If you’ve recently come into a $50,000 windfall, your mind is probably bursting with possibilities. That may not be enough money to retire on, but it’s certainly enough to improve your life significantly.

For example, you could use it to wipe out your credit card debt, put a down payment on a house, or start a new business. But having all those options in front of you leaves you with a problem: Which ones should you choose?

While that may be a problem we’d all like to have, it’s still a problem. Fortunately, this guide will help you solve it. Let’s go over some steps you can take to figure out what to do with your $50,000.

What to Do With $50,000

It’s tempting to treat an unexpected windfall as free money and spend it on your dream car or a luxurious vacation. However, using it strategically instead can bring you years closer to reaching your financial goals, so you shouldn’t waste the opportunity.

Here’s how you can make the most out of your money.

1. Take a Beat and Make a Plan

When you come into a lot of cash, the worst thing you can do is to get caught up in the excitement and make rash decisions. That’s how you end up wasting some or all of your funds. $50,000 can disappear faster than you think!

To avoid that trap, wait a while before making moves with your money. Assuming you’re not in the middle of any financial emergencies, give yourself at least a few weeks to come to grips with your new financial position.

During this time, it’s often wise to share the good news with a financial advisor or a Certified Public Accountant (CPA), especially if you already work with one. An expert opinion can reveal beneficial ways to use the funds you might not have considered.

However, be cautious about sharing the news within your personal circle. If word gets out to your family and friends that you’ve received $50,000, you may feel pressure to share, even if no one asks you outright.

There’s nothing wrong with giving some of your cash to someone you care about. However, you want to be able to make that choice freely, not because you feel guilty.

2. Set Aside Money for Taxes

The second thing you need to take into consideration when wondering what to do with $50,000 is to set aside some money for taxes. Many windfall sources are subject to ordinary income, capital gains, or some other type of tax. For example, all of the following are potentially taxable:

• Lottery winnings
• Signing bonuses
• Legal settlements
• Inheritances from relatives
• Proceeds from selling assets
• Proceeds from selling a business

Of course, there’s no guarantee you’ll face a tax bill. Whether or not you do depends largely on your circumstances. For example, money you inherit from someone who’s passed away is only taxable in a few states.

However, it’s better to be safe than sorry. The last thing you want is to spend or tie up your money only to find out you have a tax liability you can no longer afford. To ensure that doesn’t happen, set aside 25% to 30% of your funds somewhere safe and accessible, just in case.

If you’re unsure whether you owe taxes on your $50,000, that’s another good reason to consult a CPA. They’ll be able to answer your questions and ensure that you avoid getting into trouble with the Internal Revenue Service (IRS).

3. Pay Off (Or Prevent) High-Interest Debt

Compound interest is one of the strongest forces in the universe, right up there with gravity and the urge to keep eating potato chips after having the first one. You want it to work for you, not against you.

So, if you’re not sure what to do with $50,000, using a part of this amount to pay off high-interest debt should be one of your first priorities. Generally, that refers to anything with an interest rate higher than the return your investments can generate. The average stock market return is about 7% to 10%, so that’s a good measuring stick to use.

Unsurprisingly, credit cards are the most common type of high-interest consumer debt. The average American has a $5,910 credit card balance^[1] with an interest rate of roughly 22%^[2].

If you were to settle for making a 3% minimum credit card payment, it would take you four years and four months to pay off that debt, during which you’d accrue $3,307 in interest charges. That’s more than 50% of your original balance.

To avoid such wastefulness, use your windfall to pay off as much of your credit card debt as you can. Similarly, it may be a good idea to put some of it toward any large and necessary purchases you would otherwise need to finance.

4. Build Up Your Emergency Fund

Generally, the best use of your windfall is to deal with any financial emergencies you’re experiencing, such as high-interest debt. Assuming those are all taken care of, the next best use of it is to protect yourself from future financial emergencies.

That means establishing an emergency fund, a cash reserve you keep to pay for unexpected expenses when they arise. Like the cash you set aside to cover your potential tax bill, it should go somewhere safe and accessible. Ideally, it should also earn you a modest return. Typically, an online savings account is the best option.

When planning what to do with $50,000, think about building up your emergency fund until it can cover at least three to six months of expenses. That’s about the length of the typical job search. Of course, it can be a good idea to increase the amount in certain financial circumstances.

For example, you may want to keep as much as 12 months of expenses if you plan to start your own business soon. That gives you plenty of financial runway to survive an extended period of little to no revenue.

However, there is a point of diminishing returns. Eventually, the rest of your money will serve you better in something that provides a higher yield than an online savings account.

5. Contribute to Your Investments

Once you’ve dealt with your most pressing financial issues, you should consider putting the rest of your windfall toward longer-term concerns, such as your retirement or your children’s college education.

You probably have decades to save for these expenses, which means you can leverage the power of investment returns to do most of the work for you. There may be no way to know how they’ll perform in a given year, but you have a long enough time horizon to ride out any volatility and earn a good rate on average.

In addition to helping you harness the power of compound interest, you can use these investments to save money on your taxes. For example, contributions to tax-advantaged accounts like traditional IRAs are tax-deductible.

Of course, you can’t just throw your money into any old portfolio. If you have even a quarter of your $50,000 windfall left for investments, there’s still a lot of money at stake. Make sure you have a well-researched investment strategy you believe in before moving forward.

This is another stage in the process where you might want to consult a financial advisor, though you should still do your own due diligence.

Learn More: New to the investment world? Our complete guide breaks down everything you need to know about investing for beginners.

Need guidance on what to do with $50,000? Explore our step-by-step guide for #smart-financial-moves.

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6. Treat Yourself or Your Loved Ones (Responsibly)

This may be controversial for a personal finance writer to say, but you don’t have to put every last cent of your windfall toward your financial goals. If you’ve responsibly planned what to do with $50,000, feel free to spend some of it on things that you or your loved ones will enjoy.

One good strategy is to treat the windfall like you would a paycheck. Build a budget and allocate a percentage to various categories. For example, you might put 30% toward paying off high-interest debt, 20% to your emergency fund, 35% to investments, and 15% to discretionary expenses.

With a $50,000 windfall, 15% is still a whopping $7,500. That should be enough to treat yourself to something luxurious that makes you feel like you’ve gotten to enjoy and celebrate your good fortune.

Learn More: Take the first step towards financial stability by learning how to budget with our easy-to-follow guide.

Make the Most of This Opportunity

$50,000 might not make you rich overnight, but it can significantly improve your financial position. Even if you’ve made mistakes with money in the past, by learning what to do with $50,000, you can turn your personal finances around.

Everyone’s circumstances are unique, so there’s no universally correct way to use the windfall. However, one rule always applies: You must avoid rash decisions and plan carefully before making decisions.

This isn’t an opportunity that most people get, and those who do usually don’t get a second, so make the most of it. If you do, you’ll be able to reap the rewards for many years to come.

The post What To Do With $50,000: A Step-by-Step Guide appeared first on FinMasters.

Let’s explore the reasons why you shouldn’t buy a timeshare, no matter what the promoters tell you.

How Do Timeshares Work?

Timeshares are arrangements that give a number of unrelated people access to the same vacation property on separate dates each year. Typically, they provide stays in weekly increments at units in large properties, such as resorts or apartment complexes.

Some contracts make you visit during the same week each year, while others let you take your vacation at any point in a given window. Others provide an annual allotment of points that you can use to book a stay in a menu of locations.

Whatever the terms of your contract, buying a timeshare requires making an upfront deposit that works a lot like a down payment on a house. In fact, financing arrangements similar to mortgages are available.

Unfortunately, whether you finance your purchase or not, you’ll have recurring annual expenses. Maintenance fees, which cover the carrying costs of the property and help the developer make a profit, are usually the most significant.

Why You Shouldn’t Buy a Timeshare: The Drawbacks

Many promoters of timeshares often downplay or gloss over the drawbacks, which is why you shouldn’t buy a timeshare. As a result, numerous timeshare owners only understand the problematic aspects of their contracts after it’s too late.

If you’re considering buying a timeshare, here’s what you need to know about the realities of owning one.

Expensive, Unpredictable Annual Fees

Let’s get the most significant problem with timeshares out of the way upfront. Most people desperately want to escape their timeshares because of their expensive fees, which you must pay each year whether you take your vacation or not.

Often, the fees are simply too high for the arrangement to be worthwhile. At the very least, you’re going to incur annual maintenance costs. These averaged $1,120 in 2021, though they can be higher or lower depending on the property^[3].

They might be manageable at first, but they increase yearly and often faster than the inflation rate. As a result, you might find your contract more expensive than you can afford only a few short years after purchasing it.

To make matters worse, timeshare companies can also charge you special assessment fees at their discretion. These can go toward any property-related expense they decide to incur, from repairs to amenity upgrades.

Unfortunately, you shouldn’t buy a timeshare because there’s no way to avoid these charges. When other services get too expensive, you generally have the ability to cancel, but timeshares are notoriously tough to escape.

Learn more: If you’re considering exiting your timeshare, there’s some essential information on potential scams you should be aware of.

Inflexible Vacation Experiences

If you’re the type of person who enjoys routines, you might like the idea of a guaranteed vacation in the same spot every year. It would remove all the stress of planning your trip, and you can be sure you’re visiting somewhere you like.

In that case, you might be able to enjoy a timeshare for quite a while, but timeshare contracts are generally perpetual. Even the ones with expiration dates tend to last at least 20 years.

Over such a lengthy period, it’s inevitable that your vacation preferences will change. For example, someone approaching their 60th birthday is unlikely to enjoy the same vacation they desired in their thirties.

During that time, you might have kids, move to a new state, or face any other of a million life events that could make your once-favored vacation spot inconvenient. Even the destination itself could change after so many years.

While some timeshare contracts offer property swaps or point arrangements that allow for some flexibility, these options are far from ideal. This is another reason why you shouldn’t buy a timeshare: you’ll find yourself competing with other timeshare owners for access to your preferred times and locations, with no guarantee of securing your desired slot.

Learn more: Planning international travels or purchases? Here’s a breakdown of top credit cards with no foreign transaction fees.

Timeshares Contracts Are Hard to Escape

As we’ve established, timeshare contracts tend to last a very long time, if not indefinitely, and it’s very challenging to get out of them before they expire. The contracts usually contain a “perpetuity clause” specifically designed to keep you trapped.

Timeshare companies make most of their money during your holding period through annual fees and interest charges on any portion of the purchase price you finance. It’s in their interest to make canceling as hard as possible.

Many argue that you shouldn’t buy a timeshare, and the rise of a lucrative business sector dedicated to helping people exit these contracts is a testament to this. Countless timeshare exit companies exist to help people terminate their agreements, though they’re expensive and often untrustworthy.

If you can’t find a way to cancel your timeshare contract, your best escape route is usually to sell it. Unfortunately, that’s not always possible either. There are far more people looking to dump their timeshares than there are people looking to buy.

Due to that unfavorable imbalance in supply and demand, you’d be lucky to find anyone interested in taking it off your hands. Even if you do, you’ll inevitably take a significant loss on the sale.

Learn More: Timeshare Exit Companies are an option if you need to escape a timeshare contract, but you’ll need to be careful. Scams abound.

Timeshares Aren’t Investments

Timeshare promoters often try to position their contracts as worthwhile investments. They usually argue that timeshares provide long-term cost savings compared to other vacation options. They may also suggest you can make money off them through rental income or price appreciation.

In reality, nothing could be further from the truth. Calling a timeshare an investment is like calling your car an investment. Barring extraordinary circumstances, you won’t make money off either of them. They may be assets on paper, but they sure don’t act like it.

Even if your contract lets you rent out your timeshare instead of using it personally (not all of them do), it won’t be lucrative. The timeshare company usually charges additional fees for renting your room out instead of using it yourself. That makes it challenging to profit at all after factoring in your other annual carrying costs.

Making money when you sell is an even more dubious prospect, which is one of the reasons why you shouldn’t get a timeshare. Timeshares depreciate rather than increase in value over time. Due to the supply and demand issues mentioned previously, it’s common for people to list their timeshares for as little as a dollar just to escape them.

Learn More: Pondering the idea of timeshares? Dive deeper into why they’re not quite the investment many perceive them to be.

Timeshare Financing Is Expensive

While the average timeshare cost $23,940 in 2022^[1], making it cheaper than a vacation home, it’s still a substantial amount. This is one of the reasons why you shouldn’t buy a timeshare, especially considering timeshare companies frequently offer financing arrangements, encouraging you to take advantage of them.

Unfortunately, the interest rates on their loans are often significantly higher than other forms of financing, especially if you have bad credit. Typically, they range from 15% to 20% on average. 

You could get cheaper financing from a third party, but people often buy timeshares on a whim or at a high-pressure sales event. As a result, they’re typically not coming to the table with a better loan offer.

Defaulting on Fees Can Cause Credit Damage

Loan payments, maintenance fees, and special assessment charges are some of the reasons why you shouldn’t buy a timeshare. These financial burdens can accumulate quickly for timeshare owners, and unfortunately, failing to pay them leads to the same consequences as defaulting on other debts.

If you fall behind on what you owe, you’ll often be subject to additional penalties and interest. Missing payments can also damage your credit if your timeshare company decides to report your activities to the credit bureaus.

If you can’t get your account back into good standing, you’ll eventually default, and the company will send your account to collections or try to foreclose on your timeshare. If they didn’t report you for being delinquent previously, they’ll certainly report you for that, and it can cause severe damage to your credit score.

Why You Shouldn’t Buy a Timeshare: The Hype Machine vs. Reality

Timeshare promoters do a remarkable job of convincing people to sign their contracts. Thousands of people buy them every year, even though they’re right up there with boats and payday loans on the list of most notorious money pits.

#Timeshares can be tempting, but there's more to the story than just vacation fun. Discover the less-talked-about side.

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Promoters usually lure you into one of their presentations with a financial incentive, like a discounted hotel stay or tickets to an event. Once you’re in the door, they ply you with snacks, drinks, and compliments to make you as agreeable as possible.

Then comes the full-court press, in which they use every manipulation tactic in the book to get you to sign up before you leave. They often hold you for you far longer than they’re supposed to, either by pressuring you to stay socially or taking you somewhere you can’t leave without the transportation they provide.

If you get bullied or tricked into buying a timeshare, you’ll quickly realize why you shouldn’t get a timeshare, as the contract can quickly become a financial weight around your neck, dragging down your finances and threatening to ruin your credit. It usually takes significant time, effort, and money to escape them, if it’s even possible.

Timeshare Lawsuits and Regulations

Timeshare companies are such a significant problem that regulators and lawyers often have to get involved to rein them in. Many of the lawsuits brought against them are for violating consumer protection laws and engaging in deceptive practices.

How to Vacation Affordably Without a Timeshare

You shouldn’t buy a timeshare, but there are still ways to get the vacations you want without breaking the bank. My favorite way to make traveling more affordable is to use credit card sign-up bonuses.

Many accounts offer lucrative rewards for spending a certain amount with your card during an introductory period. They’re often enough to significantly subsidize or even cover an annual vacation, especially if you’re willing to engage in aggressive credit card churning strategies.

Of course, there are prerequisites to this strategy. At the very least, you need a good enough credit score to qualify for a good account. Ideally, you should also be debt-free, carry an emergency fund, and be good enough at budgeting to stay disciplined while working toward your minimum spending requirement.

To make this strategy easier, submit your card applications when you have big purchases coming. That way, you won’t have to spend more than you would otherwise to secure the sign-up bonus. For example, you might apply right before you pay your annual auto insurance bill.

If you don’t meet the requirements I mentioned, then you shouldn’t buy a timeshare. Instead of investing in such expensive vacations, prioritize paying off your debt, improving your credit, and building up savings. This way, in time, you can fly to a beach of your choice without any financial stress.

The post Why You Shouldn’t Buy a Timeshare (Probably) appeared first on FinMasters.

The issue is surprisingly controversial. In fact, one survey found Americans are nearly perfectly divided, with 49% of respondents reporting they got their first cars from a parent and 51% saying they bought them independently.^[1]

If you’re trying to determine which route to take, this guide will help you decide. Let’s explore the pros and cons of each choice, the most significant factors to consider when choosing, and some ways to get the best of both worlds.

Should Parents Buy Their Child a Car: Pros and Cons

There are benefits to purchasing a car for your child, but there are also good reasons to consider making them pay for it themselves. Here are the pros and cons to consider when thinking of buying your child a car:

Pros of Buying Your Child a Car

Your child will be able to come up with a million reasons why you should get them a car, probably starting with the fact that their friend got one. But in reality, there are two main reasons to buy them a car instead of letting them do it themselves.

First, it’s a chance for you to give your child a financial head start and set them up for long-term success. When you cover the cost of the vehicle, they’ll typically be able to:

• Avoid taking on an expensive auto loan.
• Hold onto any cash savings they’ve set aside.
• Get a car sooner than they could on their own.

Second, buying a car for your child means you have direct control over what they drive. You can choose a vehicle that’s safe, reliable, and economical. Left to their own devices, a teenager might buy something they think looks cool and exclude more important considerations.

Cons of Buying Your Child a Car

Of course, buying your child a car also has its drawbacks. Most obviously, you have to fund the purchase, and that’s not always something parents can afford. Even if you choose a relatively modest make and model, a car is expensive.

The less tangible but no less significant problem is that buying a car for your child can hamper their personal development. Working hard for their first car gives a teen a chance to feel a sense of independence and accomplishment at a pivotal age.

When you buy a car for your child, you take away an opportunity for them to learn valuable lessons about hard work, self-reliance, and financial responsibility, such as:

• How to find, secure, and hold down a job
• The value of money and what it takes to earn it
• How to delay gratification and save for the future

In addition, giving your child a car can make them more likely to take it for granted, and they may drive it more recklessly. That’s something to avoid at all costs, as motor vehicle accidents are the leading cause of death for teenagers.

If your child is male, you should emphasize this aspect of the decision even more. The motor vehicle death rate for male drivers between 16 and 19 years old is three times higher than for females of the same age group.

Should Parents Buy Their Child a Car: 4 Questions to Ask Beforehand

Now that we’ve discussed the primary arguments for and against buying your child a car let’s look at a series of questions you can use to help figure out the right option for your circumstances.

1. Can You Afford It?

Buying your child a vehicle is, first and foremost, a financial decision. With even used cars costing roughly $33,000 on average these days, it’s not one to take lightly^[2]. As a result, the first thing you must figure out is whether or not you can afford the expense.

To assess your capability, consider the following:

• Do you have enough cash to pay the upfront costs comfortably?
• Is your monthly cash flow sufficient to cover the recurring costs?
• If you need a loan, is your credit score high enough to secure a reasonable interest rate?

If you answered no to any of these, you’re probably not in a position to buy your child a car, and you shouldn’t force the issue. It isn’t a prerequisite for being a good parent, and overextending yourself to make them happy will often backfire.

Remember that buying another car will push your debt-to-income ratio higher. If you plan to take out a major loan any time soon, this could make approval more difficult.

Should Parents Buy Their Child a Car? Learn More: The cost of a car can be surprisingly challenging to calculate due to variables like maintenance and financing expenses. Use our comprehensive guide to create a practical budget: How Much Car Can I Afford to Buy?

2. How Much Would It Benefit Them?

As we’ve established, buying your child a car can give them a significant financial head start. They get to become a vehicle owner without going into debt or depleting any savings they might have. In addition, they’ll be able to take themselves to school or work, which is a huge benefit to some families.

However, making your child a car owner isn’t always necessary. In fact, it may not even be beneficial in some cases. For example, here are some situations in which a child having their own car would be of limited use:

• You live somewhere with good public transportation.
• Your child plans to go away to college, where it’d be hard to bring a car.
• You own multiple cars, so your child can borrow one without much inconvenience.

In these circumstances, buying your child a car may not be worthwhile. It could even be a net negative since you’d incur additional costs and need to park and maintain it. If that’s the case, it’s probably best to postpone the purchase, at the very least.

Should Parents Buy Their Child a Car? Learn More: Curious about how your car can moonlight as a money-maker? Discover some innovative strategies in our recent post.

3. What’s the Opportunity Cost?

Say you can afford to buy your child a car and feel confident they’d benefit from it. The next question to ask is whether it’d be the best use of your resources. Every dollar you spend on their vehicle is one you can’t spend on them elsewhere, and parents have many other expenses they may want to cover for their children.

For example, consider whether it might be more beneficial to put the money you’ve budgeted for your child toward one of the following costs instead of buying them a car:

• College expenses: In addition to tuition, sending your child to college generally means paying for a meal plan, housing, and school supplies.
• Wedding costs: Parents often contribute to their children’s weddings, which cost a whopping $30,000 on average in 2022^[3].

You should also think about using the funds for things that aren’t directly child-related. After all, improving your personal financial situation can benefit your children in a roundabout way, too.

For example, paying off your high-interest debt can free up more cash flow for supporting your children. Conversely, putting money into your retirement accounts means relying less on your children for support in your elderly years.

Learn More: Wondering if there’s any truth to the buzz about college not holding its worth anymore? Our new post critically examines this standpoint.

4. How Responsible Is Your Child?

Last but not least, consider your child’s character and personal development. Ask yourself whether they’ve proven to be generally responsible or still tend to be impulsive.

Given that context, think about the impact giving your child a car would have on them and how they’d most likely react. Would they be capable of making good decisions, or do you suspect they’d take their new vehicle for granted?

If you don’t feel like you can trust your child, it probably isn’t a good idea to buy them a car. Even if all of the financial variables are giving you the green light, you should wait a while for your child to mature and make them have some skin in the game.

Pondering the pros and cons of #purchasing-a-car for your child? Our recent article explores this in depth.

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Aim for the Best of Both Worlds

Whether or not you should buy your child a car may feel like a binary decision, but it doesn’t have to be. In fact, you can usually get the best of both worlds by finding a middle ground in which both parties are involved in the purchase process.

Remember, you primarily want to accomplish the following goals:

• Minimize the financial burden on you and your child.
• Get your child into an appropriate vehicle at the right time.
• Help your child to appreciate their car and grow from the experience.

It can be tough to check all those boxes when you or your child pay for their first car individually, but it’s much easier if you make the process a joint effort. Let’s review an example to demonstrate how you might go about that.

You also include them in the car selection process and explain the primary factors to consider, including safety, mileage, and maintenance costs. When it’s time to buy, you bring them along to impress upon them the significance of the transaction.

Finally, you talk with them about the risks of driving and the responsibility on their shoulders now. You promise them that this is the only car you’ll help them buy and explain how serious the consequences will be if they crash it, including the ones outside your control.

Ultimately, the question of “should parents buy their child a car” has no definitive right or wrong answer. If you consider all the variables we discussed and factor them into your approach, everyone should make it through all right.

Learn More: Weighing the option of a long-term auto loan? Our new article breaks down whether it’s a worthy consideration.

The post Should Parents Buy Their Child a Car? Pros, Cons and Inbetweens appeared first on FinMasters.

Understanding how credit card companies make money off you can help you significantly reduce their ability to do so. Let’s explore what you should know to protect your finances.

Types of Credit Card Companies

Contrary to what you might expect, many parties get involved each time you swipe your credit card, including three different types of credit card companies. Here’s how each of them works:

1. Credit card issuers: These are financial institutions that provide credit lines. They’re the ones you borrow from when using your card and the ones that come after you for failing to pay your debts. Some well-known card issuers include Capital One, Citigroup, and Bank of America.
2. Payment processors: To accept card payments from customers, merchants must pay for a payment processor’s services. These companies provide the necessary software and hardware, such as point-of-sale systems. Some popular options include Stax, Stripe, and Clover.
3. Credit card networks: These are intermediaries responsible for communicating each transaction’s data and ensuring funds transfer appropriately. The four main networks in the United States are Visa, Mastercard, American Express, and Discover. The latter two also function as card issuers.

How Credit Card Issuers Make Money

Credit card issuers make most of their money off cardholders, but a significant portion of their income comes from merchants too. The merchants pass those costs on to customers, so you’re paying those too!

How Do Credit Card Companies Make Money?

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Let’s explore the primary revenue streams they collect from both groups.

Interest Charges

Interest charges on account balances tend to generate the most money for credit card issuers. In 2022, they collected roughly $173.2 billion from consumer cardholders, with $145.1 billion coming from interest charges^[3].

Cardholders incur interest charges when they fail to pay off their balances by the end of a billing period and carry it over to the next month. Typically, that occurs when people can’t afford to repay what they purchased and settle for making minimum monthly payments.

Unfortunately, that’s one of the most expensive financial mistakes you can make. Credit card interest rates are much higher than most other forms of financing, carrying an average interest rate of 20.09% in 2023^[4].

To show how quickly that adds up, say you put just $2,500 on a credit card with the average rate. Even if you never put more money on the card, you would take nine years and two months to pay off your debt making 2% minimum monthly payments. You’d accrue $2,964 in interest during that time, more than doubling your costs.

Learn More: The Dos and Don’ts of Making Minimum Payments on Credit Cards

Miscellaneous Fees

Though not as lucrative as interest charges, fees still account for a significant portion of credit card issuer revenues. Of the $173.2 billion they collected from cardholders in 2022, miscellaneous fees accounted for $28.1 billion.

Here are some of the most common ways that credit card issuers bill cardholders:

• Annual fees: Some credit cards charge you yearly fees to retain access to your credit line. These can range from roughly $50 to $500, with some premier cards costing even more.
• Late fees: If you fail to make the minimum payment on your credit card by your due date, card issuers charge you a penalty. These typically range from $25 to $40 per occurrence. Repeated offenses may cause the cost to increase, but regulations prevent them from exceeding a limit pegged to inflation.
• Cash advance fees: Cash advances let you withdraw cash by borrowing against your card. They’re an expensive feature, typically costing 3% to 5% of the advance amount with a minimum of $10 or so. In addition, the advance usually starts accruing interest immediately at an even higher rate than regular credit card debt.
• Balance transfer fees: Some credit cards let you roll over balances from other credit accounts onto the card. That costs about the same as a cash advance, with a 3% to 5% fee subject to certain minimums. However, the balance usually accrues 0% interest for a limited promotional period between six and 18 months.
• Foreign transaction fees: When you use your credit card outside of the United States, your card issuer may charge you a foreign transaction fee. These fees usually range from 1% to 3% of the transaction amount.

Before you sign up for a credit card, make sure you review all of the fees listed in your cardholder agreement. That can help you avoid nasty surprises, such as an immediate annual fee when you expected not to pay one for your first year.

Learn More: Foreign Transaction Fee: What Is It? How Does It Work?

Interchange Transaction Fees

Credit card issuers make most of their money from the interest and fees they charge consumers. However, they also collect a significant portion of their revenues by charging merchants interchange fees. These make up most of the MDR that merchants pay for accepting credit card payments.

The card issuer collects interchange fees, but the card network is responsible for setting the rates. They typically base the cost on multiple factors, including the merchant’s industry and number of transactions per month, the identity of the card issuer, and whether the payment was collected online or in person.

Interchange fees are generally structured as a percentage of the transaction amount plus a flat charge. For example, Visa’s interchange rates for consumer credit cards in the United States range from 1.15% plus $0.05 to 3.15% plus $0.10 per transaction^[5].

How Payment Processors Make Money

Payment processing companies profit exclusively from merchants. However, merchants can sometimes pass their costs on to consumers through convenience charges or price increases. As a result, understanding what processors charge can be beneficial.

Here’s what you should know about how they make money.

Point-of-Sale Costs

Payment processors can bill merchants for everything that goes into accessing their point-of-sale systems. That may include upfront fees for software, hardware, and installation services, plus recurring subscription charges.

These costs vary widely depending on which processor merchants hire and which solutions they use. For example, Shopify offers a physical card reader for $49 and charges a software subscription fee starting at $39 per month^[6].

Square also charges $49 for a simple card reader but has more sophisticated hardware options for sale, with the most expensive costing $799. Meanwhile, its cheapest software subscription plan is free, requiring no monthly payment^[7].

Processor Transaction Fees

In addition to billing merchants for access to their services, payment processors charge them transaction fees. These make up another significant portion of the MDR and work similarly to interchange fees, often costing a percentage of each transaction plus a small flat charge.

However, processor transaction fees are significantly lower than interchange fees. Helcim’s pricing breakdown helps demonstrate this. If a retail store using Helcim were to accept a MasterCard payment, it would incur an interchange fee of 1.65% plus $0.10, while Helcim would charge a 0.30% plus $0.08 processor fee^[8].

How Credit Card Networks Make Money

Like payment processors, credit card networks don’t make money by charging consumers. Instead, they collect their revenues from credit card issuers and acquiring banks, who pass the expenses on to merchants. Here’s how it works.

Assessment Fees

Credit card networks earn most of their revenues by charging assessment fees to credit card issuers. These are fees based on the dollar value of the transactions completed with cards bearing their brand.

For example, say Chase Bank has issued 10,000 Visa credit cards, and each cardholder averaged $2,000 in purchases, balance transfers, and cash advances over the last month. As a result, the total dollar value of all their transactions combined equaled $20,000,000.

Visa would charge Chase Bank an assessment fee equal to a small percentage of the $20,000,000 of activity for that month. For context, MasterCard generated a whopping $10.2 billion of its $23.6 billion in gross revenue through assessment fees in 2020, despite international transaction volume decreasing by 29% due to COVID-19^[9].

Switched Transaction Fees

Credit card networks also earn a significant portion of their income by charging issuers and acquirers transactional fees for sending funds and information over their networks. These primarily consist of switched fees, which are generated by the following activities:

• Authorization: This refers to the step in the credit card transaction process where the payment request is sent from the acquiring bank to the card issuer for approval.
• Clearing: This refers to the step where the network uses a cardholder’s financial information and transactional details to calculate the net amount of funds that should go to the acquirer and issuer.
• Settlement: This is the final step in the transaction process, during which the issuer distributes the appropriate funds. Most notably, the acquirer should receive the transaction amount minus the MDR.

Credit card networks charge issuers and acquirers a fee each time they complete one of these steps. MasterCard generated $23.6 billion in 2020, and $8.7 billion was due to these transactional fees. The remaining earnings mostly came from products and services unrelated to credit cards, such as data analytics and consulting fees.

How to Pay Credit Card Companies Less Money

Credit cards are powerful tools, but issuers will take every chance they can get to make money off you. And unfortunately, they’re pretty good at it. Here are some of the best ways to keep their grubby fingers out of your wallet:

• Always pay off your statement balance: This is the amount you spent on your card during the previous billing period. You’ll accrue interest charges if you don’t pay it off on time. Only spend what you have in cash to ensure you can afford this amount each month.
• Never settle for making the minimum payment: If unfortunate circumstances or mistakes prevent you from paying off your statement balance, don’t settle for the minimum amount due. Instead, pay off as much as you can afford to minimize your interest charges and time in debt.
• Avoid cash advances and balance transfers: Credit cards are great for making payments securely, earning rewards, and building your credit score, but they’re terrible for everything else. Just because you can execute transactions like cash advances doesn’t mean you should. They’re expensive traps, don’t fall for them.
• Make sure every card’s benefits justify its fees: Annual fees are one of the few charges you’ll pay regardless of how you use your cards. Since they can get pretty expensive (see the Chase Sapphire Reserve’s $550 fee^[10]), choose cards with benefits that outweigh their costs – and actually use them.

Credit cards make it easy to spend more money than you have. Due to the recent inflation surge, American credit card debt is piling up faster than ever. In the fourth quarter of 2022, consumer balances increased by $61 billion and hit $986 billion, exceeding the pre-pandemic high^[11].

Don’t get swept up in that rising tide. Build a budget, pay attention to your monthly card balances, and stay disciplined to protect your finances from credit card companies.

Learn More: How to Use Credit Cards Wisely: 11 Rules to Live By

The post How Do Credit Card Companies Make Money? appeared first on FinMasters.

Instead of discussing a symptom, this piece targets one of the most significant contributors to financial instability: the consumerist mindset that drives people to accumulate material possessions in pursuit of happiness and security.

Let’s explore the flaws in this line of thinking, its long-term consequences, and some practical tactics to shift your mindset.

Disclaimer: This is an opinion piece, so forgive me for getting on my soapbox. I’m a personal finance writer, after all. Urging you to be more responsible with your money is part of my job description.

Dispelling the Common Illusion of Wealth

When you imagine a wealthy person, what does your mind conjure? I’d bet the image involves someone wearing designer clothes, driving an expensive car, or living in a big and fancy house. Those things definitely come to mind for me.

These all seem like indications of wealth since the richest among us flaunt these luxuries. However, there are many more people indulging in them than can realistically afford to do so. Most of those Instagram pictures of people indulging in the finer things captioned “Living my best life” should really read “Living beyond my means.”

These people primarily overspent on what most of us see as the trappings of the wealthy, especially material possessions. For example, that included:

• 16% who overspent on clothes, shoes, or accessories
• 6% who overspent on expensive houses
• 5% who overspent on expensive cars

People who prioritize these possessions may appear wealthy, but they’re really just hamstringing their finances. The only way to pay for these purchases when you can’t afford them upfront is to finance them, and nothing compounds the negative impact of irresponsible purchases more than putting them on a credit card.

In reality, wealth tends to look more modest than you’d expect. It requires living below your means, avoiding unproductive debt, and consistently investing your savings into assets that produce income or appreciate in value.

Learn More: The Millionaire Next Door covers a lot of fascinating data on this subject. Check out my review of the book to see if it’s something you’d be interested in reading: The Millionaire Next Door Review: Best and Worst Advice

Long-Term Consequences of Overspending

Many modern Americans live paycheck-to-paycheck due to economic factors beyond their control. The general cost of living has risen steadily for decades while wages have failed to keep pace.

As a result, it’s arguably more challenging to be financially successful than in years past. However, discretionary spending decisions are still the most important factor driving the financial health of many American consumers.

We tend to dislike the thought that our finances depend on how disciplined we are with money. Not only does that force us to question the luxuries we may feel we deserve, but it also feels unpleasant to shoulder the blame for our failures. It’s much more comfortable to chalk our issues up to stagnant wages, student loan debt, or rampant inflation.

While understandable, that attitude is ultimately counterproductive. When conditions are unfavorable, it’s even more important to focus on what you can control and take responsibility for your finances.

While a minimum level of spending is obviously unavoidable, what you buy is still largely up to you. To build wealth, you must avoid getting caught up in the consumerist obsession with accumulating expensive material possessions.

Let’s look at a couple of practical examples using actual numbers from the Bureau of Labor Statistics’s (BLS) annual Consumer Expenditure Survey to demonstrate the impact seemingly minor spending decisions can have on your long-term financial trajectory.

Chris Consumer

Chris Consumer enters the workforce at 22 years old. After taxes, his annual salary is $46,593, the average for households that earned between $40,000 and $50,000 in 2021.

Chris isn’t excessively spendy, but he finds budgets stressful and feels the need to keep up with the perceived lifestyle of his peers. He wears the latest fashion, leases a new car, and rents a fancier apartment than he should in order to impress them. As a result, Chris spends the average amount for his income, which is $49,498 per year.

Unfortunately, that means he accumulates $2,905 in debt annually.

Let’s assume Chris spreads that over a mix of credit accounts, including credit cards and installment loans.

For simplicity’s sake, we’ll ignore inflation, say Chris’s salary and living expenses remain fixed, and assume his debt grows by 5% per year, compounded monthly. However, he would probably accrue significantly more interest in reality since credit card rates average 20%^[2], auto loan rates average 6%^[3], and his credit score would be below average.

Sammy Saver

Sam Saver also enters the workforce at 22 and negotiates for the same salary as Chris. However, Sam puts together a simple budget and keeps his annual expenditures to $43,069, the average for people who earned $30,000 to $40,000 in 2021.

Sam doesn’t do anything groundbreaking to reduce his cost of living. Mostly, he rents a more modest apartment closer to his office and drives a more fuel-efficient car. Also, he eats out less, buys fewer accessories, and takes less expensive vacations.

As a result, Sam saves and invests a very modest $3,524 per year into an S&P 500 index fund. On average, it generates a 7% annual return. Once again, we’ll ignore inflation and assume his earnings and expenses remain fixed.

Financial Results

Eight years later, Chris and Sam are both 30 years old, but the difference between their financial positions is significant. Chris has accumulated $31,444 in debt, while Sam has $36,663 invested.

Because Sam spends just $535 less than Chris each month, his net worth is $68,107 higher after eight years. Even more importantly, he’s on track to have $966,519 invested by the time he turns 65 years old.

Before Chris can even start trying to catch up with Sam, he must change his spending habits and dig himself out of debt. If it takes him five years to do so and get back to a net worth of zero, Chris would have to invest roughly $9,600 per year to catch up with Sam by age 65. That’s almost three times as much in annual savings!

If Chris couldn’t save that much and only managed to match Sam’s $3,524 annual savings, he would have just $355,292 invested by age 65. That’s a whopping $611,227 less. To catch up with Sam, Chris would have to keep working until age 78 due to his overspending in his younger years.

How to Change Your Spending Habits

Many people spend too much due to a simple lack of awareness. They find money uncomfortable and don’t want to look at their bank account, so they operate on autopilot. I sympathize, but your finances are too important to leave to chance. You must create a budget and hold yourself accountable.

If you fear you’re currently on the wrong financial trajectory and want to change, start by tracking your expenses. Connect your debit and credit cards to a budgeting tool that can record your activities automatically, then review them after a month or two.

That should give you enough data to start making informed adjustments. Look for ways to cut your spending that won’t compromise your happiness. Most people new to budgeting can find some easy wins, like subscriptions they no longer use.

Of course, those reductions might not be enough to get you on track with your financial goals, so the next step should be to sort out your priorities. Ask yourself questions and figure out what’s important to you.

• Which discretionary purchases bring you legitimate happiness, and which are you making for the wrong reasons?
• Is the satisfaction that your guilty pleasures provide in the short term worth what they mean for your finances in the long term?

Don’t expect this process to be easy. Reducing your spending can impact your lifestyle, the kind of people you spend time with, and how you view yourself. Expect meaningful financial changes to require substantial introspection and personal growth.

Whatever action you need to take, get started as soon as possible. As we’ve established, even a seemingly minor habit of overspending on material possessions can have a life-changing impact on your finances. The longer you allow it to continue, the harder it will be and the longer it will take to turn things around.

The post The Illusion of Wealth: Why Accumulating Material Possessions Doesn’t Guarantee Financial Security appeared first on FinMasters.

Understanding the factors that have shaped your financial perspective is essential for managing your closest relationships, especially those with people who have different values and beliefs.

Let’s explore the role of family and culture in personal finance and discuss some practical communication tactics to help you navigate disagreements about money.

The Role of Family in Personal Finance

Family influence is arguably the most significant factor to consider when analyzing your relationship with money. Many of us internalize our parent’s financial tendencies in our youth and struggle to deviate from them later in life, even if they’re causing problems.

Their behaviors serve as the model for our choices, and their comments become the voices in the backs of our heads. Even the goals they strive for and their successes or setbacks along the way inform our expectations for ourselves.

If your parents spend recklessly, you may be more likely to struggle with budgeting or have unreasonable lifestyle expectations. Seeing them prioritize accumulating material possessions can create a similar tendency to indulge in luxury goods.

Conversely, growing up in a house with parents who consistently struggle to make ends meet or openly express their financial anxieties, you may be more likely to develop financial insecurities. That can cause issues like excess frugality, a pathological aversion to debt, or a fear of investing.

Learn More: How To Overcome The Fear Of Investing

The Role of Culture in Personal Finance

While your immediate family often has a direct and rather obvious impact on your financial habits, the broader culture around you tends to have a more subtle influence. Unfortunately, managing the habits you pick up indirectly can be even more challenging since you may not be aware of them in the first place.

David Foster Wallace’s famous commencement speech at Kenyon College included a brief parable highlighting this concept. It reads:

There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys. How’s the water?” And the two young fish swim on for a bit, and then eventually, one of them looks over at the other and goes, “What the hell is water?”

That’s a rather clever way of pointing out that some aspects of our environment can be so normalized to us that we don’t even notice them. They’re right under our noses, but we don’t recognize their significance and therefore fail to question them.

Unfortunately, that frequently applies to ideas that can be highly detrimental to our personal finances. These assumptions often come from the behaviors displayed in our communities and perpetuated by the media we consume.

For example, car ownership is ubiquitous in the United States, with roughly 92% of American households having access to at least one vehicle in 2021^[1]. As a result, we tend to consider cars a given, even going so far as to look down on people who opt for other modes of transportation.

Learn More: How Much Car Can I Afford to Buy?

Challenges Caused by Differing Financial Perspectives

Because so many variables affect our views on money growing up, we can end up with wildly different financial perspectives from those closest to us in adulthood. Most notably, that often includes our romantic partners.

Unfortunately, conflicting financial opinions can be incredibly difficult to navigate in intimate relationships. The stakes are so high that discussions frequently become emotionally charged, making people even less likely to change their minds.

In romantic relationships, these conflicts often revolve around lifestyle preferences. When one partner consistently wants to spend more money than the other, it’s hard to satisfy both people’s expectations.

Division of financial responsibility is another tricky issue. For example, when couples have an income disparity, how do you split expenses? In familial relationships, should an adult child that’s more successful than the rest of their family give or loan money to their parents or siblings?

While navigating differences of opinion in these areas is challenging, it’s essential that you learn to work toward resolutions that satisfy both parties peacefully. Financial disagreements can be lethal to the relationships that matter most.

Money issues and arguments are among the top three causes of divorce, responsible for roughly 22% of failed marriages^[2]. Non-romantic relationships are just as vulnerable, with 1 in 6 of consumers reporting that money has ruined at least one of their relationships with a friend or family member^[3].

How to Navigate Differing Financial Perspectives

Having different views on money can lead to significant friction in close relationships. However, two willing parties can resolve almost any financial disagreement with the proper preparation and communication strategies.

Here are some steps that can help you develop healthy habits and reach compromises with partners or family members who have different financial opinions.

Reflect on Your Financial Perspective

Before engaging with someone else’s ideas on personal finance, spend time reflecting on your own. Taking an honest look at your relationship with money and coming to accurate conclusions about your tendencies will be invaluable when you need to discuss them with someone else.

Start by asking critical questions like the following:

• Family background: What kind of relationship does your family have with money, and how has it shaped your own? What financial ideas and habits do you share with your parents, and how have those served them?
• Cultural experience: What ideas do you have about personal finance due to the culture you grew up in? Where might you have blind spots that hinder your ability to have healthy relationships or reach your financial goals?
• Personal perspective: Which of your unique personality traits and experiences have had the greatest impact on your relationship with money, and how? What are your most significant financial strengths and weaknesses?

Reflecting on questions like these can help you clarify how and why you handle money the way you do. When you need to discuss your perspective with another person, you’ll be much better prepared to articulate it.

This self-analysis also helps you separate the beliefs and behaviors you can justify from those you can’t. It may reveal habits you’ve learned for the wrong reasons and should probably leave behind.

Have Regular Discussions Aimed at Understanding

Once you have a good grasp of your own financial experiences and perspective, the best next step is to start having money talks with your partner or family member. At this stage, your primary goal is to understand each other.

Here are some tips to make those conversations as beneficial as possible:

• Practice active listening: Learn to listen to the other party without planning what you’ll say in response. Ask clarifying questions when appropriate, but don’t interrupt. Focus on putting yourself in their shoes and empathizing with their experience and perspective.
• Practice being vulnerable: When it’s your turn to talk, share the results of your previous introspection. Go beyond what your beliefs and behaviors are and dig into the reasoning behind them. Try to get out of your comfort zone and share some of the things you’re not proud of.
• Set a positive precedent: One of the main issues people struggle with when discussing money is that the topic produces anxiety. Try to establish early that these conversations aren’t something to fear. For example, you might consider having them over a nice dinner or while going for a drive in a pretty neighborhood.

It’s best not to try to resolve any differences of opinion during this process. If the other person makes a statement that you have an issue with, you can make a note of it but don’t try to contest it just yet.

Not only does having these discussions help you understand the other party’s perspective, but it also builds trust and healthy communication habits. All of that will be incredibly helpful when you need to negotiate with each other.

Negotiate Solutions to Shared Issues

During your early discussions, both parties should develop an understanding of each other’s financial perspectives. At the same time, you’ll build confidence in your ability to talk about money together in a healthy and productive way.

Once you’ve had some practice and feel well-equipped to tackle the disagreements you need to address, shift the focus of your conversations to resolving those conflicts. Here are some tips to keep in mind during this stage in the process:

• Set specific goals: Measurable goals make it much easier to reach practical solutions. For example, instead of saying you’d like your partner to save more money for your shared retirement, say that you’d like them to reduce their spending by $500 per month and redirect those savings to the mortgage.
• Be willing to change your mind: Many of us can be stubborn about money, myself included, but that’s often unproductive. If the other person makes a reasonable argument, be open to changing your financial beliefs. Listen to their feedback with a level head and be willing to adjust to sensible criticism.
• Look for ways to compromise: Always try to find a way to satisfy both parties. It’s not always possible to make both people happy, but that should be the goal. Don’t approach financial discussions looking to win or get your way. Instead, work together to solve whatever problems you’re facing.

You probably won’t solve all your disagreements with a single conversation, so don’t rush the process. Pace yourself and discuss your issues regularly until you reach a solution you both approve of.

Even after you’ve implemented your plan, schedule regular check-ins to make sure both parties are happy with how things are playing out. Make sure everyone feels comfortable voicing their dissatisfaction if it doesn’t go as well as you hope.

Consider Consulting a Financial Advisor or Therapist

Hiring an objective third party to help you navigate financial negotiations can be highly beneficial. If you’re struggling to reach solutions on your own, consider involving a financial advisor or therapist.

They can provide a safe space, help enforce each party’s boundaries, and provide the kind of insight that only comes with experience and expertise. That can be especially valuable to partners or families who’ve already made mistakes that damaged their relationship.

Learn More: What Is Financial Therapy and How Can It Help You?

Have Financial Discussions Early

The best way to avoid financial conflict is to address issues early and resolve differences of opinion before they devolve into full-blown arguments. As is the case in most areas of personal finance, the more proactive you are, the better.

When you get ahead of the problem, people tend to have cooler heads, which is essential. Nothing makes financial negotiations more difficult than anger and resentment between the parties involved.

Starting early also means you can take your time and do things correctly. When neither side feels pressured, you can spend however long you need learning about each other’s perspectives, setting good precedents, and building trust.

If you’re in a serious romantic relationship or have financial disagreements to resolve with a family member, don’t wait. Start addressing the issue today.

The post The Role of Family and Culture in Personal Finance: Navigating Different Values and Beliefs appeared first on FinMasters.

Unfortunately, a disproportionate percentage of these companies are untrustworthy, so you must research them carefully to avoid scams. This Ovation Credit Repair review will discuss the business’s legitimacy, explain what it offers, and help you determine whether you should pay for its services.

Who Is Ovation Credit Repair?

Ovation Credit Repair is a credit repair company that also provides credit monitoring services, credit education resources, and financial management tools. Founded in 2004, the business’s team of experts has helped thousands of customers remove inaccurate, negative items from their credit reports over the last two decades.

Ovation was acquired in 2018 by LendingTree, the well-known online marketplace that facilitates various consumer and commercial financing arrangements.

The credit repair industry attracts scam artists looking to take advantage of desperate people. When you’re researching service providers, watch out for potential red flags, especially guarantees of instant or miraculous results.

Learn More: How to Spot Debt Relief and Credit Repair Scams

How Does Ovation Credit Repair Work?

Ovation primarily offers traditional credit repair services, which means it works to remove inaccurate entries from your credit reports. When you sign up for one of its service packages, you must share your credit report details with the business to activate its Dispute Manager tool.

From there, you’ll work with Ovation’s team of case advisors to identify the entries in your reports that you believe are inaccurate. They’ll document your reasons and collect your evidence, then go to work disputing the entries for you.

Subsequently, you can monitor their progress through your dashboard, which lets you review all correspondence with bureaus and creditors. You’ll also receive email notifications when Ovation manages to remove items from your reports.

Ovation claims that most clients first see results in 30 to 45 days, which is how long the bureaus have to respond to disputes. However, the average program lasts six to eight months, allegedly due to the number of entries clients ask to dispute.

Learn More: What is Credit Repair? How It Works and How Much It Costs

Additional Features

Ovation offers multiple secondary features in addition to its credit repair services, though you have to purchase its more expensive subscription option to qualify for most of them. They include the following:

• Financial management tools: Ovation offers tools and calculators to help you improve your personal financial position, including a budget builder and debt repayment calculator.
• Credit monitoring services: You can track changes to your TransUnion credit report through Ovation. That can help you quickly resolve any issues that harm your credit score and identify early signs of identity theft.
• Recommendation letters: At your request, Ovation will send a personalized recommendation letter to prospective creditors to increase your chances of qualifying for financing.
• Creditor letter templates: Credit repair involves disputing inaccurate information with a credit bureau, but it can also be beneficial to contact the creditor reporting the incorrect data. You can use Ovation’s templates to create letters for this.

These features are nice, but their practicality is limited, and for most people, they’re probably not worth the extra cost. You can access similarly effective, if not superior, financial tools, letter templates, and credit monitoring services elsewhere without paying.

Learn More: What Is Credit Monitoring and Do You Actually Need It?

How to Sign Up for Ovation Credit Repair

To access Ovation’s services, you must complete a free consultation. You can submit a request online or call the company during business hours to schedule the appointment. Here’s the contact information:

Phone Number	866-639-3426 (Option 3)
Hours	Monday to Friday: 8 AM – 9 PM EST Saturday: 10 AM – 4 PM EST Sunday: Closed

During the initial consultation, an Ovation analyst reviews your credit and finances to see if they can help you. Generally, they’ll want to confirm that you’re trying to remove inaccurate entries from your reports, not just the harmful ones. You typically can’t remove accurate negative entries, a common source of confusion.

They may also tell you whether or not paying for Ovation’s services is worth the expense in your situation. Of course, you shouldn’t count on their honesty too much. Generally, if you only have a few discrepancies in your reports, you should consider disputing them yourself.

How to Cancel Ovation Credit Repair

Whether you’ve successfully repaired your credit with Ovation or find yourself disappointed in the results you’re getting, you can terminate your subscription at any time. There are no long-term contracts or cancellation fees. The best way is to call the company during business hours.

How Much Does Ovation Cost?

Ovation offers two credit repair packages: Essential and Essential Plus. They both have a “first work fee” due upfront and a recurring monthly fee to retain access to Ovation’s services. Here’s a quick rundown of what each package includes and how much they cost.

Ovation offers discounts to customers who fall into a few different categories. Discounts only apply to your monthly fees. They include the following:

• Senior discount: If you’re more than 65 years old, you can get a 10% discount on your monthly fees.
• Military discount: Retired and active duty personnel can earn a 10% discount on their monthly fees.
• Couples discount: If you sign up with a partner, friend, or family member, you can get 20% off your monthly fees, but you can’t stack it with the previous two discounts.

You can also earn one-time credits by fulfilling a few requirements. First, you can get $30 off your monthly bill when you refer another person. If you refer a couple who signs up together, you’ll receive a $50 credit.

You can also earn a $50 credit if you sign up for Ovation after hiring another credit repair company and being dissatisfied with its services. You’ll have to prove that you’re switching to Ovation from a direct competitor.

Variability Between States

Rates may vary between states due to differing regulations. Ovation explicitly notes that consumers in Mississippi and Oregon have access to different prices and services. If you live in either state, you must call them to learn about the current offerings in your location.

Ovation Refund Policy

Ovation has a refund policy designed to give you more confidence in its ability to deliver. It states that if Ovation ever “fails to provide the agreed-upon services,” you won’t have to pay your monthly fees for the period.

That wording is vague, but it seems to indicate that you can get your fees for the current month waived or refunded if you’re disappointed in Ovation’s efforts or performance. However, you won’t be able to get your money back for the initial sign-up fee or previous monthly charges.

Ovation Credit Repair Reviews

Ovation Credit Repair has been in business for many years and has an established digital presence. Here’s an overview of its customer review profiles on several of the more popular platforms:

• Google: 3.5 of 5 stars (733 reviews)
• Trustpilot: 4.6 of 5 stars (225 reviews)
• Better Business Bureau: 3.52 of 5 stars (93 reviews)

As you can see, Ovation’s reviews tend to lean positive. Compliments frequently come from customers who appreciate the quality of service they’ve received, often specifically referencing their representative’s patience, kindness, and helpfulness.

Notably, there aren’t as many positive reviews that report successfully using the service to remove negative credit entries. They’re present but less common, indicating that many of the ratings are from people who may be too early in the credit repair process to give an accurate account of the full experience.

As for criticisms, there are several issues that customers consistently report. Most frequently, negative reviews state that the customer shelled out hundreds of dollars and didn’t see their negative entries disappear or their credit scores increase.

In addition, these reviewers often accuse Ovation of failing to communicate with them and intentionally dragging out the process to accrue additional monthly fees.

Billing problems also seem to be a fairly common complaint, with multiple negative reviewers claiming they struggled to cancel their subscriptions after growing dissatisfied with the service.

All that said, you should always take customer reviews with a grain of salt. Though a valuable resource, they can also present a skewed depiction of the average customer’s experience.

Learn More: How to Evaluate Online Reviews When Making Purchase Decisions.

Best Alternatives to Ovation Credit Repair

If you don’t think Ovation Credit Repair is a good fit for you but still have an interest in hiring a credit repair company, there are still many alternatives you can consider. Here are two of the best options:

• Credit Saint: With a solid reputation, a 90-day money-back guarantee, and flexible dispute options, Credit Saint is arguably the best credit repair company. However, its subscription fees can be high, and the number of disputes per cycle is low for the cheaper tiers. Read full review
• Sky Blue: If you’re looking for an affordable option, Sky Blue might be the best choice. Its only subscription plan has a $79 start-up charge and a $79 monthly fee, and couples can get an impressive 50% discount. It also offers a 90-day money-back guarantee and has a favorable reputation online. Read full review

Of course, the other primary alternative is to go the do-it-yourself (DIY) route. That’s probably the best option for the average consumer with only a few entries to dispute.

Not only is it free, but it’s also a valuable learning experience. Consumers often struggle to understand how credit scores work, and engaging with the system can increase your ability to manage your credit and prevent further issues.

Perhaps most importantly, you don’t have to worry whether you’ve hired a repair company that might mishandle your disputes or drag out the process to collect additional monthly fees.

If you’d like to dispute the negative items in your credit reports yourself but want some guidance, consider investing in credit repair software. It can help organize and facilitate your disputes for less than the cost of a full-service credit repair company.

Learn More: 5 Best Credit Repair Companies of 2024.

Is Ovation Credit Repair Worth Using?

Ovation Credit Repair is one of the better credit repair companies. It’s a legitimate business with a respectable track record and offers features many competitors lack, such as credit monitoring, financial management tools, and creditor letter templates.

Whether it’s worth using depends primarily on your suitability for paid credit repair. If you have dozens of entries to dispute and more money than time, then hiring Ovation is a fair choice. You might get a better deal or have a more favorable experience with one of the other top-tier providers, but the difference is likely negligible.

If you only need to remove a handful of entries or have a limited budget, avoid hiring Ovation or any other credit repair company and go the DIY route instead.

Learn More: Is Credit Repair Worth the Cost in 2024?

The post Ovation Credit Repair Review: Is It Worth Using? (2024) appeared first on FinMasters.

Why It’s Important to Keep Car Costs Down

Cars are one of the highest expenses in the typical consumer’s budget. In 2021, the average household spent $10,509 on auto expenses. That’s 16% of their total spending and the second-highest line item after housing.

To put that into perspective, that’s about $875 per month. If you started investing that into the S&P 500 at age 21 instead of spending it on a car, you’d have around $400,000 saved by age 40, assuming an average real return of 6.65%.

It might be unrealistic to forego a car altogether, but even marginally reducing your monthly auto expenses leads to significant savings.

As you can see, cars massively impact your ability to save and invest money. Buying more car than you can afford can make it difficult to invest or even save an emergency fund.

It can also leave you with bills you can’t pay and no savings to fall back on. That can even lead to repossession, which can crush your credit and leave you with no way to get around.

Unfortunately, because we expect to spend hundreds of dollars on car payments each month, we often don’t realize how much a car costs us.

How Much Should You Spend on a Car?

Fortunately, figuring out how much you can afford to spend on a car is pretty straightforward. The best way is to work backward from your income, savings, and budget. Here’s how to do that for the initial and recurring costs of having a car.

Car costs fall into two categories: upfront costs and recurring costs. You need to consider both.

How Much You Should Spend on a Car Upfront

Whether you use financing to buy your next car or not, you’ll probably spend a lot of cash upfront. It’ll go toward expenses like your down payment, sales taxes, and registration costs.

Generally, the initial outlay should be low enough to avoid dipping into your emergency fund, which should be at least three to six months of expenses.

If you spend your emergency savings to buy a car, you put yourself in a precarious financial position. Not only are you eroding your financial safety net, but you’re also increasing your fixed expenses. If something goes wrong, you’d have to go into debt to meet your obligations…

Many dealers will offer financing with no down payment. This may seem like a good deal, but it usually isn’t, especially when it’s combined with a long loan term.

Cars depreciate fast, and with no down payment and a longer loan term, you will almost certainly owe more than your car is worth for much of your loan term. That means extra insurance costs and big problems if you need to sell or refinance your car.

How Much You Should Spend on Recurring Car Costs

General financial wisdom recommends spending no more than 10% to 20% of your take-home pay on transportation.

For example: If you earn $4,000 each month after taxes, you’d want to keep your monthly auto expenses between $400 and $800.

Personally, I’d strongly suggest that you stick to the bottom of that range or lower, if possible. You typically need to save at least 15% to 20% of your income to retire in 40 years, assuming you invest your savings in a healthy portfolio and plan to withdraw the standard 4% per year in retirement.

If you start saving late or want to retire early, you’ll need to save even more than that to reach your goals. Spending 20% of your paycheck on your car makes that challenging.

Only you know how much you can spend on a car each month and hit your desired savings rate. If you want to allocate 10% more of your monthly budget to your car, that’s fine. Just know that you’ll have to make sacrifices elsewhere to make up for it.

Pro Tip: Test your ability to afford a car by putting the amount you plan to spend each month into a savings account for a few months. If that negatively impacts your quality of life or you struggle to make the payment, lower your estimated car budget.

How to Calculate the Cost of Buying a Car

To decide whether you can afford to buy a given car, you need to compare the upfront and recurring costs of doing so to your budget. Whether you’re paying for the vehicle outright or using an auto loan, follow these steps to estimate those amounts.

1. Choose Your Down Payment

If you’re buying your car with cash, you can note your car’s purchase price and skip this step. If you’re going to finance your car, you need to decide the percentage of your vehicle’s value you want to put down upfront.

Down payments typically aren’t required when you finance a car. However, they’re a good idea to provide anyway since they can significantly reduce the interest you accrue over the life of your auto loan.

2. Estimate Your Other Upfront Costs

In addition to the down payment on your vehicle, you may also incur the following expenses when you first purchase your car:

• Sales taxes: States and localities often impose a tax on transactions that involve the sale of tangible goods, including cars. Rates vary depending on where you live, but you can usually expect to pay between 5% and 10% of your car’s price.
• Dealership fees: If you buy your vehicle from a dealer, you’ll incur miscellaneous fees, such as documentation fees, destination charges, and advertising fees. These vary between states but can be as much as 8% to 10% of your car price.
• Title and registration fees: Even if you purchase your vehicle from a private party, you’ll usually still need to pay some fees to process the paperwork for transferring ownership. These also depend on where you live and can be anywhere from $50 to several hundred dollars.

If you already have a car and plan to buy your next one from a dealer, you can trade in your previous vehicle to reduce your purchase price by its value. That also reduces your sales taxes in many states, as you usually only have to pay them on the difference.

3. Determine Your Interest Rate

When you finance a car, your auto loan is your highest recurring vehicle cost. As a result, you’ll need an accurate estimate of your prospective monthly payment to determine whether you can afford to buy a car.

The first step is to find your interest rate, which primarily depends on your credit score. Here’s what you can expect to receive in 2023:

Of course, these are only averages, and you may receive offers for much higher rates from some dealerships. Because they outsource these loans to third-party lenders, they often mark up the rate so they can pocket the difference.

To protect yourself against this scam, get prequalified before going to a dealership. That’ll help you assess the reasonableness of each offer and give you more leverage to negotiate with dealers.

Learn More: The Great Auto Loan Scam: How Not to Be a Victim

4. Set Your Repayment Term

The second primary variable in calculating your monthly loan payment is the length of your repayment term. They’re usually available in 12-month increments and range from 24 to 84 months.

Extending your repayment term can lower your monthly payment, and many car dealers will try to offer you a long-term auto loan to convince you that a more expensive car fits your budget. However, setting a lengthier term raises your total interest costs and increases the chance of being upside down on your car loan.

The lengthiest repayment term you should reasonably accept is 60 months. If you can’t afford the payment for a car with a loan that long, then you probably can’t afford the car.

Learn More: Are Long-Term Auto Loans Worth It?

5. Estimate Your Other Recurring Costs

Your loan payments will be your highest recurring expense when you finance a car, but you’ll also incur several other significant costs. Here are the ones you should factor into your calculations:

• Gas: Use your vehicle’s miles per gallon (MPG) and your local gas prices to project how much you’ll spend on gas each month at your expected driving levels. Consider adding a 20% cushion, as these variables all fluctuate.
• Parking: Depending on where you live, you may have to pay monthly fees to park your car. Apartment complexes often collect fees for parking in their garages, while cities may charge you for street-parking permits.
• Insurance: All states except New Hampshire require auto insurance. Rates depend on several factors, including age, location, driving record, and vehicle type. Get personalized estimates from several providers to estimate your costs.
• Maintenance: Maintenance costs also vary between vehicles. You can use tools like Repair Pal to get a breakdown of what you can expect for various makes and models.

With that, you should have everything you need to estimate the upfront and recurring costs of buying a car. To get help putting it all together, use our auto loan calculator to do some of the math.

Should You Lease a Car Instead?

The financially responsible way to get a car is to pay cash for a reliable vehicle in your budget with low maintenance costs and good gas mileage, then drive it into the ground. Unfortunately, many people are reluctant to do this.

I won’t speculate on the merits of their reasons here. Just know that if you don’t take that approach, the question of buying or leasing a car becomes more difficult to answer. In fact, a comprehensive discussion is beyond the scope of this article.

However, buying is generally more beneficial the longer you plan to hold onto your vehicle. Leasing becomes more attractive if you plan to switch out your car for a new one on a regular basis.

However, leasing means committing yourself to shell out hundreds of dollars or more each month to maintain access to a car. It’s a luxury, not a sound financial decision. I wouldn’t recommend it unless you’re so wealthy that you have money to burn.

Avoid Stretching Your Budget For a Car

Having a healthy savings rate is the best thing you can do for your finances. The wider the gap between your income and expenses, the faster you’ll be able to progress toward your financial goals, whether that’s paying off debt or saving for retirement.

Since transportation expenses are the highest line item in the typical consumer’s budget after housing, keeping them as low as possible is one of the most effective ways to boost your savings rate.

Do yourself a favor and buy a car you can easily afford. If you’re not sure if you can afford the car you’re looking at, consider a cheaper one or a used car.

An affordable car can give you a significant financial advantage over most households and help you avoid the nightmare of missing your car payments, damaging your credit, and having your vehicle repossessed.

The post How Much Car Can I Afford to Buy? appeared first on FinMasters.

However, as helpful as crowdsourced online reviews can be, you can’t always take them at face value. They often present a skewed depiction of the typical customer’s experience, which can cause you to select products and service providers that may not be the best choice for you.

This guide will show you how to evaluate online reviews critically so you can make better-informed purchase decisions.

Why Should You Be Skeptical of Online Reviews?

Online reviews can be invaluable, and I’d never tell you to disregard them entirely. Honestly, you’d have to drag me kicking and screaming to get me into a Mexican restaurant with less than 4.5 stars on Yelp.

However, you must read online reviews with a skeptical eye. Every party involved in their creation has an agenda, and they can easily mislead you.

For example, some of the most significant biases to be aware of in online reviews include the following:

• Reviewer bias: People are more likely to leave reviews when things go wrong than right, skewing ratings downward. Not only does the human mind naturally focus on the negative more than the positive, but leaving a complaint on a business’s page may resolve your issue.
• Business bias: Companies have a vested interest in keeping their profiles positive. Even a single unfavorable review can drive away customers. As a result, they’ll often do whatever they can to increase their ratings, including using tactics like paying to remove negative reviews or add fake complimentary ones. 
• Platform bias: It’s in each platform’s interest to be known as an impartial source of customer reviews. However, they’re also profit-driven and may accept compensation for letting businesses manipulate their own or other profiles.

The sheer volume of customer reviews on popular websites can mitigate the impact of these biases to some degree, but they’re always present. As a result, you should remain suspicious of online claims and learn to analyze their odds of legitimacy.

How to Evaluate Online Review Platforms

When evaluating the validity of online reviews, first consider the platform where they’re listed, as there are significant differences between them. Let’s cover some ways you can decide how much trust to place in reviews based on where you find them.

Research Their History and Reputation

Examining a review site’s background can help reveal its relative trustworthiness. In addition to doing direct research, it’s often helpful to read through forums like Reddit for insight into other people’s opinions.

Some areas you might want to investigate include:

• How long has the platform been in business?
• Has it maintained a respectable reputation in most circles?
• Has the platform ever been criticized or penalized for dishonest practices?

For example, the Better Business Bureau (BBB) is one of the oldest organizations in the business of rating companies. Founded in 1912, it’s maintained a relatively respected reputation for over 100 years. It filters customer reviews more than most platforms, hence its lower review volume, and assigns its own ratings.

However, its track record isn’t spotless. There have been accusations that the BBB gives oddly high ratings to known fraudulent organizations, charges businesses for accreditations, and unfairly favors companies that pay them more.

Explore Their Manipulation Prevention Tactics 

Review platforms can use multiple tools and techniques to prevent businesses from manipulating their profiles. Some of those measures include:

• Identity verification: Require that a reviewer demonstrate they’re a person by providing information like their name, phone number, and email address. 
• Transaction verification: Require that a reviewer prove they’re a real customer who made a verifiable purchase from the business they’re reviewing.
• Detection algorithms: Use proprietary software to monitor reviews and prevent or eliminate ones that might be fake, incentivized, or otherwise misleading.
• Manual monitoring: Allow site users to report suspicious or otherwise problematic reviews and have staff that assesses the flagged reviews.

Most popular review sites share the strategies they use to promote accuracy. For example, Trustpilot details how its reviews work and its tactics for combating fake reviews. It also publishes an annual Transparency Report. If you struggle to identify a platform’s policies, that should also tell you something.

Unfortunately, you may find out that there’s a difference between what platforms claim they do and what they actually do. Trustpilot is an example of this. The company talks a lot about fairness and transparency, but it has a reputation for being one of the less reliable review platforms.

I can attest that many of the most scammy businesses I’ve investigated have glowing Trustpilot review pages. Meanwhile, they receive harsh criticism and one-star ratings on other review sites.

How to Evaluate Online Reviews Individually

One of the most important skills for evaluating a business’s online reputation is the ability to analyze reviews individually. Let’s look at some of the best ways to determine whether one is trustworthy.

Investigate the Reviewer’s Profile

The first question you should ask when deciding if you can trust a review is whether it comes from a real person. Here are some data points you can consider to determine how likely a profile is to be legitimate:

• Reviewer name: Fake reviews are often attributed to people with generic names, like John Smith. Alternatively, they may display an anonymous username with random number sequences.
• Other reviews: Fake review bots tend to leave only one review. Real people usually make multiple for the various businesses they’ve patronized over the years.
• Profile age: A profile created on the same day it leaves its only review is more likely to be fake. An account that’s been active for months or years probably belongs to a real person.
• Profile picture: Pictureless profiles are more likely to be fake. However, bots and content farms can also steal someone else’s images. You can use reverse image searches to help reveal this.

Unfortunately, there’s usually no way to be sure whether a reviewer is real or fake. As a result, you should primarily look at customer reviews in aggregate. Get a general impression of whether a profile is accurate, inflated, or deflated, and find recurring patterns to extract the most likely pros and cons of working with a company.

Consider the Details of the Review

In addition to the creator’s profile, the details of a review are critical for assessing its legitimacy. For example, some of the most significant indicators that a review is fake or untrustworthy include the following:

• Poor writing: A review riddled with spelling errors, grammatical issues, and confusing sentences is more likely to be untrustworthy. The bots and content farms that create fake reviews often fail to write like native English speakers.
• Generic comments: Fake reviews tend to lack concrete details, instead making claims that could apply to any product or service. They may also follow a formulaic structure that’s repeated in other reviews on the page.
• Overenthusiam: Reviews may look like they’re from a real person but come across excessively positive or negative. That may indicate they are fake or otherwise biased.
• Phrasing clues: Fake reviews sometimes overuse first-person pronouns like “I” and “me” to appear more human. They may also focus on scene setting, unnecessarily describing a person or event for storytelling purposes rather than providing concrete details.

Unfortunately, even if a review comes from a real customer with good intentions, that doesn’t mean it’s worth incorporating into your purchase decisions. 

People often leave unjustified comments because they misunderstand a business’s product or service. Here’s one from someone who thought Credit Strong offered financing rather than credit builder loans and bashed them for it.

In addition, the ratings people give to the businesses they patronize can be incredibly arbitrary. After all, there are no universal rating criteria, and people leave reviews for many different reasons. For example, here’s a review from the Yelp page for Michelangelo’s legendary Sistine Chapel.

It appears critical at first glance, but further investigation of the profile indicates that Paul likes to leave reviews that he thinks are funny. Keep these different perspectives in mind and look for them when you analyze reviews.

How To Evaluate Online Review Profiles Overall

The ability to analyze individual reviews is essential, but online opinions are often the most insightful in aggregate. To assess a business’s reputation, you must be able to evaluate broader trends in its profiles. Let’s go over some tactics to help you do that.

Look for Signs of Artificial Inflation

Due to the impact reviews have on prospective customers, it’s common for businesses to increase their ratings by any means necessary. Here are some of the red flags that indicate a company is trying to boost its reputation dishonestly:

• Sudden increases in positive reviews or ratings: Businesses that purchase fake accolades tend to do so in bulk. Check review dates to find any sudden jumps in their numbers or a rapid increase in their accumulation frequency.
• Mentions of invitations or incentives: Businesses may request reviews from customers more likely to praise them or incentivize good reviews with discounts and free products. Look for negative reviews that claim people are receiving incentives. You can also filter for invited reviews on sites like Trustpilot.
• Mentions of negative comments being removed: Businesses may limit negative reviews by flagging them or paying the platform. Look for reviewers who claim their attempts to leave criticisms were blocked or deleted.

Of all the ways online reviews can be misleading, artificially inflated business profiles are the most common. If you take one thing away from this article, I hope it’s an increased vigilance against the tactics businesses use to seem better than they are.

Watch Out for Signs of Competitor Tampering

It probably doesn’t surprise you that businesses often artificially inflate their online reputations by offering incentives, discouraging negative comments, and purchasing fake reviews outright.

You might not have known that businesses also use similar tactics to hurt their competitors. In one survey, 18% of businesses reported they’d consider sabotaging a peer’s reputation online if they knew they’d get away with it. Since you can’t rely on people to out themselves, the real numbers are probably higher.

Many signs that reveal fake positive reviews apply to fake negative ones, such as bad writing, generic comments, suspicious profiles, and sudden increases in review numbers. You may also see the business owner replying to these reviews and refuting their claims or proving that the writer was never a real customer.

Don’t forget your own bias when looking at online reviews. Just as reviewers are prone to highlighting the negative, so too are we more likely to latch onto the criticisms people leave.

Maybe I should consider giving some of those four-star Mexican spots a shot.

Putting It All Together

Online reviews are an indispensable lens into a business’s reputation, especially when you’re making a high-stakes decision involving sensitive personal information or a significant investment of time or money.

However, you must learn to maintain a skeptical attitude and evaluate them critically instead of taking them at face value. Get familiar with the most popular platforms and practice analyzing online reviews individually and in aggregate. Always pull reviews from multiple platforms and look for patterns or grossly conflicting opinions.

Your ability to gauge a business’s online reputation will improve with practice. Eventually, you’ll be able to quickly extract insight from online reviews and make better purchase decisions.

The post How to Evaluate Online Reviews When Making Purchase Decisions appeared first on FinMasters.

While you must handle negotiations tactfully, you shouldn’t be so afraid of rocking the boat that you fail to advocate for yourself.

Here’s what you need to know to get the pay you deserve, including why negotiating is so valuable, how to prepare for the conversation, and what to do during the discussion to maximize your odds of success.

Why Should You Negotiate Your Salary?

Negotiating with a prospective employer can be intimidating, and many professionals are reluctant to risk it. In 2022, Fidelity Investments found that 58% of working Americans accepted the initial offer for their current positions without negotiating^[1].

However, those that negotiate are more likely to get what they want than you might expect. The same Fidelity study found that 85% of Americans who negotiated their previous job offers got at least some of what they requested.

In addition, CareerBuilder found in 2016 that 73% of employers reported being perfectly willing to negotiate salary^[2]. The data is a little outdated, but there’s little reason for that number to have decreased. In today’s tight labor market, it may have even increased.

The risks of negotiating may be low, but the benefits are significant. Negotiating a higher salary increases the floor for all your future raises. Even if you never negotiate again, that can considerably increase your lifetime earnings.

If nothing else, negotiating with your employers demonstrates characteristics that can increase their perception of your value as an employee. For example, it shows that you know your worth and are confident enough in your communication skills to advocate for yourself in stressful situations.

Learn More: College Is Worthless! You’ve Heard the Stories, but Is It True?

How to Prepare to Negotiate Salary

Determine Negotiability

Negotiating your salary is almost always a good decision, but ‘almost’ is the operative word. Though rare, there are circumstances where it would be inadvisable to ask for additional pay.

Most commonly, it’s a bad idea to negotiate salary after you’ve already accepted an offer verbally or in writing. Not only will you have a tough time convincing your prospective employer, but you’re more likely to give a negative impression. It might not cost you the job, but you don’t want to get off on the wrong foot in your new role.

It’s also worth considering the degree of negotiability in your salary. Your leverage can vary significantly depending on your qualifications and your prospective employer’s needs, which should inform how aggressively you negotiate.

For example: a recent college graduate with no work experience will generally have less negotiating power than someone with years of relevant experience and a proven track record.

Assess Your Market Value

To negotiate your salary effectively, you need to know what your labor is worth. That can mean the difference between making a counteroffer you can realistically obtain and throwing out random requests based on what you’d like to earn in a perfect world.

Fortunately, it’s easier to assess your market value than ever, thanks to sites like Glassdoor and Salary.com. You can use them to explore compensation packages belonging to individuals with your qualifications in similar positions or even those who held the job you’re interviewing for previously.

Average salaries can vary widely with location, so try to understand what similar positions are paying in your area.

Figure Out Who You’re Negotiating With

Most companies will put you through several rounds of interviews. Depending on the company, you might meet with the human resources manager, hiring manager, prospective boss, and even your future coworkers before you get an offer.

As a result, it can be challenging to figure out the right person to ask about compensation. If you’re unsure, consider asking your recruiter if you have one. A prospective coworker might also be able to speak from experience and point you in the right direction.

Once you have that information, do some research on the individual with whom you’re going to be negotiating. Look for things you have in common that will help you build rapport and make them like you before you make your requests.

In addition, consider their position when deciding how to approach your negotiations. For example, it may be less risky to negotiate aggressively with an HR representative. Conversely, you probably want to be more respectful when negotiating with a prospective boss to avoid negatively affecting your future working relationship.

Practice Your Pitch

Negotiation skills are as critical for employees as for independent contractors, but employees tend to get much less practice. Most W-2 workers stay at their jobs for about four years. That means you’ve likely negotiated only rarely, and it’s probably been a long time since you’ve had reason to do so.

As a result, you shouldn’t expect to walk into your prospective employer’s offices and navigate your salary negotiations with ease. As with everything else, practice makes perfect, so spend time working on your pitch before you give it.

Generally, it’s best to practice with another person, so ask a friend, family member, or partner to help you. The exercise will be most effective if they can give you a realistic response, so consider choosing someone in your network with relevant experience.

How to Negotiate Your Salary

Preparation is critical to successful negotiations, but there’s just as much to think about when it’s time to execute. Let’s discuss some of the choices you’ll have to make when negotiating and the pros and cons of various options, then outline some tactics and techniques that will help maximize your chances of success.

Negotiation Timing

One of the first strategic decisions you’ll have to make is when to bring up the subject of compensation. Generally, your two primary choices are during the interview process or after you’ve received an initial job offer.

The most significant benefit to asking during the interview process, especially relatively early on, is that it lets you determine whether it’s worth continuing. Since each job you interview for requires hours of work and weeks of waiting, you can save a lot of time by addressing compensation upfront.

However, the earlier you bring up salary, the more likely you’ll come across as tactless to your prospective employer. Everyone knows that pay is one of your most important considerations, but discussing money can still strike some people as being in bad taste.

Ultimately, there’s no universally correct choice, and you’ll have to make a calculated decision based on the circumstances. For example, it might make sense to bring up compensation early if you already have a job offer from another firm.

Not only would you be on an understandably shorter timeline, but you’d also have less to lose by accidentally offending the second prospect.

Communication Method

Many people find negotiating stressful or intimidating, which makes it tempting to raise the issue via email. That’s not necessarily improper if you received your initial offer via email, but you’re generally better off negotiating over the phone, via video, or in person.

As nerve-racking as it can be, negotiating through a medium that facilitates eye contact, tone, and body language makes it much easier to convey what you intend. It also lets you get live feedback from the person you’re negotiating with, adjust your tactics on the fly, and resolve the issue more quickly.

Meanwhile, negotiating through email puts you at risk of projecting a lack of confidence or communication skill, which can negatively impact your chances of success and your future relationship with your prospective employer.

Negotiation Tactics and Techniques

Negotiating is a lot like closing a sale, and it’s beneficial to approach the discussion like a salesperson with a bag of tricks.

Fortunately, it’s not always necessary to pull out all the stops. If the person you’re negotiating with seems reasonably amenable to your requests, there’s probably no need to launch a full-court press.

Negotiation Mistakes to Avoid

We’ve outlined a game plan for preparing for negotiations and handling yourself in the actual discussions.

Avoiding mistakes like these can help optimize your chances of getting the pay you want, but try not to stress about being perfect. Remember, most employers expect you to negotiate your salary and will be willing to work with you.

Practice Your Negotiation Skills

There’s a lot to keep track of when you’re negotiating your salary, and it can be incredibly challenging to manage it all at once. You’ll probably need extensive practice to become effective at the tactics we discussed.

Training with people you know is helpful, but there’s no substitute for a live experience. When you’re not desperate for a job, test your negotiation skills in legitimate interviews. With less pressure and a longer time horizon, you can master the skills you need to get your ideal compensation package.

Learn More: 20 Weird Jobs That Pay Surprisingly Well in 2023

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