What Not to Do With Your Tax Refund

Here are some things you might want to avoid when you get your check from Uncle Sam.

It’s that time of year again when tax refunds are on everyone’s mind. A tax refund check can be a wonderful addition to your checking account; a sizable amount can even bring new financial opportunities your way. But if you don’t spend that check from Uncle Sam responsibly, it can also put you in debt. Here are some things you might want to avoid when you get your tax refund.

1. Spending the Money Before You Receive It

One of the worst things you can do is spend your tax refund before you’ve even received it. Even if you got a head start on tax season and you know the amount you will receive, you might not want to spend your refund until you have the check in hand. If your refund is delayed, you may be strapped for cash until the check comes in — or worse, wind up in debt. (Debt can damage your wallet — and your credit. You can see how your credit currently fares by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

2. Go on a Massive Shopping Spree

Splurging on a big-ticket item or going on a spending spree is a quick way to kiss your tax refund goodbye. If you’re already in debt because of your poor spending habits, try not to dig yourself into a deeper hole. Rather than spend this money on unnecessary items, which can lead to buyer’s remorse, consider using this money to help you pay off your previous spending.

3. Deposit the Money Into Your Checking Account

While you may think stashing your tax refund in a checking account will prevent you from spending it right away, it won’t do you much good there. Without a plan for your refund, chances are it will remain in your checking account and later be spent on small, everyday purchases. If you’re unsure of what to do with your tax refund, consider other places to store it. You may want to place it in a checking account that bears interest or a mutual fund to make a return.

4. Pay for Upgrades You Don’t Need

Of course, that new iPhone is slimmer and shinier, but is there something wrong with your current phone? When it comes to upgrades, it’s important to first address your needs. When you make an upgrade based on a want rather than a need, you may be quickly wasting your refund. Consider upgrades that will save you money in the long run, such as an energy-efficient appliance, or upgrades that will increase the value of your home like kitchen renovations.

5. Gamble

For many, a tax refund, like credit cards, is viewed as free money. While it may be thrilling to know you can double this “free money” on red or black at the casino, there’s also the chance you can lose this cash. You may think you’re right where you left off before tax season, but this is not the case. Consider putting your refund to good use by investing or increasing contributions to retirement funds. This way you can still increase your refund, but with much less risk.

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4 True Tales of Maxing Out Credit Cards

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Some people like to joke about taking things to the limit, but when it comes to your credit, maxing out a credit card is no laughing matter.

Maxing out a credit card means swiping until you reach the card’s credit limit, or the total amount of credit extended to you. And that’s bad news for your credit scores because your debt utilization ratio (e.g., how much debt you have versus your total available credit) is one of the key factors credit agencies use to determine your score. Bump up against that limit, and your score will take a hit.

Debt levels are another factor that go into your score. Carry too much, and you’ll send a red flag to lenders that you’re in over your head; slack off on a few bills, and they’ll begin to think you can’t manage your payments responsibly.

We spoke with a few Credit.com readers who learned the hard way about the dangers of maxing out credit cards. While they aren’t proud of what they did, they came out stronger for their experience and took steps necessary to get their finances back in order. (Note: At their request, some names and locations have been withheld to protect readers’ privacy.)

‘I Maxed Out Seven Cards’  

Between 2006 and 2008, Steven M. Hughes was saddled with a lot of debt. “I maxed out seven cards in my freshman year alone,” he said via email, “two more as a young professional.” The problem was he didn’t understand how to use them. “My parents always told me to stay away from them and didn’t teach me how to manage them properly,” he said.

“I had one credit card for emergencies that I maxed out on car repairs for a car at the time. I had department store cards that I maxed out on clothes for school and work because I worked while I was in college. I had a card I maxed out going to a family member’s wedding in New York City. I started assigning jobs to each card, but I didn’t have the income to pay them off, and paying the minimum balance wasn’t cutting it. All but one card was charged off. I managed to pay the lone card off and start a new account with the creditor.”

Today, the Columbia, South Carolina, resident teaches millennials how to manage their money through his nonprofit, Know Money, Inc. “After making all the financial mistakes, I started to learn as much as possible about personal finance,” he said.

‘I Was Into Wearing Ralph Lauren’ 

Deborah Sawyerr, a fashion and lifestyle blogger based in London, was about 32 when she visited Woodbury Common Premium Outlet, in Central Valley, New York, during a family holiday in 2005. “We bought clothes, shoes, suits, my daughter some bits, belts, jackets and some gifts,” she recalled via email. “At the time, I was into wearing Ralph Lauren clothing, so most of my spend went on this particular brand.”

Her credit card balance at the time was pretty low, but she admits she went a bit overboard that trip, racking up roughly $5,000. “As luck would have it, at the same time, my employer had just paid me in excess of £5,000, or thereabouts, as a redundancy package,” she said. “I basically — and perhaps I wasn’t so naïve — used the entire redundancy package to clear the debt in one go.” Humbled by the experience, Sawyerr said hasn’t maxed out a credit card since.

‘I Knew Very Little About Money’ 

In 1997, John Schmoll, Jr. was an undergrad with four maxed out credit cards totaling a whopping debt of $25,000. “When I went to college, I knew very little about money and was enticed to sign up for credit cards out of the promise of some sort of free swag — T-shirt, Frisbee, you name it,” he wrote in an email. “I ended up signing up for four credit cards this way, and used them to finance a lifestyle that I wanted but could not afford.”

Teetering on the verge of bankruptcy, at a roommate’s urging Schmoll decided to meet with a debt counselor, who helped him lower the rates on his cards. From there, he set up a budget, which enabled him to pay the cards off five years later. “That changed my life forever and put me on the path I am today, working toward financial independence,” he said. Today, the Omaha-based father and finance industry veteran blogs at Frugal Rates about what he’s learned.

‘0% Offers Were Appealing’ 

Years ago, Lisa, a marketing strategist, found that the 0% promotional APR offers from credit card issuers “were appealing.”

“I had six credit cards, all with a little over $3,000 on them,” Lisa said in an email. “I consolidated them into one account, maxing out that card, and I paid it off in about two years.”

So what got her there in the first place? Overspending. “I was floored to find out how liberal I’d been with spending — luxury items, travel to the Maui Writer’s Conference, etc.,” she said. “I behave very differently now.”

For starters, she said she doesn’t keep a revolving balance, and diligently pays her balances off every month. “That way, there’s no surprise debt, no interest charges, no late fees, etc.,” she said.

If you have reason to believe your spending’s out of control and it’s affecting your credit, you can read up on these tips to build credit the smart way and view your free credit report summary on Credit.com to see where you might want to improve.

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My Spouse Went on a Spending Spree With Our Credit Cards. What Can I Do?

It can be difficult for married couples to manage their money together, especially if they are not always on the same page. In particular, credit cards can make it easy for one person to overspend using money that the household might not have in its budget. If you’ve had a situation where your spouse has spent too much on your credit cards, what can you do?

Talking About It

Having discovered that your spouse has been spending heavily on your credit cards, the first thing that you will want to consider is talking about it. It’s a good idea to start by giving your spouse the benefit of the doubt, simply asking for more information about the charges.

For example, a credit card statement might offer vague or misleading information about the name of the merchant, so it can be very easy to confuse a large charge that you were expecting with one that you weren’t. In addition, it’s always possible that what appears to be a spending spree might actually be the result of fraudulent charges, which you can dispute with your card issuer.

Thankfully, federal law protects credit card users from paying more than $50 in the event of a fraudulent charge, and all major card issuers will waive this amount by offering zero-liability policies. By sitting down together and going over each charge, couples can ensure that they understand exactly what was purchased and what wasn’t.

If you’ve determined the charges are legitimate, you’ll want to consider going over your total financial picture to see how these charges will affect you. And if you’re unable to pay your entire statement balance by the due date, you should also try to calculate the cost of interest charges.

Taking Steps to Minimize the Impact

Once you have talked it over, it may become apparent to both of you that your spouse overspent. The most effective way to minimize these expenses is to look into returning some unnecessary purchases. In fact, many credit cards come with a return protection policy that can offer you a refund on eligible purchases, even when the retailer won’t accept a return.

After you’ve returned everything you can, your next step will be to minimize any interest charges. You can avoid all interest charges by paying your balance in full, but if that’s not possible, then there are other steps that you can take. For example, you can pay as much as possible, as soon as possible, in order to reduce your average daily balance, which determines how much interest you are charged. You can even save money on interest charges by making multiple payments each month, as money becomes available. You also can cut back on other spending as you apply more of your monthly budget to paying off the debt.

Another strategy to minimize your credit card interest is to open a new account that offers 0% APR promotional financing on balances transfers. These offers allow you to avoid interest charges by transferring balances from your existing cards to a new credit card that offers interest-free financing. These promotional financing offers last from as little as six months to as long as a year or more, however, nearly all of these offers require payment of a balance transfer fee of 3 to 5%, which gets added to your new balance.

Preventing It From Happening Again

Once you’ve tried to manage your existing charges, you can take steps to ensure neither of you overspend with credit cards in the future. For example, some couples agree to notify each other before making any charges above a certain amount, such as $100. In many cases, you can manage your credit card accounts online and create automated alerts that send both of you an email or a text message when any charge above a certain amount is made, or when your balance crosses a predetermined threshold.

Finally, some couples may choose to separate their finances rather than manage their accounts jointly. This allows you to avoid financial problems caused by your spouse’s overspending, but it can also make it more difficult to work together to budget your money and control overspending.

It’s often said that communication is the key to any successful relationship, and this advice is especially true when it comes to married couples managing their finances together. By talking about your credit card use, and taking steps to mitigate and prevent overspending, couples can work to manage their credit card accounts responsibly.

Remember, carrying high credit card balances can have a negative effect on your credit scores. You can see how your credit card spending is impacting your credit by checking your two free credit scores, updated monthly, on Credit.com.

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Help! My Credit Card Spending Is Out of Control This Summer

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When the days get longer and the temps get warmer, it seems like it gets easier to splurge on getaways, concerts, activities for the kids, or simply on hitting every rooftop restaurant you can before the season ends. But all this summer fun won’t be worth it if it ends up breaking your budget and landing you in serious credit card debt.

But don’t fret — if you feel you’re using that plastic too much this summer, you have some options.

1. Rein in Your Spending  

“The very first step … is to create a spending plan to gain a firm understanding of the funds coming in and going out,” Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, said in an email.

If you can see where your weaker points are and either cut back or re-assess your budget to make it work so you don’t go into debt, this may help your situation. And if you’ve already landed yourself in debt, figuring out a payment plan should be your next step.

To do this, Nitzsche recommended trying to avoid using credit “as an extension of income for everyday living expenses.” He said that if you’re doing this, you’re going to have a harder time establishing and implementing a payoff plan because it will require “paying off all the new charges each month, plus a substantial payment toward the principle of the previous balance.”

Plus, “on top of interest charges (and in some cases late/over-limit fees), this can present a real challenge,” he said.

“If you find yourself struggling to make minimum payments … then it’s time to take action and seek help,” Nitzsche said.

2. Consider a Balance Transfer Credit Card

“A balance transfer can be a good idea under certain circumstances,” Nitzsche said. Those circumstances could include having only have a moderate amount of debt that could be paid off faster because of the limited-time reduced interest rate that accompanies most balance transfer credit cards. And then, of course, there’s the fee that accompanies most transfers — typically 3% of the total amount.

If you decide you want to get a balance transfer credit card to help you get back on track, there are some things you need to keep in mind.

“Applicants should be aware of the ‘teaser rate’ timeframe and make a plan to have the debt paid off by the expiration,” Nitzsche said. If not, you may end up right back where you started from. (Note: most of these timeframes are around 18-24 months, but you should read the fine print carefully with any card you’re considering.)

He added that it’s also important to know that if you aren’t “approved for the full balance of [your] existing debt, that the new creditor may automatically transfer the maximum possible and then [you] will have two creditor payments.”

Nitzsche also warned about the effect getting a new balance transfer credit card could have on your credit score, saying “opening a new account and then maxing (or nearly maxing) it out with a balance transfer will ding their credit score.”

If you are considering this option, you may want to read this guide of some of the best balance transfer credit cards in America.

3. Keep an Eye on Your Credit Score 

Your payment history is the largest part (35%) of what impacts your credit scores, so if you are unable to make your debt payments on time, or skip them altogether, your credit will take a hit.

On the other hand, if you work to pay down your debt, in turn improving your credit utilization (how much credit you have vs. how much you use), you will likely start to see your scores improve. It’s a good idea to keep an eye on your credit scores so you can track your efforts. (You can see two of your credit scores for free, updated each month, on Credit.com.)

You may also want to review your credit reports to make sure there aren’t any problems, like errors or fraudulent accounts, as they may be damaging your scores as well. You can get your free annual credit reports from AnnualCreditReport.com.

[Offer: Your credit score may be low due to credit errors. If that’s the case, you can tackle your credit reports to improve your credit score with help from Lexington Law. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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This Ridiculously Cute Ad Gives a Dog a Credit Card

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Credit card debt has never been so adorable.

A new ad for Canadian debit card program Interac features Max, an Australian Shepherd with a love of Kobe beef sliders, dog bones and plush toys … and a big problem with spending.

As the (fictional, just to be clear) story goes, Max learns how to use the internet, turning his occasional splurge into a full-fledged online shopping addiction, complete with all the side effects we humans have to endure as well. Specifically, Max goes into credit card debt.

The ad calls on a few experts to weigh in on the very real facts of what credit card debt does to cardholders, including dealing with debt collection phone calls, depression and even sickness. A real-life veterinarian even gives his take.

The ad is a funny and cute way to warn people about the dangers of credit card debt while showcasing one of the key benefits of debit cards — you can’t spend more than you have.

Max is able to ultimately get back on the right track by burying his credit card and going debit-only for a while. If in this fictional world Max also has a credit score, he’ll want to be careful that his card doesn’t get closed by the issuer, which could hurt his credit scores. However, paying off his balances will definitely go a long way in improving his credit. Max is on the right track.

If you’re a Max, you may also want to consider opening a balance transfer credit card with a 0% introductory offer to give you some breathing room from your debt. And if more than one credit card is plaguing you, you might want to make a plan to pay off your debt by using a credit card payoff calculator like this one. You can see how your credit card spending is impacting your credit scores for free every month on Credit.com.

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72% of Americans Believe Their Finances Will Improve in 2016

Debt, expenses and retirement planning can make dealing with your finances seem daunting. But most Americans feel optimistic about their budget, with 72% saying they’ll be in better financial shape next year, according to an annual survey by Fidelity Investments. (The survey included responses from two random samples of U.S. adults interviewed by phone between Oct. 15 and 25.)

Among the respondents, 37% said they were considering making a financial resolution, up from 31% last year, while the majority (54%) said their goal is to improve their savings. Spending less was the next most popular resolution (19%), followed by paying off debt (16%). Paying down credit card debt specifically had its own category with 11% committing, up from 5% last year.

Despite not being up there with saving, paying off debt can improve your finances in more ways than one. Not only is it a relief to watch your balance decrease, it can boost your credit score (another smart resolution). You can see how your efforts have paid off by getting two free credit scores each month on Credit.com.

Making a resolution is the easy part, but sticking to it is another story. Of those who resolved to improve some aspect of their finances this year, fewer than half saw an improvement: 45% have less debt and 43% are in better financial standing, per the survey. That’s something to celebrate—but also shows success takes commitment.

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