Hi! I’m Erin from Broke Millennial for The Financial Diet. Welcome to the 3 Minute Guide brought to you by Skillshare. It’s easy for personal finance experts to say, “You should never have credit card debt!” or “You should never spend more than you earn!” or any other cliched trope of the genre.
Problem is, shit happens and there is lots of shades of gray when it comes to your personal finances. Today I’m going to overview two controversial money moves and when it might make sense for you to employ them.
Money Move Number one: Move your debt to another credit card.
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Whether or not you actually have debt you’ve probably received a piece of snail mail that says something along the lines of “0% APR for 18 months”. These deals are commonly known as a balance transfer Aptly named because you move the balance from one card to another.
That might sound insane to you. Why would you move your debt to another credit card, and tempt fate like that by opening a new credit card? Well that 0% interest rate could help put a huge dent in your repayment plan if, and this is a big if, you don’t screw up. The average interest rate on a credit card is just shy of 17 percent according to creditcardscom; which is why it feels like it takes forever to get out of debt but if you move the balance to a 0% rate then every penny that you’re putting towards your debt is actually going to pay off the principal balance which helps you get out of debt much faster. Even though the balance transfer cards typically charge a fee of around three to four percent of the balance, the amount that you save paying off your debt at 0% makes the fee worth it.
It sounds like a miracle cure but of course it’s not, you have to be very careful to follow the rules in order to avoid losing the 0% promotional rate. You always need to pay your bill on time; you usually have to roll over the balance within 60 days of doing the balance transfer. And remember, if you don’t pay off the debt in full by the end of the promotional period; then any remainder is going to get charged the regular interest rate. You also shouldn’t be using this balance transfer card to make any purchases.
Just focus on paying down the debt before you do any of this, be sure to carefully consider why you’re in credit card debt in the first place. If opening a new credit card is going to tempt you to spend more and create more debt then it’s really not worth the risk.
Money move number two: Personal finance experts -myself included, harp on the importance of contributing to your employer match 401k. It’s free money we say! While saving for retirement and maximizing your employer contribution are both important; there are times when it just might not make sense to take advantage of your employer-sponsored 401k. For example, you can forego contributing to an employer matched 401k if it’s a crappy program and you know you probably won’t be at the company all that long.
For instance, your employer might not even start matching your contributions until you’ve been at the company for one or two years, or maybe the company has a cliff vesting schedule.
Cliff Vesting Schedule
A vesting schedule is the amount of time it takes before you can leave the company and take your employer contributions with you. A cliff vesting schedule usually means that you can’t take any of your employer match until you’ve worked with a company for five years. Reminder you can always take your contributions with you. To top it all off, perhaps you looked at the investment options and the fees and realize, “Meh, I can do better investing this money myself instead of using this program.
Besides I’m probably not going to be here for two years let alone five”. Don’t use this as an excuse to forgo planning for your future. If you take this tactic, and don’t contribute to an employer sponsored 401k plan, then consider investing for retirement by yourself through an IRA.
One move that’s never controversial is investing in yourself and improving your resume skills. You can learn to do this and many other skills using classes on Skillshare. Which provides an easy and affordable ways to expand your talents.
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Since Skillshare is sponsoring this video the first 500 people to use the promo link in the description will get their first two months free to try it out risk-free. Click the link in the description to check out this week’s featured class or any of the other classes Skillshare has to offer. Have a money question you want to learn more about? Then leave your topic idea in the comments section below. I’m Erin from Broke Millennial for The Financial Diet and don’t forget to be here next Thursday for a new 3 Minute Guide.