Avoid Decay and Stay in Control of Your Money

Would you like to feel younger next year? The book, Younger Next Year by Chris Crowley and Henry S. Lodge, M.D., explains, while we can’t stop aging, we can turn back our biological clocks. Co-authors Crowley and Lodge describe the three components to becoming functionally younger as we age. Crowley writes, “50 percent of all the illness and injuries in the last third of your life can be eliminated by changing your life style the way we suggest.”

The authors suggest:

1. Exercise six times a week. This includes both aerobic exercise and strength training.
2. Quit eating crap. There is no diet in this book, but an explanation of “crap.”
3. Connect and commit to other people.

Younger Next Year is a guide to avoid decay. I was engaged by Lodge’s discussion of what happens in your body after age fifty. Lodge refers to many medical studies to support his ideas. He describes the changes in your cells and in your brain when you choose a sedentary lifestyle and an unhealthy diet. And, he explains what happens when you choose the opposite.  Lodge says much of the illness people experience as they age can be avoided if they avoided a harmful lifestyle – the choice of many older adults which leads to their decay.

My blogs focus primarily on money. What does this have to do with money? A lot.

Staying healthy keeps costs down. Illness means medical care. Doctors, hospital stays and drugs are expensive. Caregivers need to be paid, and individuals lose income and retirement savings while caring for sick loved ones. The cost of dementia care is extremely high, both in dollars and the toll it takes on family. If you can keep diabetes, heart disease, broken bones, dementia, and other common “old age” diseases from entering your life, you will save yourself and your loved ones money. And, you will get greater enjoyment out of life.

Staying healthy keeps you independent. When you are free of disease it is much easier to focus on your finances. When you can drive and walk, it is less cumbersome to get to the bank. When you can retain your memory, you can pay bills, keep track of checks, and file your taxes. When you stay in control of your money, you stay in control of your life – including where and how you live.

The authors recognize changing your life style may not be easy. Younger Next Year provides many ideas on how to incorporate exercise, eating well and connection to others into your life.

What if you are sandwiched between caring for elderly parents and caring for your own children? The authors say it is imperative you make adjustments to your life to care for yourself. They use the airplane oxygen analogy: Put on your own mask first before helping others. If you pass out from lack of oxygen, you can’t help others. Likewise, if you become sick or die from lack of caring for yourself, you can’t care for others.

To me, Crowley and Lodge’s advice make sense. In my work with seniors over the past several years, I have witnessed the many choices people have made about their self-care as they aged. Those who chose to be active and engage with others were much happier, healthier and independent at an older age than those who didn’t.

I decided to try the advice outlined in Younger Next Year. Somedays I have to convince myself to get out of bed earlier or set aside work to exercise. I need to make time to prepare non-crap food. Since it has only been a few weeks, I can’t report on whether this has saved any money or improved my health. But, I can say the exercise feels good and I have lost weight.

The book’s full title is Younger Next Year: Live Strong, Fit and Sexy – Until You’re 80 and Beyond. There is an edition for women and another one for men. Check them out. You may find yourself younger next year.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.


Five Easy Ways to Cut Expenses

Are you looking to save money this year? Now is a good time to review expenses and see what you can cut. Here are five ideas to help you on your way.

1. Drop Overdraft Protection

This service is offered by banks and credit unions. Should you overdraw your account with an ATM or debit card, the bank will loan you the money to cover the transaction. While overdraft protection fees vary by bank, the average is $27 a transaction.  If you don’t cover the overdraft fast and keep overdrawing, the fees will add up quickly. This is very profitable for the banks, but not for you.

  • Overdraft Protection is a service for which you must “opt-in.” If you have it and you frequently overdraw your account, cancel it. Your transactions will be refused, but you will save significant money.
  • You may be able to link your account to a savings account or a credit card. If you overdraw your account, the bank will, often for a smaller fee, transfer money to cover the overdraft.

2. Shop Your Insurance

If you haven’t shopped around for insurance within the past three years, now is a good time to search for a better price. Obtain quotes from at least three to four insurers.

  • Savings can often be found when you bundle your policies. This is combining your insurance policies, such as homeowners, auto and umbrella, into a package with one insurance company. How much you save on premiums depends on the state in which you reside, the type of home in which you live, and whether you rent or own your home.
  • Once your car is 10 years old or worth less than 10 times your premium, consider reducing your insurance. You can save money by dropping collision coverage and just keeping injury and property damage coverage.

3. Plug Leaks from Your Bank Accounts and Credit Cards

Review your statements for regular payments for services you no longer use.

  • Are you still paying for a gym membership yet never visit the gym? Have you signed up for a credit monitoring service or an app that you no longer use? Are you sending a monthly contribution to a charity you no longer choose to support?
  • To cancel payments, call the company charging your account.

4. Ditch Cable

With an HD antenna, you can receive signals from the major TV networks.

  • Depending on the cost of your cable service, you can recoup the price of the antenna in a few months.
  • To expand and customize your viewing options, you can stream live TV over a broadband internet connection from services of your choice.
  • Before cutting the cord, read up on how to make the switch, verify you have the correct equipment, and test your internet connection. You can find information and advice by searching the internet for “how to quit cable.”

5. Use Cash

It is much more painful to part with cash than to use a credit card.

  • Studies have shown people spend less, sometimes half as much, when they pay with cash.
  • Some vendors, such as gas stations, will give you a discount when you pay with cash.

Good luck slashing expenses. If you have another money saving idea, please share a comment.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.

Seven Sure Fire Tips for Financial Peace of Mind

A new year and a fresh start is upon us. Now is a good time to get your financial organization in shape.

Here are seven tips to bring you peace of mind

1.Fashion a filing system.

It doesn’t matter whether you use a filing cabinet, an electronic system or both. The point is to organize your documents for quick, consistent access to information.

  • For detailed information on what documents to keep and what to pitch, click HERE [LINK: http://www.moneycarevt.com/pages/HowLongNWhereFinancialPapers.pdf] to access my guide, How Long and Where to Keep Financial Papers.
  • If you keep electronic files, you can set up a separate e-mail account for receiving statements, bills and receipts. Within that account, create folders to file your documents. You want a strong password for this e-mail account and, when possible, two-step verification

2. Create a Checklist of Bills

You can use a calendar or a list. Your goal is to record every known bill and their due dates so you never miss a payment.

  • Automate recurring payments, such as utilities, to save time, worry and late fees.
  • Change the due dates on your credit cards so they better align with your cash flow and other regular bills. To request a due date change, call customer service at your credit card company.

3. Assemble a List of Subscriptions

With the number of renewal notices magazines send out months in advance, it is easy to lose track of when you actually do need to renew.

  • Include on your list the date each subscription expires. This will ensure you don’t renew too soon and don’t oversubscribe. Look for the renewal date on the address label.

4. Update & Organize Your Passwords

Experts advise a unique, 8-12 character password for each account. How do you keep track of them all?

  • Use a password manager. Search “password manager” on the internet to find reviews. Skip the paid listings and scroll down to the reviews.
  • If you write passwords down, keep them secure (i.e. not under your mouse pad).
  • Write passwords in pencil. Some companies require passwords be changed periodically. Recording passwords in pencil, which can be erased, avoids the confusion of a mishmash of crossed-out, retired passwords.
  • Group your passwords by type: financial, shopping, social media.

5. Compile a List of Accounts.

List bank accounts, brokerage and retirement accounts, and credit cards. For each entry, include account number, contact information, and the names on the account. Note who has possession of the credit and debit cards.

  • This list will help you see all your accounts in one place. Can any be closed or consolidated?

6. Craft a Budget

Budgets are a road map telling you your financial situation, adjustments you need to make, and how much money you have to make those adjustments. Budgets should be fluid and adjust with your income. Creating and then regularly monitoring a budget is the most important thing you can do to stay on top of your spending.

  • Review your budget often (i.e. compare your spending to your budget) to help you reach your financial goals. Adjust as needed, but don’t spend more than you bring in.
  • Need help? Use an app. Search “best budget apps” on the internet to find reviews.
  • There are many budgeting books from which to choose. Peruse your local bookstore to find a book you like.

7. Invest in a Shredder

You want a micro-cut shredder which chops paper into the size of rice, rendering it impossible to reassemble.

  • Shred every paper with any personal information: dates of birth, Social Security numbers, account numbers, insurance ID numbers. Shred credit card offers, old credit cards, monthly bills, receipts from credit card purchases, and anything related to taxes. Shred the back covers of catalogues with customer codes.

Many of these ideas are from the American Association of Daily Money Managers. Visit aadmm.com [LINK: http://www.aadmm.com/] to learn how a daily money manager may be able to help with your financial organization.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.




What You Need To Know Before Opening a Store Credit Card

Man Paying For Some Jewelry For His Wife
It’s holiday season once again! When you are shopping, retail clerks may tempt you with their store’s credit card. “Open the card right now and you can save 15% off your total purchase,” is a common statement. If you have a large purchase, you could save a lot of money. And, you will most likely receive future coupons, sales notices, and special deals. The clerk will also be rewarded for selling you the card. What’s not to like about all this?

Plenty. Here is why I say “No!” to one-store-only credit cards.


The temptation to overspend is too great.

Retailers offer their own credit cards to get you to spend money. Having another card in your wallet is a temptation to spend, especially if the retailer sends you notices about special sales and discounts. Discounts may save money on a single purchase, but would you have bought those items if you were not offered the special price in the first place? If the answer is “no,” you did not save any money. You spent more.

The interest rates are ridiculously high.

An October 2016 survey by CreditCards.com found that “nearly half of retail-branded cards carry an APR of at least 25 percent. That’s much higher than 15.18 percent, the current national average rate for all credit cards.”

This is bad news for consumers who carry a balance. Store card interest rates are typically not risked-based, meaning everyone pays the same rate regardless of their credit scores. Bank credit cards, on the other hand, tie your interest rate to your credit score. The higher your score, the lower your rate.

If you pay for your purchase with a store credit card over several months, you will erode any savings from discounts. This example is from CreditCards.com: if you made a $1000 purchase on a retailer’s card with 23.84% percent interest and made only the minimum payments, it would take you 74 months to pay off the loan and you would pay $872.73 in total interest. If you made the same purchase on a bank credit card with 15 percent interest, it would take you 54 months to pay-off the purchase with minimum monthly payments and the total interest would be $370.46.

It makes no sense to use store credit cards as a way to finance a purchase.

The impact on the cost of credit is too great a risk.

Applying for a retailer credit card can impact your credit, especially when you plan to apply for other loans. While you are standing at the checkout counter waiting for approval for the card, your credit report is getting a hard inquiry. With each hard inquiry, your score is lowered a few points. If you have a high credit score and open one card, this might not impact you very much. But, if you have opened several store credit cards in a short period of time or you have a low credit score, the hard inquiries lower your score.

Retailer credit cards tend to have low credit limits. This can result in a high credit utilization rate, the ratio of how much of your available credit you are using versus how much credit has been extended to you. If you have a $700 limit on your store card and you charge $500, you have a high credit utilization rate of 71%. Your available credit – on each card you have open and across all your cards – comprises 30% of your credit score, making it a good idea to keep your utilization ratio as low as possible.

Hard inquires and credit utilization rates from one-store-only cards have the potential to lower your credit score.  When this happens, your interest rates on other loans such as mortgages and auto loans will be higher. Depending on the size and length of the loan, this could cost you thousands of dollars over the life of the loan.

If you want to open a retailer credit card, consider it when:

  • You do not plan to apply for a mortgage, auto loan or other long-term loan in the near future, and
  • You have a low credit utilization ratio across all your credit cards, and
  • You shop regularly at retailer whose card you plan to open, and
  • There is no annual fee, and
  • You will pay off the balance in full every time you receive the bill.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.

10 Ways to Protect Yourself When Banking Online

These days we can conduct most of our financial business online and on our phones. Doing so, however, means we need to protect ourselves from potential fraud. Whether you are reviewing transactions, paying bills, sending money to a friend, or giving travel dates to your credit card company, here are 10 things you can do to help protect your identity and fight fraud.

1) Use strong passwords. Forget using family and pet names, your address, even book and movie titles. These are too easy to hack. Avoid patterns and strings of consecutive numbers and letters. Again, these won’t thwart hackers. Instead, use at least 12 characters. The longer the password, the harder it is to crack. Use random combinations of upper and lower case letters, numbers and symbols, or string together random words into a nonsense sentence.

2) Create a unique password for each online account, including shopping sites. With so many long, difficult passwords, it is okay to write them down. Just keep written passwords well hidden. Under your mouse pad won’t do.

3) Use a password manager. These computer programs keep track of all your complex passwords and will even generate them for you. You use one strong password to access the password manager. Consumer Reports mentions LastPass and 1Password as good options.

4) Sign up for account alerts. Available with many banks and credit card companies, you can sign up to receive notification emails or texts about activity in your accounts. To set this up, log on to the website and type into the search function “account alerts.”

5) Use a VPN. We all know we shouldn’t conduct any financial transactions over Wi-Fi in public places.  If you need to, however, you can use a virtual public network (VPN). IVPN offers a paid service. The Opera web browser offers a free VPN.

6) Set up two-step verification. Also called two-factor authentication, more and more companies offer this additional layer of protection. Once two-step verification is enabled, when you log on to a site, you will need to enter a set of numbers that you receive via email or text. Should someone steal your password, the thief would need to have both your password and your computer or phone to access your account online. To set this up, log on to a website and type into the search function “two step verification,” “two-factor authentication” or “2FA.” You can also go to www.twofactorauth.org to see a partial list of businesses that offer this.

7) Dedicate one web browser for online financial transactions. Use another browser for everything else.

8) Click on “Log out” or “Sign Out” and close the browser when you leave a financial website or close your mobile banking app. Remaining logged on to the bank website leaves an opening for someone else to access your data.

9) Keep your account information up to date. If a company needs to contact you about suspicious activity, you want it to be able to reach you.  That said, if you are contacted by a financial company asking you to give out your personal or account information, don’t respond. Instead, look up the company’s phone number and call to verify.

10) Review your statements regularly for accuracy and suspicious transactions.

While these actions can’t guarantee your passwords and personal information won’t be hacked, they will help thwart online thieves.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.

Five Ways Online Banking Can Save You Time

With online banking, no longer do you need to handwrite checks or run to the bank to make a deposit. Here are five ways to save time:

1) Pay Bills

Paying bills online is a huge timesaver, especially if you have several to pay.  You can use your bank bill payment service to send payment to any company or individual to whom you can mail a check. The initial setup requires time to enter your account information for each payee. Once set up, however, you can pay bills quickly.  No longer do you need to handwrite checks, put them in envelopes, unearth a stamp, and locate a mailbox. You can send onetime payments or set up recurring bills to be paid automatically.

You should know: Depending on the recipient, banks will send bill payments either electronically or via paper check. Some banks withdraw the money immediately from your account. Others wait for the payment to clear.

Currently, most banks do not charge for their bill payment service. I have discovered one small bank, however, that adds a monthly fee to customer accounts to cover online services. Check with your bank to see what fees, if any, it charges.

2) Pay People

Some banks now offer a service where you can send payment directly to another person using the recipient’s email address or phone number. Banks offer this convenience through a third party service such as Popmoney.

You should know: There may be a fee for this service. You can weigh the fee against the cost of a stamp, the check and envelope, and your time.

3) Download Transactions to Software

Downloading your transactions allows you to easily keep track of your deposits, withdrawals, and credit card purchases. You do not need to keep a register by hand. With personal finance programs such as Mint, Quicken, You Need A Budget, Mvelopes, and others, information on all your transactions can be compiled in one place and are accessible on your computer or phone. This makes it easy to run reports, analyze your spending and savings, create budgets, and prepare information for your tax returns.

You should know: When you download your bank transactions to personal finance software, you will see your online balance. If you or your bank has sent paper checks, the online balance may not be your available balance – the actual amount of money you have on hand to spend. The only way to truly know your available balance is to record paper checks written, as you write them, in your software.

4) Transfer money between accounts

Online banking makes it easy to move money between your accounts. More and more banks have the capability of transferring money between your accounts at different banks. No longer do you need to write yourself a check and go to the bank and deposit it. Some larger banks also allow you to transfer money from your bank account to that of another person at the same or a different bank.

You should know: Transferring between your accounts at the same bank generally only takes 24 hours or less. Transferring between different banks, however, can take a few days.

5) Make Mobile Deposits

Your bank’s mobile app may make it possible to deposit checks to your account by taking a photo of the front and back of the checks and electronically depositing them into your account.

You should know: Your bank may charge a fee for this service. It could be several days before the funds are made available, especially when depositing personal checks.  You need to keep the paper checks for three weeks after the date of deposit in case there is a problem.

One last caveat: Keeping your information safe from theft is more important than time savings. If you feel uncomfortable with any of these services, don’t use them. You can also inquire about your bank’s security measures to protect your information.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate.

Navigating the Unfathomable Complexities of Medicare

Photo by Money Care, LLC.

Photo by Money Care, LLC.

More than 95 percent of Americans aged 65 and older depend on Medicare for their health insurance coverage. With over 55 million people utilizing Medicare, you would think it would be simple to navigate. But, it is not.

“There can be little about Medicare that is automatic or clear or, especially in the midst of a medical emergency, logical or perhaps even fair,” says Philip Moeller in his new book, Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs.

Moeller says it is unfortunate Medicare is so complex it requires a book about it. Medicare and Social Security staff don’t explain all the details (or don’t know them), and it is a challenge to find the information you need in its publications or online. Moeller’s book aims to explain and clarify the many rules, and help readers avoid costly mistakes while obtaining the health insurance coverage they need.

Most people don’t know Medicare’s rules, which could end up costing big bucks. Some of Moeller’s pointers are:

  • Medicare coverage does not happen automatically. You need to enroll. And, you enroll through Social Security, not Medicare.
  • Original Medicare pays only 80 percent of doctor, equipment, and other outpatient expenses. You pay the rest – forever. If you have a major medical event, this could be a lot of money.
  • Medicare only covers individuals. Couples need separate Medicare policies for each spouse.

The core of the book addresses what Moeller calls the “three big deals”:

  • Sign up at the right time and avoid penalties and the loss of coverage.
  • Choose from one of two Medicare paths: Original Medicare (with or without Medigap supplemental insurance) and a Part D drug plan, or, a Medicare Advantage plan, which usually comes with a Part D plan bundled in.
  • Understand what Medicare covers and how to get the most from whichever coverage path you choose.

Enrolling in Medicare at the right time is crucial. Miss a deadline and you end up paying potentially harsh penalties for life. Despite common perception, many people don’t enroll in Medicare at age 65. And, the circumstances under which you do or don’t need to enroll at age 65 are often unclear. Are you still working and are covered by an active employer group plan? Are you covered by COBRA? Are you moving to Medicare from insurance purchased on a state exchange? Each situation has different rules.

Moeller provides a valuable and in-depth explanation of Original Medicare (and all its parts), and Medicare Advantage plans: how they work, advantages and disadvantages of each, what they don’t cover, and how to evaluate and find plans.

The book has indispensable information for people already enrolled in Medicare. These topics include:

  • How to understand and evaluate the key aspects of your plans and how and when you can change plans.
  • How Medicare is financed
  • Premium subsidies available to low-income seniors and people with disabilities.
  • Your Medicare rights and how to handle complaints, appeal decisions, and address Medicare mistakes.
  • Numerous resources for help and more information (and how to find the information you need at those resources.

A medical insurance system so important to so many people shouldn’t be so complicated. Moeller says, “Navigating Medicare is challenging even to health care professionals who must deal with it every day. It is often unfathomable to the older and disabled people it is supposed to serve.” His book, Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs, will help you or your loved one navigate Medicare’s foggy waters.

Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs by Philip Moeller is published by Simon & Schuster, and became available for sale in October 2016. Its list price is $19.99 USD.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate. The names of the individuals in this article have been changed to protect their privacy.

Five Steps to Receiving LTC Insurance Benefits

Disabled Senior - FunIf you or your parents have a long-term care insurance policy, when can this insurance be used? How do you access the benefits?

There are five steps to receiving long-term care (LTC) insurance benefits:

1) The policy holder triggers benefits. The policy holder becomes eligible to make a claim when he either:

  • Can no longer independently perform two of the six basic “activities of daily living” (ADLs): bathing, continence, dressing, eating, toileting, and transferring in and out of beds and chairs, Or
  • Needs supervision due to severe cognitive impairments with memory, orientation and reasoning. This would be a disease such as Alzheimer’s.

Long term care insurance does not cover medical expenses such as doctor visits, hospital stays, and medical procedures.

When you believe you or your loved one has met the requirements to make a claim, call the 1-800 number listed on the insurance policy documents to speak with the LTC insurance carrier’s Claims Department. Insurers’ Claims Departments are staffed by specialists who can explain the policy’s coverage and help initiate your claim. The specialists will send you claim forms to be completed. A physician will need to certify the policy holder has met one of the two triggers. Many carriers require care to be provided by a licensed agency rather than family members and private hires.

2) The insurance carrier determines the policy holder’s eligibility. The LTC insurance company reviews all the paperwork to verify the insured meets her policy’s requirements to start receiving benefits. You will receive the carrier’s decision in writing.

If a claim is denied, it can be appealed. A common reason for denial is the policy holder has lost the ability to perform only one ADL vs. at least two. Denials also occur when the required reporters for the claim (the physician, the family, the policy holder) give conflicting information about the policy holder’s need for long-term care.

3) The policy holder pays 100 percent of his care during the “elimination period.” Also called a “waiting period,” most policies require you to pay for 90 or 100 days of care out-of-pocket before benefits commence.

4) Reimbursements are processed. The policy holders needs to submit information from the caregiver’s bills to the insurance carrier. The company’s Claims Department specialists can help determine which caregiving services are covered by the LTC policy and assist with completing the claims forms. Alternatively, many caregiving agencies submit claims on their clients’ behalf. Once submitted, reimbursement checks start to arrive within a few weeks. Many carriers are beginning to direct deposit reimbursements into the policy holder’s bank account.

5) The insurance carrier conducts audits and reviews. As the claim progresses, the insurer will periodically review the claim to verify the policy holder is still eligible to receive benefits. The reviews happen less frequently with people who have diseases from which they will not recover, such as dementia, than with people who have conditions from which they may recover, such as a stroke. LTC insurance carriers conduct audits and reviews to verify the policy holder is receiving proper care for her condition and to prevent fraud.

It is important to save all caregiving bills. You may be required to resubmit them to the carrier.

Sometimes family members discover a loved one’s long-term care policy after caregiving services have already begun. Frequently, claims can be made retroactively, usually up to 12 months back, provided you have the required documentation.

Other times, family members find a lapsed policy. Often the policy can be reinstated if you can demonstrate the policy holder missed premium payments due to cognitive impairment. Claims can even be made after the policy holder’s death.

If you unearth a lost or forgotten policy, call the insurance carrier.

With people living longer and needing more care as they age, LTC insurance can help preserve an individual’s assets by paying for long-term caregiving services. Knowing when and how to make a claim will help you to make the best use of this insurance.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate. The names of the individuals in this article have been changed to protect their privacy.


When Being a “Deadbeat” is a Good Thing

Piggy bank or credit card

Piggy bank or credit card

I am surprised by the number of people who don’t pay off their credit card bill in full each month. I am not speaking of folks who don’t have the funds to pay their balance. I am speaking of people who have the money available, yet choose to not pay off their credit card balance.


Recently, Beverly had some extra money. She was debating between paying off her credit card in full and depositing the funds in a bank savings account or CD. I recommended she pay off her credit card balance. It makes financial sense to do so.

Credit card interest rates currently can be as high as 23% or more, depending on your credit worthiness. Many banks, meanwhile, are paying 0.01% to 0.03% interest on small balances in savings accounts. Short-term CD interest rates are not much higher. Online banks are currently paying around 1% interest.

This is why it matters:

Say your credit card balance is $5,000, you don’t make any additional purchases, and you pay $200 a month. If your interest rate is 15%, it would take about two and half years to pay off the entire balance. The total interest you would pay is about $1,000. Those things you bought for $5,000 end up costing $6,000.

Meanwhile, if you have $5,000 in a bank savings account earning 0.015% interest, and assuming you don’t add any money, in those same 30 months you would have made a little less than $2.00 in simple interest.

There is a $998 difference between paying $1,000 in credit card interest and earning $2 in interest on savings. What could you do with that $998?

Credit card companies are not our friends. They have one goal: to make as much money as possible. Since they make significant profits from interest and fees, they love cardholders who pay interest every month. Cardholders who pay their credit card balance in full each month are called “deadbeats.” Although credit card companies charge merchants for every purchase, generally deadbeats are not profitable.

Your financial security is more important than credit card company profits. There is no security in unnecessarily maintaining a credit card balance. Security lies in being as debt-free as possible. After you pay off the credit card, extra money can go to savings. If hard times come, you are able to focus on your immediate basic needs without the added burden of paying off existing debt.

Alternatives to credit cards are bank debit cards and prepaid cards. See my blog post, Staggering Growth of Prepaid Cards: A Smart Choice for You?

If you prefer to use a credit card, only charge what you can pay off each month. Become a credit card deadbeat.

This blog is published to provide you with general information only, and is not intended to provide specific or comprehensive advice.  Money Care, LLC encourages individuals to seek advice from competent professionals when appropriate. The names of the individuals in this article have been changed to protect their privacy.