious reasons — but more critically, the less your monthly budget is subject to shocks from rising food prices.

In 2015, middle-income households spent 12.4 percent of their income on food, while families in the lowest one-fifth of income spent fully one-third of their money on food. That’s a stunning gap, and makes poorer families very sensitive to sudden increases in the price of essentials like milk or bread.

6.) We sound a bit like whiners

One might conclude that those who complain about rising food prices in the past decade or so have forgotten history. Even in a bad, recent year (2008), food rose about 6%. Back in the 1970s, double-digit increases were typical.  In 1973, food prices rose 16.4%, and then in 1974, another 14.9 percent. Those increases were blamed on food commodity and energy price shocks, and the larger economy saw shocking inflation, too.

7.) Historically, eggs are now the best bargain — Butter is cheaper, too

It can be hard to compare the price of items across the decades, but there are ways. For example, a look at a 1971 Sears catalog shows a basic refrigerator cost $399, or about $2,450 in today’s dollars. That would buy you a heck of a refrigerator today.

Another useful method is to compare the increase in costs over time, which the BLS does.  A fascinating chart compares the cost of items back in 1913 vs 2013.  Butter was once the most expensive item in a consumer’s grocery sack. Now, coffee, steak, and many other items are more expensive.  The price of potatoes has climbed 39-fold since 1913, but the price of eggs is up only 5-fold during the same span. Bread costs 25 times more; sugar costs 12 times more; coffee 20 times more, but rice only 8 times more.

If you’re looking for a more recent comparison, NPR crunched other BLS data comparing 1982 and 2012 (all in 2012 dollar) and found that most meats are much cheaper than they used to be (steak is down 30%!); but some vegetables are more expensive (peppers up 34%!).

How much do Americans spend on food anyway?

That’s not an easy question to answer, as circumstances vary so widely, but the USDA tries. A family of four with two children under 5 spent between $571 and $1,116 on food-at-home each month during 2015, the agency says. That same family with older kids spends between $657 and $1,305, proving it’s best to keep your kids from growing up.

On the other hand, a single male between 19-50 spends between $172 and $346 monthly.  That doesn’t include eating out, of course.

Don’t be so hard on food.

Finally, Kuhns stresses that inflation data on food is a very tricky calculation and government statistics can’t capture all the factors that really make up “price.”  When calculating inflation for items like computers, economists factor in that buyers get more for their money today than they did in the past — today’s PCs are far more powerful.  Those adjustments aren’t made for food, she noted, even though today’s supermarket shoppers get a lot more than they used to.

“When you go into a grocery store aisle, it’s nothing like 1985,” she said. “We have bagged lettuce. Imported vegetables.  We have access to a lot more fruits and vegetables,” she said. “In the 80s, most stuff was local and you could only get what was in season. Now you can get whatever you want any time of the year.”

Image: franckreporter 

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It’s Now Easier for Millions of Student Loan Borrowers to Get a Mortgage

Student loan borrowers who are making reduced income-driven repayments on their loans will have an easier time getting mortgages under a new policy announced recently by Fannie Mae.

Nearly one-quarter of federal student loan borrowers benefit from reduced monthly student loan payments based on their income, Fannie Mae says. However, there’s been some confusion about how banks should treat the lower monthly payments when they calculate a would-be mortgage borrower’s debt-to-income ratio (DTI): Should banks consider the reduced payment, the payment borrowers would have to pay without the income-based “discount,” or something in between?

It’s a tricky question, because student loan borrowers have to renew their qualification for the lower payments each year, meaning a borrower’s monthly DTI could change dramatically a year or two after qualifying for a mortgage. The banks’ confusion over which payment amount to use can mean the difference between a borrower qualifying for a home loan and staying stuck in a rental apartment.

There’s even more confusion when a mortgage applicant qualifies for a $0 income-driven student loan payment, or when there’s no payment amount listed on the applicant’s credit report. Previously, in that situation, Fannie Mae required banks to use 1% of the balance or a full payment term.

As of last week, Fannie has declared that mortgage lenders can instead use $0 as a student loan payment when determining DTI, as long as the borrower can back that up with documentation.

That announcement followed another Fannie update issued in April telling lenders that they could use the lower income-based monthly payment, rather than a larger payment based on the full balance of the loan, when calculating borrowers’ monthly debt obligations.

“We are simplifying the options available to calculate the monthly payment amount for student loans. The resulting policy will be easier for lenders to apply, and may result in a lower qualifying payment for borrowers with student loans,” Fannie said in its statement.

Taken together, the two announcements could immediately benefit the roughly 6 million borrowers currently using income-driven repayment plans known as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE), Income-Contingent Repayment (ICR), and Income-Based Repayment (IBR).
Freddie Mac didn’t immediately respond to an inquiry about its policy in the same situation.

What This Means for Student Loan Borrowers Looking to Buy

Michigan-based mortgage broker Cassandra Evers said the changes “allow a lot more borrowers to qualify for a home.” Previously, there was a lot of confusion among borrowers, lenders, and brokers, Evers said. “[The rules have] changed at least five or six times in the last five years.”

The broader change announced in April, which allowed lenders to use the income-driven payment amount in calculations, could make a huge difference to millions of borrowers, Evers said.

“Imagine you have $60,000 in student loan debt and are on IBR with a payment of $150 a month,” she said. Before April’s guidance, lenders may have used $600 (1% of the balance of the student loans) as the monthly loan amount when determining DTI, “basically overriding actual debt with a fake/inflated number.”

“Imagine you are 28 and making $40,000 per year. Well, even if you’re fiscally responsible, that added $450-a-month inflated payment would absolutely destroy your ability to buy a decent home … This opens up the door to a lot more lenders being able to use the actual IBR payment,” Evers said.

The Fannie Mae change regarding borrowers on income-driven plans with a $0 monthly payment could be a big deal for some mortgage applicants with large student loans. A borrower with an outstanding $50,000 loan but a $0-a-month payment would see the monthly expenses side of their debt-to-income ratio fall by $500.

It’s unclear how many would-be homebuyers could qualify for a mortgage with an income low enough to qualify for a $0-per-month income-driven student loan repayment plan. Fannie did not have an estimate, spokeswoman Alicia Jones said.

“If your income is low enough to merit a zero payment, then it is probably going to be hard to qualify for a mortgage with a number of lenders. But, with the share of IBR now at almost a full 25% of all federally insured debt, it’s suspected that there will be plenty of potential borrowers who do,” Jones said. “The motivation for the original policy and clarification came from lenders’ requests.”

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Why Banks Are Still Being Stingy With Savings and CD Rates

Mike Stuckey is a classic “rate chaser,” moving money around every few months to earn better interest on his savings. Lately, that has meant parking cash in three-month CDs at a rather meager of 1% or so, then rolling them over, hoping rates sneak up a little more each time.

“It’s at least something on large balances and keeps you poised to catch the rising tide,” says the 60-year-old Seattle-area resident.

Rate chasers like Stuckey still don’t have much to chase, however. The Federal Reserve has raised its benchmark interest rates four times since December 2015, and banks have correspondingly increased the rates they charge some customers to borrow, but many still aren’t passing along the increases to savers.

Why? There’s an unlikely answer: Banking consumers are simply saving too much money. Banks are “flush” in cash, hidden away in savings accounts by risk-averse consumers, says Ken Tumin, co-founder of DepositAccounts.com. Bank of America announced in its latest quarterly earnings report its average deposits are up 9% in the past year, for example – despite the bank’s dismal rates.

“In that situation, there’s less of a need to raise deposit rates,” Tumin says. “In the last couple of years, we are seeing deposits grow faster than loans.”

Banks don’t give away something for nothing, of course. They only raise rates when they need to attract more cash so they can lend more cash.

As a result, savings rates remain stubbornly slow to rise. How slow? Average rates “jumped” from 0.184% in June to 0.185% in July, according to DepositAccounts.com. (Disclosure: DepositAccounts.com is a subsidiary of LendingTree Inc., which is also the parent company of MagnifyMoney.com.)

And while the average yield on CD rates is the highest it’s been in five years, no one is getting rich off of them. Average one-year CD rates have “soared” from 0.482% in April 2016 to 0.567% in July. Locking up money long term doesn’t help much either – five-year CD rates are up from 1.392% to 1.504%.

There’s another reason savings and CD rates remain low, something economists call asynchronous price adjustment. That’s a fancy way of saying that companies are more price-sensitive than consumers.

It’s why gas stations are quicker to raise prices than lower prices as the price of oil goes up or down. Same for airline tickets. Consumers eventually catch on, but it takes them longer. So for now, banks are enjoying a little extra profit as they raise the cost of lending but keep their cost of cash relatively flat.

Holding Out for 2%

There have been some breakouts, however, most notably among internet-only banks. They have traditionally offered higher rates than classic brick-and-mortar banks, and now, they are more sensitive to rate changes, Tumin says. Goldman Sachs Bank USA, the Wall Street firm’s push into retail banking, announced in June it would offer 1.2% interest to savings depositors. The bank is working hard to attract new customers. Soon after, Ally Bank announced higher rates at 1.15%.

“Internet banks are always more sensitive to changes in the economy and at the Fed. Also, internet bank account holders tend to be more rate sensitive,” Tumin says.

“I remember in 2005-2006 we were seeing a 25 or 50 basis point upward movement,” says Tumin. Now we are looking at a 5 or 10 basis point improvement.” He expects that trend – stingy rate increases – to continue for the foreseeable future.

When will more consumers sit up and notice higher savings rates – and perhaps start pulling cash out of big banks, putting pressure on them to join the party?

“I think 2% will be a big milestone,” Tumin says. “That will be a big change we haven’t seen in five years.”

If you’re really frustrated by low rates from traditional savings accounts and CDs, Tumin recommends considering high-yield checking accounts, a relatively new creation. These accounts can earn consumers up to 4%-5% on a limited balance – perhaps on the first $25,000 deposited. The accounts come with strings attached, however, such as a minimum number of debit card transactions each month.

“If you don’t mind a little extra work … you are rewarded nicely,” Tumin says.

Time to Ditch Your Savings Account?

For that kind of change, is rate chasing worth it?

For perspective, a 0.1% interest rate increase (10 basis points) on $10,000 is worth only about $10 annually.

It’s, of course, up to consumers whether or not the promise of a little more cash in their savings accounts is worth the effort of closing one account and opening another.

Stuckey says rate chasing doesn’t have to be hard.

“I don’t really find it anything to manage at all,” he says. “(My CDs) are in a Schwab IRA, so I have access to hundreds of choices. They mature at various times, and Schwab always sends a notice, so I just buy another one.”

The low-rate environment has impacted Stuckey’s retirement planning, but he’s philosophical about it.

“I have mixed feelings. In 2008, as I planned to retire, I was getting 5.5% and more in money market accounts. High-quality bonds paid 6 and 7%. So lower rates have had an effect on my finances,” Stuckey says. “But … it has been nice to see young people able to afford nice homes because of the low rates. My first mortgage started at 10.5%.”

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GOP Moves to Block Rule That Allows Consumers to Join Class Action Lawsuits

A rule that would make it easier for consumers to join together and sue their banks might be shelved by congressional Republicans or other banking regulators before it takes effect.

Members of the Senate Banking Committee announced Thursday that they will take the unusual step of filing a Congressional Review Act Joint Resolution of Disapproval to stop a new rule announced earlier this month by the Consumer Financial Protection Bureau. Rep. Jeb Hensarling (D-Texas) introduced a companion measure in the House of Representatives.

The CFPB rule, which was published in the Federal Register this week and would take effect in 60 days, bans financial firms from including language in standard form contracts that force consumers to waive their rights to join class action lawsuits.

The congressional challenge is one of three potential roadblocks opponents might throw up to overturn or stall the rule before it takes effect in two months.

So-called mandatory arbitration clauses have long been criticized by consumer groups, who say they make it easier for companies to mistreat consumers. But Senate Republicans, led by banking committee chairman Mike Crapo (R-Idaho), say the rule is “anti-business” and would lead to a flood of class action lawsuits that would harm the economy. They also say the CFPB overstepped its bounds in writing the rule.

“Congress, not King Richard Cordray, writes the laws,” said Sen. Ben Sasse (R-Neb.), referring to the CFPB director. “This resolution is a good place for Congress to start reining in one of Washington’s most powerful bureaucracies.”

Congress’s financial reform bill of 2010, known as Dodd-Frank, directed the CFPB to study arbitration clauses and write a rule about them. The rule permits arbitration clauses for individual disputes, but prevents firms from requiring arbitration when consumers wish to band together in class action cases.

Consumer groups were quick to criticize congressional Republicans.

“Senator Crapo is doing the bidding of Wall Street by jumping to take away our day in court and repeal a common-sense rule years in the making,” said Lauren Saunders, associate director of the National Consumer Law Center. “None of these senators would want to look a Wells Fargo fraud victim in the eye and say, ‘you can’t have your day in court,’ yet they are helping Wells Fargo do just that.”

Meanwhile, the new rule also faces a challenge from the Financial Stability Oversight Council, made up of 10 banking regulators. The council can overturn a CFPB rule with a two-thirds vote if members believe it threatens the safety and soundness of the banking system. A letter from Acting Comptroller of the Currency Keith Noreika, a council member, to the CFPB on Monday asked the bureau for more data on the rule, and raised possible safety and soundness issues. Any council member can ask the Treasury secretary to stay a new rule within 10 days of publication. The council would then have 90 days to veto the rule via a vote. It would be the first such veto.

The CFPB rule also faces potential lawsuits from private parties.

How to be sure you’re protected by the new rule

Barring action by Congress, the CFPB rule is slated to take effect in late September 2017, with covered firms having an additional 6 months to comply, meaning most new contracts signed after that date can’t contain the class-action waiver. Prohibitions in current contracts will remain in effect.

Consumers who want to ensure they enjoy their new rights will have to close current accounts and open new ones after the effective date, the CFPB said.

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It Could Get a Lot Easier to Sue Your Bank Thanks to This New Regulation

With looming existential threats from both the Trump administration and the federal court system, the Consumer Financial Protection Bureau went ahead on Monday with a controversial rule that will change the way nearly all consumer contracts with financial institutions are written.

The end of forced arbitration?

The rule will ensure that all consumers can join what CFPB Director Richard Cordray called “group” lawsuits — generally known as class-action lawsuits — when they feel financial institutions have committed small-dollar, high-volume frauds. Currently, many contracts contain mandatory arbitration clauses that explicitly force consumers to waive their rights to join class-action lawsuits. Instead, consumers are forced to enter individual arbitration, a step critics say most don’t bother to pursue.

Consumer groups have for years claimed waivers were unjust and even illegal, but in 2011, the U.S. Supreme Court sided with corporate lawyers, paving the way for even more companies to include the prohibition in standard-form contracts for products like credit cards and checking accounts.

How to be sure you’re protected by the new rule

Monday’s rule is slated to take effect in about eight months, meaning most new contracts signed after that date can’t contain the class-action waiver. Prohibitions in current contracts will remain in effect.

Consumers who want to ensure they enjoy their new rights will have to close current accounts and open new ones after the effective date, the CFPB said.

“By blocking group lawsuits, mandatory arbitration clauses force consumers either to give up or to go it alone — usually over relatively small amounts that may not be worth pursuing on one’s own,” Cordray said during the announcement.

“Including these clauses in contracts allows companies to sidestep the judicial system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm large numbers of consumers. … Our common-sense rule applies to the major markets for consumer financial products and services under the Bureau’s jurisdiction, including those in which providers lend money, store money, and move or exchange money.”

A long road ahead for the CFPB

The ruling was several years in the making, initiated by the Dodd-Frank financial reforms of 2010, which called on the CFPB to first study the issue and then write a new rule. But it almost didn’t happen: With the election of Donald Trump and Republican control of the White House, the CFPB faces major changes, including the expiration of Cordray’s term next year.

Also, House Republicans have passed legislation that would drastically change the CFPB’s structure. Either of these could lead to the undoing of Monday’s rule. When I asked the CFPB at Monday’s announcement what the process for such undoing would be, the bureau didn’t respond.

“I can’t comment on what might happen in the future,” said Eric Goldberg, Senior Counsel, Office of Regulations.

Cordray cited the recent Wells Fargo scandal as evidence the arbitration waiver ban was necessary. Before the fake account controversy became widely known, consumers had tried to sue the bank but were turned back by courts citing the contract language.

Under the new rules, consumers would have an easier time finding lawyers willing to sue banks in such situations. No lawyer will take a case involving a single $39 controversy, but plenty will do so if the case potentially involves thousands, or even millions, of clients.

Consumer groups immediately hailed the new rule.

“The CFPB’s rule restores ordinary folks’ day in court for widespread violations of the law,” said Lauren Saunders, association director of the National Consumer Law Center. “Forced arbitration is simply a license to steal when a company like Wells Fargo commits fraud through millions of fake accounts and then tells customers: ‘Too bad, you can’t go to court and can’t team up; you have to fight us one by one behind closed doors and before a private arbitrator of our choice instead of a public court with an impartial judge.’”

The CFPB and Monday’s rule also face an uncertain future because a federal court last fall ruled that part of the bureau’s executive structure was unconstitutional. The CFPB is appealing the ruling, and a decision may come soon. Should the CFPB lose, it will be easier for Trump to fire Cordray immediately, and companies may have legal avenue to challenge CFPB rules.

On the other hand, enacting the rule now may give supporters momentum that will be difficult for the industry to stop — a situation similar to the Labor Department’s fiduciary rule requiring financial advisers to act in their clients’ best interests. While the Trump administration took steps to stop that rule from taking effect, many companies had already begun to comply, and simply continued with that process.

The U.S. Chamber of Commerce was heavily critical of the new rule.

“The CFPB’s brazen finalization of the arbitration rule is a prime example of an agency gone rogue. CFPB’s actions exemplify its complete disregard for the will of Congress, the administration, the American people, and even the courts,” the Chamber said in a statement.

“As we review the rule, we will consider every approach to address our concerns, and we encourage Congress to do the same — including exploring the Congressional Review Act. Additionally, we call upon the administration and Congress to establish the necessary checks and balances on the CFPB before it takes more one-sided, overreaching actions.”

But consumer groups called Monday’s ruling a victory.

“Forced arbitration deprives victims of not only their day in court, but the right to band together with other targets of corporate lawbreaking. It’s a get-out-of-jail-free card for lawbreakers,” said Lisa Donner, executive director of Americans for Financial Reform. “The consumer agency’s rule will stop Wall Street and predatory lenders from ripping people off with impunity, and make markets fairer and safer for ordinary Americans.”

The post It Could Get a Lot Easier to Sue Your Bank Thanks to This New Regulation appeared first on MagnifyMoney.

14 Ways to Prevent Fraud on Your Debit & Credit Cards

There's no way to make yourself 100% safe from credit card or debit card fraud, but you can build some pretty tall walls. Here's how.

Every time there’s a large credit card breach, you’ll hear some expert say risks for consumers are low, because it’s easy to cancel a credit or debit card and get a new one. Not so fast. If fraud appears on your bill, but you don’t notice it, you’ll pay for it. More important, changing account numbers is a hassle. You’ll have to update all your automatic payment accounts, for example. Screw up one of those, and you could get hit with late fees from a merchant when your payment is denied.

Despite the liability limits, you’re better off avoiding all this in the first place. Below are suggestions on how to do that. Most involve limiting the number of times you have to share your plastic with someone, decreasing your “attack surface.” Some might be familiar. Others might seem extreme. Either way, there’s no way to make yourself 100% fraud proof. That’s why we’ve also provided tips on the earliest possible detection and reporting of fraud, which is the main way to protect yourself. For example, regularly checking your credit scores can help you spot fraudulent activities on your credit cards. (You can check two of your scores free on Credit.com.) Here’s how to keep yourself as safe as possible.

1. Avoid Using Debit Cards to Buy Things

When I asked Gartner fraud analyst Avivah Litan about her fraud-fighting tips, this is the first thing she said:

“Never use PIN debit, except for bank ATM machines attached to bank branches.”

PIN debit is the technical term for using a debit card as “credit” at a merchant. From a fraud perspective, the “debit or credit” question is meaningless. Either way, you are putting your debit card account information into databases criminals can hack. And recovering from a debit card fraud is much more of a hassle than recovering from a credit card fraud. With credit card fraud, consumers call their bank, dispute a fraudulent charge and don’t pay for that part of their bill. With debit card fraud, money is taken from the victim’s checking account, and the consumer has to argue with the bank to get it back. That usually happens quickly, but in the meantime, the consumer’s balance can dip below zero, leading to overdrafts and other potential problems, like bounced rent checks.

It’s a bad idea to buy things with a debit card. Use a debit card to withdraw cash at a bank ATM. Otherwise, use credit.

Some people use debit card purchasing as a personal finance tool to limit spending. That’s a rational reason to do so. If you must, don’t use PIN debit, so at least a criminal can’t gain access to your PIN at that merchant.

2. Be Careful With Stored-Value Apps

The latest trend in money is “digitized stored value.” You probably familiar with it if you buy coffee with your Starbucks app. Many merchants are now imitating Starbucks with their own digitized stored value apps. But app makers and merchants are not banks. They have less experience keeping money safe. The consequences have been obvious: Starbucks consumers have complained for nearly two years about criminals raiding their app-linked credit cards. Worst of all, consumers with auto-fill have seen criminals conduct rapid-fire conduct transactions through the apps. Starbucks says this impacts a tiny fraction of consumers, and they are quickly refunded. If you are using “digitized stored value,” manually reloading value is safer than loading your credit card and especially your debit card.

3. Have a Separate Card for Digital Transactions

Splitting your transactions among cards can limit the “spillover” if fraud occurs. This tip isn’t for everyone. Some consumers like racking up points on one card. Others are afraid they’ll miss a payment if they have more than one credit card bill each month. But separating out transactions can have fraud-fighting benefits. If you are the type to buy items from less popular websites that might not have the security protections of a larger site, consider having a card you use just for those higher-risk purchases. That way, if the small site is compromised, the impact on your life will be contained.

4. Google Second-Tier Sites

Speaking of second-tier sites, you should always Google them before making a purchase. Search “BobsWidgetSite.com and complaints,” then “BobsWidgetSite and fraud,” before making a purchase the first time. Scroll through a page or two of results, in case the site has done search engine optimization work to beat back complaints. I talk often to victims who do that search only after they are victims of fraud, and then kick themselves.

5. Place a Sticker Over Your Security Code

Here’s a novel idea from computer security expert Harri Hursti. Most credit and debit card credentials are useless without the security code numbers on the back of the card. To limit the risk of physical theft, place a sticker over the numbers and memorize them. They are usually only three or four digits. That way someone else who holds your card for a few moments can’t get enough information to steal from your account. Such physical theft is less common than it once was, but the sticker idea is a simple fraud-fighting tool.

6. Say No to ‘Free’ Trial Offers & Avoid ‘Gray Charges’

About five years ago, a credit card fraud fighting firm named BillGuard.com coined the term “gray charges.” These aren’t traditional fraud, but they aren’t transactions you approved, either. It might be a magazine you didn’t realize you purchased as a bundle at a checkout. It might be a subscription travel service that “accidentally” ended up in your shopping cart when you booked a trip. Or it might be a free trial you forgot about that has now converted to a $20-a-month charge. Either way, gray charges are a hassle, and the easiest way to avoid them is to never sign up for a “free” anything that requires your credit card. Check your shopping carts diligently, and uncheck all the “sign me up for XX” boxes along the way.

7. Don’t Fall for Phishing

Phishing emails have been around for a while – so long you might forget the risk they pose. Big mistake. A study by the University of Texas last year found that phishers “thrive” on consumers’ overconfidence. There was a 500% increase in personalized, social-media-based phishes in 2016. A common, credit-card stealing email might be an alert claiming your credit card on file with iTunes has been rejected, and asking for an immediate update. If you think you can’t be phished, you’re wrong. Never enter your credit card number into a website unless you have manually visited the site by typing the address into your web browser’s address bar. Never click on a link in an email – even one you are certain is real – and enter payment credentials.

8. Don’t Give Your Credit Card Number Over the Phone

This tip is similar: Never give your credit or debit card number to anyone who calls your house. Even if you are certain the call is legit. Always hang up and manually dial the company’s phone number, then give your payment details. That might sound like a hassle, but any reputable company will appreciate your efforts at security. If the person on the other end of the phone gets annoyed, that’s a good indication you are being hustled.

9. Get a Post Office Box

Mail theft is still a cause of identity theft. The simplest way to avoid it is to stop mail from coming to your house. Small P.O. boxes can cost around $100 per year and can offer peace of mind.

10. Use ATMs Carefully & Watch for Skimmers.

You know to make sure no one is watching while you enter your PIN code at an ATM. But how? It’s getting harder and harder to be sure, as hackers are inventing smarter skimmer devices that let them “watch” you remotely. The latest devices are designed to fit snugly over the slot where cards are inserted or even to be snuck inside that slot, invisible to the untrained eye. That’s one reason Litan only uses ATMs attached to a bank branch. ATMs outside grocery stores or gas stations can be easier to attack and often have higher fees. The risk isn’t only at ATMs. So-called “overlays” that fit on top of a merchant point of sale terminal have been spotted at major retailers across the country. Whenever inserting your credit or debit card into any machine, it’s a good idea to look for signs of tampering. You can take a moment to rub your fingers around the edges of a machine to see if an overlay of skimmer has been snapped on top.

11. Keep Track of Your Cards

It’s easy to forget your card at a restaurant after a meal. Develop a personal checklist so you avoid that. Each time you get up to leave a store, or before you go to bed at night, do a card count. If you can’t find your card but you are hopeful it will turn up, you might have better options than you realize. Many times, people are loathe to call and report lost cards because of the ensuing hassle. Some banks let you temporarily “freeze” your card while you look for it, then turn the card back on if it’s found safe. Discover has a feature called Freeze It. Visa and MasterCard also gives their banks similar options. Don’t be afraid to protect yourself while you are looking.

12. Sign up for Mobile Banking

Mobile banking is a great fraud fighting tool. If you aren’t using your bank’s app, you’re missing out. More people used mobile than used a bank branch for the first time in 2015, according to Javelin Strategy & Research.

Mobile banking lets you check your account every day for unusual activity. Use of mobile banking can reduce your attack surface, too, since mobile check deposits mean fewer trips to the ATM.

13. Set Text Alerts for Your Credit Card

Banking apps make it easier to use another trick that helps with fraud detection: text alerts. Most banks allow you to set up texts about transactions. Options include: A text with every purchase, a text for every purchase more than $100 or a daily text with the account balance. I prefer the last choice. Anything more frequent and the messages start to feel like spam, and can be ignored. The tool also helps with spending habits, as you’ll have a daily reminder of how much you’ve spent. Most banks can send the alerts via email, too.

14. Report Fraud Immediately

If you are hit by fraud, time isn’t on your side. You will likely be hit repeatedly until the card is canceled. Most importantly, if you don’t report the fraud in a timely manner, you can be held liable for some or all of it. Most of the time, financial institutions are responsive to fraud, and make reporting concerns and getting replacement cards easy, but early detection is critical.

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