Credit vs. Debit Cards: Which Do I Use?

When you reach into your wallet to pay for something, do you pause to ask yourself whether to use credit or debit? It’s an important question, and one that is often overlooked. Although the decision between a debit card and credit card is a personal one, there are times when one is more appropriate to use than the other.

Debit or Credit?

Best Uses for Credit Cards

Credit cards are more heavily advertised and visible as a financial product than debit cards. While they come with perks and solid fraud protection, it is important to be selective when and where you use the cards. Here are three such instances:

1. For rewards Credit card companies offer some pretty attractive incentives to use their cards. You can rack up points to put toward hotels, flights, gas, groceries, cash back and more simply by opting to use a specific credit card. If you pay off your balance each month, you can really benefit from these opportunities and save a great deal of money. Otherwise, you may fall into fees more than freebies.
2. Online purchases It’s always advisable to use a credit card when making online purchases, as these cards offer a layer of fraud protection that debit cards do not. If someone steals your credit card number, you are liable only for charges up to $50 after you report the fraud, whereas you could be on the hook for $500 for a debit card. It is also advisable to research a company prior to making an online purchase with your credit card, especially newer companies. Make sure they are reputable to save you a great deal of stress.
3. When you can afford it While it can be tempting to use credit to purchase items now, resist the urge to spend habitually. Carrying a balance from month-to-month is a very big deal, because you must pay interest on the amount you owe. You will end up paying much more than you actually spent by accruing interest charges, leading to scenarios where you might pay for vacation expenses long after the trip. Use credit wisely to help build good credit, as paying off your bill each month shows you can manage it responsibly.

3 Best Practices for Debit Cards

Charging items to your credit card can get out of hand, and the way back on track can be your debit card. Since it dips into your checking account funds, you can better control your finances if debt is in your near future. Opt for your debit card for:

1. Frequent/familiar purchases It is not good to rely on too much credit. When shopping in-store at major retailers or smaller stores you frequent, using your debit card is a great idea. This helps you maintain a good grasp on what funds you have available and keep your monthly credit card purchases under control.
2. When budgeting If you are concerned about debt, ramp up your budgeting skills. When it comes to budgeting with plastic, stick to the debit card and grow healthier habits. Know your monthly spending limits and how much credit you can afford to spend. It is also much easier to resist temptation if you only have the funds in your account to spend, instead of spending to your credit limits.
3. When in credit card debt If you find yourself in credit card debt, continuing to charge purchases to your cards will only perpetuate a downward debt cycle. Repayment needs to be a priority. Avoid credit charges at all costs. Although debit cards do not affect your credit score directly, shifting to using them will help raise a low, debt-ridden credit score.

Credit and debit cards both offer a number of advantages as payment options, but remember that certain trends can help better your situation, whether it’s debt or other unfavorable factors. Know your plastics and you will be in control of your financial fate.

Spencer Tierney, NerdWallet

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Avoid the Pitfalls of Predatory Lending Practices

If you are considering a loan of any type, you need to beware of certain questionable lending practices. The Federal Reserve Bank of New York has defined "predatory lending" as:

A welfare-reducing provision of credit, where lenders profit by tempting

consumers into over-borrowing and delinquency.

There are several different types of predatory lending practices.

Predatory Mortgage Lending

Predatory mortgage lending involves a wide array of abusive practices. It often wipes out a family's wealth and frequently leads to foreclosure. Estimates place the annual cost of predatory mortgage lending at over $9 billion. Here are brief descriptions of some of the most common.

• Excessive fees: Many times lenders will include fees and points with the mortgage payment, even on standard loans. However, predatory lenders may charge fees that total more than 5% of the loan amount. A typical lender may charge around 1%.
• Prepayment penalties: Only around 2% of prime market mortgages will charge a penalty for paying off the loan early. However, the vast majority -- about 80% -- of subprime mortgages charge an early pay-off penalty. With abusive predatory loans, the penalty may be more than six months worth of interest.
• Kickbacks: Some predatory lenders have deals to pay kickbacks to real estate brokers who submit a loan that carries a bloated interest rate. The kickback, or “yield spread premium," is paid directly to the broker as an incentive for selling higher interest rate loans.
• Flipping: Consumers usually pay a fee to refinance their mortgage loan. Flipping occurs when a borrower refinances a loan to generate fee income without providing any benefit to the borrower. These unnecessary fees can drain a borrower's equity and inflate their monthly payments. Flipping may even occur with debt-free homes.
• Steering: Some borrowers are steered toward high interest loans, even if they may qualify for sub-prime loans. Research conducted by Fannie Mae shows over half of all borrowers with subprime mortgages could have qualified for loans with more appealing terms. Steering seems to occur more frequently among certain ethnic pockets. One government study revealed 51% of refinanced mortgages in predominantly African-American neighborhoods are subprime loans, compared with just 9% of refinances in predominantly white neighborhoods.

Short Term Predatory Lending

• Payday loans: Payday loans are short-term products available to many consumers with little or no collateral. They simply must show they have a job in order to qualify for the loan, which they must repay by their next payday (hence, the term "payday loan"). Payday loans (also called "cash advance) come with excessively high interest rates, which rise rapidly when the borrower cannot repay the loan within the prescribed timeframe.
• Car title loans: These are similar to payday loans. Car title loans come with high annual interest rates (usually over 100%) that often lead to a cycle of debt because their require repayment within one month, and the borrower is often unable to pay off the loan that quickly.

Tips 

We want all our members to be cautious. To help you avoid predatory lending practices, we have compiled the following list of tips:

1. Ask questions. Do not just accept the representative's word as the truth. Seek out additional information on all products.
2. Shop around. You may be in a rush to obtain the money, but it pays to take your time whenever your money is concerned.
3. Be an educated consumer. The Internet is an excellent source of information. Seek out consumer reviews and articles on products and companies with which you may conduct business.
4. Always read the agreement carefully before you sign. 
5. Avoid balloon payments. 
6. Avoid deals with prepayment penalties. 
7. Know your rights as a consumer. 
8. Just say, “no" if you believe the deal is not beneficial. 
9. Build your credit. This is one of the most effective ways to ensure you will receive the most competitive rate. 
10. Keep in mind -- low monthly payments are not always the best deal. Look at the overall cost of the loan. 
11. Watch out for offers to refinance the loan to a better rate down the road. 
12. Never sign a blank document or anything the lender promised to complete later. 

AltaOne offers several financial tools to help our members better understand how to manage their finances and avoid potentially under-handed lending practices. 

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Make Banking Easier with Online Tools

Running errands to the local credit union has long been a time-consuming, yet necessary chore. Thanks to the onset of online and mobile banking tools, money management is now easier than ever. Many banking features are available from anywhere, allowing you to transfer funds from your couch or pay bills on your smartphone while waiting in line at the grocery store. Read on for an overview of the latest tools out there.

Who is Using Online and Mobile Banking Tools?

Mobile banking is a hot new trend quickly gaining popularity. A 2012 survey conducted by the Federal Reserve noted that nearly 28% of mobile phone users reported using mobile banking features during the previous 12 months. This represents a steady increase from the 21% who reported using mobile banking during the 2011 survey.

It may come as a surprise to many, but age does not seem to be much of a factor when it comes to mobile banking. The Federal Reserve survey noted the following mobile banking usage by age during the past 12 months:

• 21.5% — 18 to 29 year olds
• 26.9% — 30 to 44 year olds
• 27.2% — 45 to 59 year olds
• 24.4% — 60+ year olds

Mobile banking is not the only form of electronic banking on the rise. A 2013 survey by the Pew Research Center found that 51% of U.S. adults bank online, representing 61% of Internet users. More men than women use online banking, according to the research -- 63% to 58%. The online banking usage breakdown by age includes:

• 67% — 18 to 29 year olds
• 65% — 30 to 49 year olds
• 55% — 50 to 64 year olds
• 47% — 65+ year olds

This represents a steady growth rate from a 2010 survey by the think tank, revealing that 46% of U.S. adults, representing 58% of Internet users, said they bank online.

Both online and mobile banking users benefit from a wide-variety of tech savvy tools designed to simplify money management, including:

Mobile Banking Tools

For many people, banking from a smartphone is the ultimate in convenience. Mobile banking availability and features vary by financial institution, but are quickly gaining popularity. Popular features available through mobile apps and web browsers include the ability to check account balances, transfer funds, pay bills, deposit checks and find nearby ATMs and branch locations.

Online Banking Tools

Online banking has been around for a while, providing many customers with enough features to almost completely avoid the inside a financial institution. AltaOne and many other organizations offer a variety of features, including the ability to open new accounts online, conduct internal and external fund transfers, set up automatic bill pay, review your accounts 24/7 and set spending alerts.

Budgeting Tools

Online budgeting tools have made it easier than ever to manage your finances. To get started, all you have to do is create an account and these apps will aggregate your financial data, including loans, credit union accounts, credit cards balances, and more. Budgeting tools such as AltaOne's BudgetPro have features to help you track your expenses, showing you how much money you have in certain categories, so you can identify areas to cut back.

Loan Access

Skip the branch visit – you can apply for just about any kind of loan online at your credit union’s website. As long as you are a member, you can apply anytime, 24/7. Some credit unions even have online loan payment centers.

Final Word

If you are not already using online and mobile banking tools, now is the time to get started. The wide-variety of available services saves consumers a great deal of time and effort. Manage your money when and where it is most convenient for you.

Damaris Olaechea, NerdWallet

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Why Preapproved Auto Loans Make Sense

With so many credit unions and other financial institutions offering low auto loan rates, now is a great time to make that new car purchase you have been putting off. In addition, the minuscule auto loan rates are very tempting for those who may want to refinance their existing loan.

But before you go out to shop for your new ride, stop to think about your buying options. While going directly to the auto dealer seems to be the easiest route, the Consumer Financial Protection Bureau has warned consumers that dealer financing often results in higher interest rates. 

In addition, if you have ever experienced the sales pressure of the car dealer's financing department, you may want to consider a pre-approval from a credit union such as AltaOne. Auto loan pre-approvals from a credit union give the consumer greater negotiating leverage with the dealer, it speeds up the buying process and it will usually save a ton of money on the interest rate.

Check out the following pointers that will help you with the pre-approval and auto buying process:

1. Credit check Smart consumers obtain a credit history on a regular basis. Not only will it reveal your credit score (scores will vary, depending on the reporting agency), but this gives you the chance to correct errors on your credit. If your credit score is lower than you had hoped, you may want to tighten your budget and pay down some debt. This will improve your debt-to-income ratio and enhance your credit score.
2. Check out the local offers. As we mentioned, many credit unions and banks offer rate promotions. Shop around for the better deals.
3. Determine your budget.  What is the maximum car payment you can afford? What is the maximum down payment you can plop down on a new vehicle? This information will determine the flexibility when it comes to the vehicle selection and terms of your loan.
4. Visit your local credit union. The approval process is painless. Once the lender determines your eligibility, you will receive a "blank check" for a specified amount of money you can spend on a new vehicle. Once you select your vehicle, you give your "blank check" to the dealer, and they finalize the lending arrangements with your credit union.
5. The F&I guy will try to sell you. Many car dealer finance and insurance managers will attempt to offer you their own financing deals. They may have arrangements with other financial institutions that make it more lucrative for them. Listen carefully and do not let a sales pitch sway you.
6. You must carry adequate insurance coverage. All reputable auto lenders require consumers to carry a full insurance coverage on financed vehicles. This ensures that the institution recovers at least part of the loan balance in the event of total loss. If your down payment is less than 20%, you may need a GAP (Guaranteed Auto Protection) insurance policy that covers the difference between the amount the vehicle is worth as an insurance loss and the remaining loan balance.
7. Drive your new car home. You sign on the dotted line -- and now you have a new car. Stay current on your payments and enjoy that new car scent.

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Millennials Must Become Savvy Money Managers

The focus for many U.S. industries and companies has shifted toward Millennial (or "Gen Y") consumers -- those born between 1980-1995. Millennials are perceived to be the up-and-coming decision-makers, thought leaders and, from a marketing standpoint, money spenders.

This is both positive and negative for Gen Y'ers. Certainly, with the focus on this segment of the population, Millennials should get first dibs on new technology, new products/services and political opportunities. Gen Y consumers should be poised to take the reins from their Baby Boomer parents as leaders of the next generation. However, statistics show that Millennials may just be the first generation of Americans who will struggle more financially than the prior generation. Jobs are not as abundant. Student loan debt is massive. More college graduates than ever must move back in with their folks and accept positions that workers with a high school education can easily attain.

It is critical that Millennials learn and adhere to sharp money management skills that will help to prepare them to budget their money, save for their future and weather financial storms that may arise.

A recent study illustrates this point:

Student loans are available to a high percentage of collegians. Due to the soaring cost of a college education, more students than ever are graduating with a diploma in one hand and a giant "IOU" slip in the other. This study reveals that 51% of Millennials do not save any money.  That is a problem.  When asked why not:

• 87% simply do not have enough money to save.
• 81% want to pay down their debt before they start to save.

With fewer grads finding employment with adequate income, it then goes to reason that the dream of home ownership is not realistic for a high percentage of Gen Y consumers. The New York Times studied this trend. The graph below illustrates the newspaper's findings:

Now, do not look at the future as all doom and gloom. Instead, look at these studies as a wake-up call -- one that drives home the need to be much more fiscally savvy and prudent. Look for tools that will help you to better manage your money, budget and save for big-ticket items and set a plan for your future. AltaOne's Budget Pro personal financial manager is a free program that does all this -- and more.

Of course, it is not enough to set up your personal financial management tools. You must stick with it. Force yourself to make personal financial management a habit, just like paying your bills on time. Take that extra five minutes per week to make sure you are utilizing your PFM program and working toward those short- and long-term financial goals.

The bottom line -- if you are fortunate enough to land a good-paying position right out of college, or you if are struggling to find your career, it is vital that strict money management is a high priority for Gen Y consumers.

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Business Facts...Believe it or Not!

Check out these fun facts about some of the world's most famous business brands:

For the Extremely Voracious Reader

When a Wal-Mart store closes its doors for good, it often sits empty -- a massive echoing enclosure the size of over two football fields. In McAllen, Texas, one empty Wal-Mart store transformed into an extremely useful enterprise - the largest library in the U.S. Wonder if they offer free food samples.

The Very "Chew"sy Entrepreneur

William Wrigley Jr., the founder of the famous chewing gum company, did not set out to build one of the world's biggest gum brands. In fact, Wrigley first took over his father's soap business in the late 19th century. When he moved to Chicago, Wrigley tried to bolster the soap biz by offering a free box of baking soda. The baking soda proved more popular than the soap, so Wrigley switched gears and turned the company into a baking soda firm. Then, to spark baking soda sales, Wrigley offered packs of bubble gum with each baking soda purchase. The gum became a hotter item than the baking soda, and Wrigley decided to sell chewing gum full-time — and he made a considerable mint.

The Name Game

What is in a name? You will often find some interesting trivia, if you research the name origins of many world-famous brands:

1. The convenience store "7-11" was originally called "U Tote'm." The name changed in 1947 when the hours of operation expanded to 7:00 a.m. to 11:00 p.m.
2. The electronics company "Sharp" initially got its name from its first product: the ever-sharp pencil.
3. The soft drink "Pepsi" took its name from digestive enzyme "pepsin."

Business Tid-Bits

And finally, how 'bout some rapid-fire business trivia?

• The original name of search engine giant "Yahoo!" was "Jerry's Guide to the Worldwide Web." We think Yahoo! is a little more recognizable. 
• Warner Channel Music owns the rights to the song "Happy Birthday" -- and they sing that song all the way to the bank (or credit union), to the tune of about $1 million a year in royalties.
• The person who designed the famous Nike swoosh received a mere $35 for the artwork.
• In 1987, American Airlines carved $40,000 from its bottom line by eliminating one olive from each salad served in first class. 
• It takes six months to build one Rolls Royce. It takes 13 hours to build a Toyota.

Feel free to use these amusing business facts to impress your co-workers and friends.

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Guard Your Credit Card!

You may have read some news recently about problems with a major department store and a security breach with its credit card data. If you want to avoid being the "target" of a credit card data theft, you may want to pay attention to the scroll of helpful hints below:

1. Believe it or not ... More credit cards thefts occur in the workplace than any other location. It is not wise to leave your credit cards unattended -- even in the office.
2. Keep your PIN or security code hidden at all times. Memorize the PIN or keep it stored in a place (such as your cell phone) this is invisible to anyone else.
3. Never leave credit cards in a car. This is a very tempting target for thieves.
4. Check to see that the card is correct when the cashier hands it back to you. A busy cashier may mistakenly switch cards.
5. Always keep your credit cards on you when traveling.
6. A high percentage of credit card fraud charges occur within a couple days after a card is lost, so report a lost or stolen card ASAP.
7. Slice up and trash old and unwanted cards immediately.
8. Sign the back of your new card immediately.
9. Keep a list of all credit cards and the numbers. You will need to refer to the list if your wallet or purse is lost and you need to replace all your cards.
10. Carefully review your monthly credit card statements and check for improper charges. If you find potentially false charges, contact the card company as quickly as possible.
11. Avoid divulging your credit card number over the phone to anyone, unless you are 100 percent confident the company is reputable.
12. Many consumers make online purchases. Check to see the website is secure before you provide credit card information.
13. Be wary of multi-swipes. Sometimes a charge may go through twice if the cashier runs the card through more than once.
14. Do not provide your credit card number while on your cell phone -- especially when you are in earshot of others who can potentially listen to your information.
15. A safer alternative for online purchases are pre-paid credit cards, where funds are loaded onto the card in advance. If these cards are stolen, you are only on the hook for the amount of money you added to the card.

Hopefully, we will not see many more major credit card breaches. Meanwhile, be cautious and adhere to these and other rules to protect your credit card data.

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