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7 Things You Should Know Before You Rent Out Your Home

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

The single-family rental industry is booming. So many homeowners are choosing to rent out their homes these days that annual home sales dipped 5 percent in 2017, translating to about 270,000 fewer homes sold that year, according to a study by Zillow.

Contrary to popular belief, big-time real estate investors aren’t driving that growth. On the contrary, a recent report by the Urban Institute found nearly half — 45 percent — of single-family rentals are owned by investors who own just one unit.

Cindy Kluger, 50, of Rancho Santa Margarita, Calif., became an unexpected landlord in 2017.

In January, Kluger, a single mother of two — a 16-year-old son and 13-year-old daughter — inherited her aunt’s home in the popular Larchmont district of Los Angeles.

“I was sort of excited about it from the beginning simply because it's the house where I spent all of my holidays growing up,” Kluger told MagnifyMoney. “I get the honor of caring for this house that meant so much to all of us growing up.”

The home was built in the 1920s and had been in the family for nearly half a century, mostly serving as a destination for family holiday gatherings. Because her extended family was emotionally attached to the home, Kluger knew she didn’t want to live in it or sell the property, but there were taxes and maintenance fees to cover. As an alternative, she decided to rent the entire house out.

For any first-time landlord, navigating the ins and outs of renting out a property can be challenging.

“Being an effective single-family home landlord requires discipline first and foremost,” said Brian Davis, co-founder of SparkRental.com. “Being a landlord is not an emotional business, it’s a business of operating systematically.”

Here are some practical tips for anyone planning to rent out their single-family home for the first time.

Any home improvements needed at the property

203k loan

Before you put your home on the rental market, you should make sure it has been properly inspected and that any underlying structural issues are repaired first.

“I think all homes should have an inspection, even new construction,” said Greenville, S.C.- based real estate consultant Sunny Lake. “To protect you and your investment, it's always a good idea to have experts working for you to give you an opinion of value and condition.”.

Specifically, look for what needs to be fixed to make sure the property is both legally habitable and aesthetically marketable for prospective tenants.

Because Kluger had inherited a home that had been in her family for decades, she soon realized how many issues had been fixed with DIY repairs.

“For the past 20 years [my aunt] had put bandaids on what was broken,” she said. “I realized that everything had to be examined.”

To bring the home into the modern era, Kluger had to completely redo the home’s foundation, electricity, and plumbing, in addition to ripping out the wall-to-wall carpeting in favor of hardwood and repainting the walls.

“I think it’s super important to think about these things that you may not be aware of because you are not living in the house,” she said. “You don't want to bring renters into that environment.”

Your property management style

One of the most important things you will need to figure out is who will be responsible for managing the property. Most crucial, you’ll need to decide who handles any general maintenance and whom the tenants will contact if something breaks.

If you take on that responsibility yourself, you may be on call 24/7 to fix a broken pipe (or call someone who can go to the property to fix it). This is the approach Kluger plans to take.

“The fact that I sort of enjoyed all of the maintenance things came as sort of a surprise,” said Kluger. As she set about renovating her home, Kluger says made several contacts with vendors in the area whom she can call if tenants report anything broken and trust they will promptly handle the request.

Lake says you can do it yourself if you are a hands-on person with a network of service providers. But, not all landlords want to take the hands-on approach.

“Landlords should hire a property manager if [they don’t live near the property], or if they don’t have the discipline to manage their properties effectively,” added Davis.

If you plan to hire a property management firm, be prepared to pay between 8 to 10 percent of the monthly rent as a fee, says Lake, although that fee will vary by location.

With that fee comes some valuable bonuses, including peace of mind knowing that the major snafus will be handled by someone else.

Having a property management company might also attract higher-quality tenants, assuming the company provides a higher level of service than you would be able to offer as a single property manager.

Property management companies may also have more experience dealing with tenant issues. If the tenants don’t pay rent, for example, the management company may have a process and a legal team already in place to help resolve the issue.

“It all depends on your accessibility, and how much contact you want to have with the tenants,” said Lake. “Lots of investors feel like the fee is worth it to not have to deal with the potential hassles of late rent, walk-throughs, property maintenance, etc.”

What you expect your tenants to maintain

Some property managers handle all of the property maintenance, while others only manage a portion and expect the tenant to do some of the work involved in keeping the property clean and looking nice.

In the case of a single-family property, tenants might be asked to keep up with lawn maintenance, pay for a garbage collection service, or even homeowners’ association fees, if applicable. And that information should be included in the lease that the tenant signs.

If you won’t allow the tenant to do any landscaping or lawn maintenance because you plan to hire a company to come handle that kind of stuff on a periodic basis, for example, that needs to be stated in writing in the lease. If the tenant is expected to cover HOA fees, the details about how you’ll collect the fee needs to be in the lease, too.

In addition, the lease would need to outline what kinds of modifications the renter is allowed to make to the property. Are they allowed to paint the outside of the home? What about the walls on the inside?

Can they install a fence to keep their dogs in the backyard? If you don’t want your tenants to make any drastic changes to the property, that needs to be clearly stated in writing.

How you’ll find reliable tenants

It’s your property, so you’ll need to decide how you’ll choose a tenant for your property. It’s easy enough to post an ad on Craigslist or Facebook, but that’s just the first step. Once you receive applications, you want to make sure you have a way to choose a tenant you can trust to pay rent in full and on time. That may involve some level of underwriting — like like pulling a credit report and running criminal background check — to check a tenant’s creditworthiness.

“Tenant screening is an art and science in itself” said Davis. He offers the following tips to simplify the process:

  1. Always run full credit, criminal, and eviction reports.
  2. Always verify income and employment.
  3. Verify housing history as best you can with not just the current landlord but a prior landlord.
  4. Consider inspecting the applicant’s current home to see if they maintain it well.

Davis recommends making the inspection of the applicant’s current home a condition of lease acceptance.

“Applicants don’t have to agree, and the landlord doesn’t have to lease to them,” he says. “But, because it’s the most labor-intensive part of screening, it should be left for last, and only done for applicants who otherwise will be accepted."

In Kluger's case, she decided to get the help of a real estate agent to find her first tenant. The agent will find and screen tenants on behalf of Kluger and her father, this time.

“Once she helps us with that process my intention is to educate myself and learn what needs to be done to properly screen renters,” said Kluger.

Regardless of the agent’s opinion, the landlord gets the last word.

“One of the things my dad had me ask the real estate agent is that after she screens the person and thinks she has found a good candidate that we get last say. That we get to meet them and sign off,” said Kluger.

Even if you have a real estate agent taking applications, as in Kluger’s case, Lake recommends hiring an agency to run background checks on any applicants, as they have more access to financial, criminal, and other personal history.

If you don’t have the budget to hire an agent and agency, you may be able to handle the process on your own.

There are several websites that offer tenant screening services, for a fee. A couple of examples include Spark RentalCozy, and MyRental. Cozy, for example, charges $39.99 for both a background check and credit report, but the fee is assessed to the applicant, not the landlord. MyRental reports even include a ‘tenant score’ — a three-digit number that predicts the likelihood of lease default and lets you see if other landlords in your area accepted or declined applicants with that score for around $35.

How much you’ll charge for rent

To set your number, Lake says you’ll need to know the current market value of your property, which will vary based on the location and vacancy rates. She recommends calling up experts in your market for help in determining the rent amount if you're not a seasoned agent or investor.

“You don't want to overprice the property and have it sit empty,” she said. “But you don't want to underprice it and leave money on the table.”

Beware: There may be restrictions on how much you are allowed to raise rent each year. Rent control laws are passed by cities, so you should check the municipal code to see if any rent control laws apply to the area you live in.

You can find your home’s estimated value on mortgage websites like Zillow or Trulia. You can also pay to have an appraiser come and check out your property in person for a more accurate estimate.

“Appraisals are required for financing, but landlords should learn to assess market rents for themselves,” advised Davis.

You should also decide how much of a security deposit, if any, you will request. The deposit acts as security for you in case the tenant is unable to pay rent for a period of time, or to fix any damages left by the tenant when he or she eventually moves out.

The rules surrounding security deposits vary from state to state. For example, New York has no law limiting the amount a landlord can charge for a security deposit, but, if the apartment is in the rent-controlled jurisdiction of New York City, the landlord is limited to collecting up to one month’s rent for a security deposit. Meanwhile, Alabama state law limits landlords to taking only one month’s rent.

State laws may also regulate where you are allowed to keep security deposit funds, if you must first do a walk-through of the residence to collect a deposit, when you are allowed to keep the deposit, and within what amount of time you are required to return the deposit. Check landlord tenant laws in your state to figure out what rules apply to you. Here are a few resources on NoloAmerican Apartment Owners Association and Landlord.com to get started.

Outside of the law, the amount you require is up to you to decide, but will likely depend on how confident you are about the applicant’s creditworthiness. For example, if the applicant is self-employed and that causes you to be less confident in their ability to make the rent payments, you may require a larger security deposit, or ask them to pay upfront a few months worth of rent before they are permitted to move in.

How the cash flows work

If you’re looking to rent a single-family home as an investment property, you should understand the money going in and out of your investment, and how much it will cost you to make money on your rental. In other words, you should understand your cash flows.

For example, you may run yourself into the red if the rent you charge is only enough to cover your monthly mortgage payment and doesn't take into consideration all of the other costs you’ll incur renting the property like your property tax, utilities, or what you pay to a property manager or other facility managers.

To get an idea of your cash flows, consider your maintenance costs on the property. In addition to property taxes, community fees, and general maintenance costs, you want to factor in cushion for the unexpected, like any potential lapses in tenancy during which you may not be able to receive rent, too.

“You need to have some risk tolerance to be an investor,” says Lake. “If the rental market is soft in your area, you need to have enough other cash flow to maintain your property even if it's vacant.”

Lay out the cash flow — what you’ll be paid versus the amount of money you plan to put into the investment — and see if the number you estimate you’ll have after all is said and done makes good financial sense for you to rent the property.

What your insurance policy covers

If you’re renting out a home that’s still under a mortgage, you will likely need to purchase a landlord insurance policy to have the proper protections in place, according to Davis. The protection is similar to a homeowner’s insurance policy, but it doesn't cover belongings.

Some homeowners insurance policies will cover short-term rentals, but most don’t cover long-term rentals like you would need to rent a home. Landlord policies generally cost about 25 percent more than a standard homeowners policy, according to the III, but you’ll get more protections in exchange for the increase.

Landlord insurance typically provides:

  • Property insurance coverage — This covers any physical damages to the structure of the home caused by nature.
  • Coverage for your personal items — If a lawnmower you keep on-site for lawn maintenance burns in a wildfire, for example, landlord insurance would pay for the loss.
  • Liability coverage — Legal and medical expenses may be covered if a tenant or one of their guests gets hurt while on the property.
  • Coverage for loss of rental income — If for some reason you are not able to rent the property — maybe it's being repaired or rebuilt after damage from a covered loss — the insurance company should pay you the lost rental income for a specific period of time.

Since landlord insurance won’t cover your tenant’s stuff, you may also want to state in your lease whether or not you will require a tenant to keep renters insurance. When your tenant has renters insurance, that saves you, the landlord, from liability if something happens (think: fire, flood) and the tenant’s items are damaged.

How you’ll cover a bad tenant or an emergency

As a landlord, you’ll want to have an emergency fund or other fast borrowing option in place in case you need to make an unexpected major repair, or cover your mortgage for a few months in case your tenant can no longer afford to pay rent.

“Landlords absolutely, positively need a cash cushion,” said Davis.“As a rule of thumb, I like to keep around two months' worth of rent on hand for each property, plus a source of available funds if needed.”

The fund exists to cover the occasional bad tenant or extended vacancy, and to keep up with the general maintenance of the home — in case, for example, a water heater breaks and you suddenly need $1,800 to replace it.

Lake, on the other hand, recommends landlords keep six months worth of rent in an emergency fund, but says that amount also depends on what other cash flow options you have at your disposal.

“It can be challenging for people to have that kind of cash along with a personal emergency fund,” said Lake. She recommends working with a financial advisor or property manager as a starting point.

Consider setting up an emergency fund, and contributing to it monthly. At the very least, you should have access to emergency money via quick borrowing options such as a credit card, home equity line of credit or home equity loan.

How much money you’ll need to cover a bad tenant or emergency may fluctuate depending on your property and the average amount of time it takes to evict someone, as it may vary depending on your state’s laws. You also want to consider the average time it may take to get another tenant in who will pay the rent. Check online or with a real estate lawyer in your area to calculate what the worst-case scenario may be for your situation.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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27 Easy Ways You Can Save More Money in 2018

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Resolving to finally pay off a massive pile of debt at the beginning of the new year can seem like a good idea at the time. But then, you may find yourself back where you started months later, having barely made a dent in your goal.

Often, if resolutions are too broad or too lofty (read: unrealistic) from the start, it can actually hurt your chances of seeing them through.

Instead of setting a broad resolution like becoming a money expert, or eliminating a debt worth half your annual income, try starting small.

Making small behavioral changes — or, microresolutions — may help you inch toward financial freedom without taking on too much at once.

A microresolution, as defined by author Caroline Arnold in her book, “Small Move, Big Change,” is a commitment to a limited, specific, and measurable change in behavior or attitude that produces an immediate and observable benefit.

Arnold argues making small behavior changes that can be incorporated into your daily habits — for example, resolving to take a few seconds to check your bank account balance during a lull in your day — can help establish lasting changes.

The following are 20+ small changes you can make to save more and pay down debt this year.

1. Cut one subscription service right now.

 

List all of the subscription services you pay for and cross out one or two that you can stand to lose. Using an app like Mint or a service like Trim can help you identify services more easily — Trim will even cancel them for you. A $10.99 standard Netflix account adds up to over $100 per year and a $14.99 Spotify family plan is nearly $200 per year.

2. Ditch your big bank savings account for an online savings account.

Savings accounts at online banks almost always offer a higher annual yield than those at brick-and-mortar institutions. If you put $1,000 in an Ally online savings account today, you’d earn $12.50 in interest after one year. That same $1,000 in a Bank of America account would only earn $0.10.

Check here to compare the best online savings accounts.

3. While you’re at it, set up a checking account with an online bank, too.

Online banks notoriously carry fewer fees and often reimburse for out-of-network ATM use.  Big banks often charge maintenance fees or require minimum balances to avoid them. Ally Bank, for example, uses ATMs on the Allpoint network, available in most drugstores. Ally also reimburses ATM fees paid during each month up to $10.

Check here to compare the best checking account offers today.

4. Ask payroll to set up a recurring deposit to your savings account.

Automate your savings so you don’t have to think about it. If your employer allows you to split your direct deposit, speak with your human resources department to send a portion of your direct deposit directly to your savings account.

“Commit to make saving money happen without you doing anything,” said Dan Andrews, a Greenwood Village, Colo.-based financial planner. “This makes your lazy behavior happy because you don't have to do anything after you set up this system.”

5. Don't withdraw money from ATMs that charge a fee.

Try to pay less money to access your cash reserves this year. Do your best to avoid ATMs that charge a fee. Often, you are charged twice — by both the owner of the out-of-network ATM and your bank just to take out your cash. For example, Bank of America charges its members $2.50 to use out-of-network ATMs and non-members $3.00. Now let’s say the out-of-network ATM you’re using also charges its own $2 fee. You could pay a nearly 10% premium to take out $50 or more if you’re taking out less money.

6. Identify your guilty pleasure and vow to only use cash to pay for it.

If you’re having trouble controlling your spending in a certain area, like restaurants or new clothes, Monterey, Calif.-based financial planner Catherine Hawley recommends limiting yourself to a cash-only budget in that spending category.

“This strategy helps create awareness of how much one's spending in specific categories. Using cash makes spending tangible,” Hawley said.

For example, take out $50 for the week to spend dining out. If you spend $50 the first day then there’s no more spending in this category until the next week. But, if you can hold on to the cash, you can add it to what you’ll have to spend the following week.

7. Make a list of what you need before you go to the grocery store.

Making a list saves you time and money — preventing impulse purchases once you get to the store and stopping you from buying more food than you need.

8. Call one service provider and ask for a better rate.

If you pay recurring service bills like a cellphone bill, cable bill or wireless internet service, there’s likely somewhere you can save money. Take a few minutes to call up one of these servicers to see if you can negotiate savings.

If you don’t want to risk waiting on the phone for hours or getting bounced around from department to department in the process, you can try a service called BillFixers, that’ll negotiate your bills with your providers for you. The service costs 50% of the amount you save on your bills in the first year, paid to BillFixers upfront or monthly.

9. Aim to bring lunch to work once this week.

According to a 2015 survey commissioned by Visa, Americans spend $2,746 a year on lunch alone. Take the opportunity to redirect that money elsewhere in your budget. For a more challenging task, try setting aside some time once a week to prepare your lunches for work for a day or two in advance.

10. Sign up for a no-brainer savings app like Digit.

A savings app can take the work out of saving money. Digit watches your spending, then uses an algorithm to calculate how much money to transfer to your Digit savings account periodically. In addition, you earn 1% on the fund in your Digit savings account. Transfer your Digit savings to your bank account anytime, for free. Digit is free to start but after the 100-day trial period ends, you’ll be charged $2.99 monthly. You can easily get a better return on your savings by opening an high-rate online savings account. But if you’re not a good saver historically and you think you could benefit from the automation that Digit offers, that fee might be worth it.

Qapital helps you set savings goals and rules to match them. The app goes ahead and transfers money toward your savings goal when the rule, like rounding all of your debit card purchases to the nearest dollar and saving the difference, applies. Qapital does not charge any fee for its service.

11. Carry a reusable water bottle.

According to the Beverage Marketing Corporation, Americans spent nearly $16 billion on bottled water in 2016. If you’re even spending just $3 on water a week, you could still save around $150 this year carrying a reusable water bottle (if you buy the bottle for $6).

12. Increase your retirement contribution by 1%.

Adding even 1% more to your retirement account a year can have a huge impact down the line. According to the Economic Policy Institute, “nearly half of working-age families have nothing saved in retirement accounts.”
Your employer’s 401(k) administrator might offer a way to automatically increase your contributions by 1-2% each year. Or you can do it yourself in about five minutes by logging in to your account.

“This is a great way to increase savings consistently without any hassle,” said Hawley. “If you are not maxing out your 401(k) already increasing contributions is important.”

13. Check your retirement allocations.

Take a peek at how your retirement money is being invested. Resolve to take a few minutes this year to check your retirement allocations to make sure they still make sense for your age. A common rule of thumb for making sure the investment risk you’re taking matches your age is holding a percentage of stocks equal to 100 minus your age.

The remainder should be invested in lower-risk investments like bonds and government debt. For example, someone who is 60 years old should have 60% of his investment in the stock market, and 40% invested in safer investments.  If you’re more aggressive, subtract your age from 110.

14. Dedicate 5 minutes to reviewing your finances at the end of the day.

Pick a time of the day when you’ll know you have a few minutes to spare (after work when you’re catching up on Netflix?) and review your recent spending. Use your bank’s mobile app or money-tracking apps like Mint or YNAB. Regularly going over your recent transactions helps you stay on top of your spending and savings goals, and give you the opportunity to evaluate your spending decisions.

15. Calculate your net worth.

Your net worth is one of the most important numbers to know in life because it’s is the best way to understand your financial health. Knowing how much you are worth helps you track your debt paydown progress and keeps your debt-to-income ratio in check.

Your net worth is easy to calculate. Your net worth is the number you end up with when you add up how much you own — assets like your 401(k), or investments in the stock market, or the current value of your home — and subtract how much you owe —  like credit card debt, student loan debt, an auto loan, or what you owe on your mortgage.

16. Automate your monthly credit card payments.

Out of sight, out of mind isn’t always a great approach to take with your finances. That being said, taking a few minutes to automate your credit card payments may help you avoid the sting of paying your debts each month. It also helps to avoid late payments, if they have been an issue for you in the past.

17. Set reminders to pay your bills on time.

It can be tough to keep all of your due dates straight when you have several bills due at different points throughout the month. Do yourself a favor and look up the due dates of all of your recurring bills, then put them into your phone’s calendar and set a notification to alert you when the bill is due. This task should take all of about 30 minutes if you decide to do all of your bills at once.

18. Pay more than the minimum on one of your debts each month.

Debt can be overwhelming. Start small. Choose one of your debts and vow to pay more than the minimum amount due to your lender.

The average American household carries about $6,416.15 of credit card debt. Using MagnifyMoney’s credit payoff calculator, we found that if the household were to a pay minimum $143 per month, it would take more than five years to pay off the debt. In that time, they would also pay $2,967 in interest, assuming the card charges 15% APR.

19. Check your credit score.

Take a minute or two to check up on your credit health this year. Try any of these online and mobile resources you can use to check your credit score for free.

Keeping up with your credit score on a regular basis helps give an idea of where you stand as a borrower, which is important when it comes time to apply apply for a new credit card or other loans. It also helps you stay on top of signs of fraud, like unexpected changes to your credit history.

The stronger your credit score is, the better terms you'll get the next time you apply for a loan, like an auto loan or mortgage. And scoring a lower rate can mean huge savings on interest over time.

20. Choose one debt to pay down first.

Prioritize your debt by choosing specific debt to tackle first. Here are two ways to do that:

  • Prioritize the debt with the lowest balance and work to pay it down first — achieving small wins early on will help build the momentum you need to tackle bigger debts.
  • Prioritize the debt with the highest APR and work to pay it off first — you’ll save money in the long term by attacking the costliest debts first.

Once you’ve chosen your top priority debt, throw everything you have at it while making minimum balances on the rest.

21. Apply for a 0% promo intro APR balance transfer credit card offer.

If you’re working to pay off a substantial amount of credit debt, take a few minutes and apply for a 0% promo intro APR balance transfer credit card. If you get approved, you could avoid paying a high interest rate on some or all of your debts for the promotional 0% period the card offers. Beware: The lender may charge a fee, usually 3-5% of the amount you transfer, for the service.

For example, if you avoid paying interest on a $2,000 debt on a card that charges a 15% APR for 12 months, you avoid paying back nearly $180 in interest charges.

22. Shop for auto loan refinance offers.

Take 10 minutes to see if you can save money on your auto loan this year. Refinance your auto loan on more favorable terms to get your payment under control. You could get a loan with a lower interest rate or a longer loan term to reduce your monthly payment.

23. Call at least one lender to negotiate your interest rate.

If you are stretched paying student loans, an auto loan, or even credit card debt, and have a good track record as a borrower, it may behoove you to call your lender and ask to negotiate a lower interest rate. The longer you carry debt, the more it earns in interest. If you are currently carrying debt month to month, lowering your interest rate may help you get out of debt faster by reducing how much interest you are charged on the remaining balance.

24. If you’re badly behind your debts, call to see if they’ll negotiate.

If any of your debts are outstanding, prioritize eliminating one of them today. You have much more flexibility in paying off long-outstanding debts than you may believe. Few know they can negotiate debts in collections, and by doing so they can save as much as 75%.

Those are significant savings. Set aside half an hour one day soon to call up the collections agency, or any business where you may have debt outstanding, and see if you can negotiate down the amount owed. At the very least, you'll get the opportunity to work out a payment plan to pay off the debt.

25. Unsubscribe from promotional emails.

If you’re always tempted to follow the links on promotional emails you receive each week from your favorite retailers learn to delete the emails right away or, even better, unsubscribe from them all together.

“The less you look, the less you may click the "purchase" button,” said  Rose Swanger, a Knoxville, Tenn.-based financial planner.

26. Download a budgeting app.

If tracking your spending seems a little overwhelming, download an app that will do it for you. You Need a Budget is a longtime favorite for not just tracking spending but aligning your spending with your savings goals; and we recently reviewed the Honeydue app for couples looking for an easy way to track their household spending. If you don’t have a smartphone, many of these services have a web version.

27. Read one personal finance book.

Commit to reading just one book on personal finance this year. Browse your local library, the personal finance section on Amazon, or your local bookstore to find a book that stands out to you. If reading isn’t your thing, you may be able to purchase an audio version to listen to during your commute.

Some options:

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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What to Do if You’re Trapped in a Bad Auto Loan

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Sometimes, you don’t realize you sign a bad deal until you start having to pay for it.

Imagine this scenario: When you walked away from the auto dealer’s lot, you were excited. You had a brand spanking new — or new to you — vehicle. After the hassle of saving for, finding, and finally purchasing your dream car, your financing terms were likely the last thing on your mind. When the dealer sat you down and told you what your monthly payment would be, you did some mental math, figured you could afford the bill, and signed the dotted line. A few months later, you notice your loan could have been less expensive and feel cheated.

What do you do?

“If it's in the contract and you signed the contract that’s it. You’re stuck with that,” said Anthony Giorgianni, associate editor at Consumer Reports.

If you’re not sure about your financing deal, a good way to evaluate it is by taking a look at the amortization table in the contract you signed, said Jerry Buchko, a Minneapolis-based debt counselor. If you can’t locate the original contract, you can ask for one via email or look for one online and estimate, but it’s most ideal to get it from the lender, and they should have a copy, said Buchko.

The amortization table is a set of tables that shows the total cost of your financing deal assuming all of your payments are made on time.

With the table in front of you, it becomes much easier to see if you’re currently paying more than what your vehicle is worth and if you’ll be in danger of being upside down on the loan (paying more than the vehicle is worth) in the future.

“With that information you should have all you need,” said Buchko. When analyzing and comparing the amortization tables for each loan offer, look for the one offering you the greatest overall savings, he recommended. Take a look at the interest rate you’re currently paying and the length of your loan, and see if you can make any adjustments to your lifestyle in order to save money.

For example, if the interest rate you’re paying isn’t very high, but your financing term is long and you see you’ll hit the ‘underwater’ point before your auto loan is completely paid off, you may want to consider increasing your monthly payments to pay off the loan faster (and get a chance to make money on a trade-in or sale before you can’t anymore).

While you’re looking at the contract, look at everything else it says, like the line items that were financed and any caveats in the terms, like a prepayment penalty that would penalize you for paying off the loan faster, as suggested above. You may also find there are elements of the loan agreement you didn’t really agree to.

“Sometimes the loans are packed with unnecessary things that are really expensive,” said Giorgianni. “If you feel you were misled, then go to the dealer and complain, and to a state agency if they don't help.”

If you think you were duped into taking on more financing or given an unfair interest rate at the dealership, file a complaint with agencies like the Consumer Financial Protection Bureau, the Federal Trade Commision or the Better Business Bureau. The CFPB and FTC are also two good resources for consumer information on auto financing.

4 options to explore if your auto loan is too expensive

If you realize your auto loan  payments are too costly, the interest rate is too high, or the loan term is too long, you can try taking these steps to get out of a bad financing deal as well as better afford your auto debt.

Option #1: Try to refinance for a better deal

When you’re noticing your monthly auto payment may be too large to fit your household budget, you could try to lower your monthly payment somehow, by reducing your interest rate or lengthening your loan term. You can accomplish either by refinancing your auto loan at more favorable terms to get your payment under control.

If your credit score was lower at the time you financed your vehicle, then you may have been given less favorable loan terms. Understandably, you can’t always perfectly time a car purchase. If you desperately needed a vehicle to get around and didn't have time to build your credit, your circumstances may have forced you into taking a bad deal. Now, if your credit score has improved or interest rates have gone down, you may have a better shot at reducing your interest rate.

“If it turns out that the main problem with the contract is that your rate is higher than it should have been, then a refinance is a good option but for a shorter or the same period,” said Giorgianni.

When you’re looking to refinance, compare loan offers with several different lenders, like your bank, a local credit union, and online loan search sites. Make sure to compare the final cost to you using the amortization table.

“Take a look at who is out there” said Buchko. “If you see another institution offering a lot better terms, contact them.” He recommends asking for the best loan arrangement you can get to pay off the loan when you contact a lender.

Extending a loan term to save money in the short run isn’t always the best savings strategy. But, if you need your vehicle and you are strapped for cash affording it, refinancing at a longer loan term may prove extremely beneficial. Giorgianni suggests borrowers avoid extending their loan terms unless it's absolutely necessary — for example, if “you can’t afford the car and it will be repossessed.”

Whatever you do, be careful to make sure that the offer you ultimately decide to go with is as good or better than your current loan offer. If there are any fees associated, take care to factor those in as well as they could drive your monthly payment higher. Pay attention to the total cost you’ll pay and consider passing on the deal if it’s higher than what you’d pay in your current arrangement.

Buchko recommends asking yourself: “Am I meeting a goal of a smaller payment?” and, “Is the overall final cost of the loan going to be worth the smaller payment?”

Option #2 : Negotiate your terms with your current lender

Buchko said he often recommends trying to negotiate your current terms with the lender holding your loan. “Go to the lender you have been working with and see if there is anything they are willing to do to help you,” he said. “It’s much better to work out some sort of arrangement before you fall behind.”

You may be able to negotiate a lower interest rate or work out a deferment arrangement where you can skip making payments for a period of time, but they will be added to the end of your loan term and you’ll ultimately have a longer loan and pay more interest over time.

Buchko said speaking with your current lender works because the lender that you're working with already has a vested interest in keeping you as a customer. However, he added, “a lot of it is up to the lender and how flexible they are willing to be to the customer.”

If your loan is still with the dealership, you may be out of luck if you want to negotiate better terms.

“Generally speaking, the dealer is probably not going to be interested in dealing with you,” said Jack Gillis, director of public affairs at the Consumer Federation of America and author of “The Car Book.”

If some time has passed since you made the purchase, the dealer probably doesn't hold the loan anymore, Gillis pointed out. Your loan has probably been transferred to another company, anyway. You could call that company and ask for a refinance, and they may or may not respond with another offer.

Option #3: Cut back on other spending in your budget

An oldie but goodie. It’s always a good idea to refine your budget if you’re having a tough time covering your bills. If your car payment is difficult to manage, and you aren’t able to refinance your loan for a lower monthly payment, you should take a look at your budget to see if there you can find a way to get the car loan under control.

First, calculate your monthly income. That’s what you’re working with each month. Next, subtract your fixed expenses. Those are fairly non-negotiable items in your budget that aren’t likely to shift much like your rent or mortgage payment, auto loan payment, food, and any insurance you’re responsible for paying.

According to the 50/20/30 budgeting rule of thumb, your fixed expenses should comprise no more than 50 percent of your total income. If they are higher, see where you can save money. You could dial back spending on food, for example, by cooking more of your meals at home or switching grocery stores.

Next, your savings. Subtract what you intend to save for the month. Under the 50/20/30 rule, about 20 percent of your income that goes toward saving for things like retirement and vacations, or funding an emergency fund.

What you’re left with is money you can use on flexible expenses like dining out and entertainment. It should be about 30 percent of your income if you’re able to follow the 50/20/30 rule. Your flexible expenses should be where you should look to make the most adjustments because you may have more room to cut back. You may find extra money by cutting back on how much money you spend on coffee each week, or reducing the number of shopping trips you take each month.

Option #4: Sell your vehicle

Selling your car can be a tough decision to make for a myriad of reasons. Your vehicle may hold sentimental value to you, for instance, or it may be the only method of transportation for you and your family.

“Unfortunately, most people don't want [sell the vehicle] but it's better than getting the car repossessed,” said Giorgianni.

If your current financing deal is too much for you to handle, or if you realize keeping the car will eventually lead you to holding an upside-down loan, selling it may be your best option.

“If you are in trouble, then your only option really is to sell the vehicle and keep your fingers crossed that you are not upside-down so that you can use the proceeds from the sale to pay off the vehicle,” said Gillis.

If you plan to sell, sell as soon as you can. The longer you own your vehicle, the longer it has to depreciate (lose monetary value).

“If the car is fairly new, there is still value in the car,” said Buchko. If the vehicle still holds some value, and it’s more than what you owe, you can try to trade it in and use whatever value it still holds to purchase a new car, under more favorable financing terms for your

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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7 Research-Proven Strategies That Can Help You Finally Get Out of Debt

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Digging out of debt is a fairly common New Year’s resolution. The average consumer racked up $1,054 worth of debt during the 2017 holiday shopping season, according to a recent MagnifyMoney survey.

Even if you didn’t use credit to fund your holiday festivities, you may still have other types of debt you plan to finally get rid off in 2018 — like auto debt, student loan debt, or even that new iPhone you might have financed.

Becoming debt-free often requires a lot of effort and discipline. But it’s not impossible, especially if you find a good strategy for your needs. Here are some practical, research-proven tips you can use to make reaching your goal of being debt-free more attainable in the new year.

Tip #1: Pay off one account at a time

In a 2016 study published in the Journal of Consumer Research, a team of four researchers found that focusing on one debt at a time helped consumers pay off their debt more quickly than those who paid multiple debts at once.

The researchers tested the efficacy of paying one account at a time. Consumers were divided into two groups: one whose payments were distributed equally among their debts, while the other paid one account at a time.

They found that participants who used the concentrated repayment strategy “worked harder than those who dispersed their repayments” and repaid their debt 15% faster. Participants who used the concentrated strategy felt more motivated as well, as they “perceive greater progress toward their goal of getting out of debt,” which boosted the desire to succeed.

Tip #2: Start paying down debts with the smallest balance first

The same research also helped to finally settle the debate between two well-known debt repayment strategies — the debt snowball and the debt avalanche. Both methods agree on the concept of paying one balance off at a time but diverge on how to prioritize the debts.

The debt avalanche strategy advises debtors to prioritize debts by interest rate, focusing on paying down debts with the highest interest rate first. Hypothetically, by using this approach, the borrower saves the most money over time simply because they’re avoiding higher interest charges.

However, researchers found the debt snowball strategy works better in the long run. Borrowers are advised to order their debts from the smallest to largest amount and tackle the lower debt first. The portion of the balance debtors succeed in paying off has the largest impact on their perception of progress, so people are more motivated when they begin with the smallest debt.

“To the extent that a consumer’s debt accounts have similar interest rates, he or she should concentrate repayments first on the cards or accounts with the smallest debts, paying off those first,” wrote Boston University researcher Remi Trudel in a 2016 Harvard Business Review article.

Trudel goes further to suggest consolidating multiple debts into one may actually weaken motivation and could slow repayment progress. However, debt consolidation may be helpful overall if consumers are able to greatly lower the interest paid on all of their debts through consolidation.

Tip #3: Set a no-plastic rule for transactions over $20.

A 2017 joint study completed by Urban Institute, D2D Fund, and the Arizona Federal Credit Union, and funded by the Consumer Financial Protection Bureau (CFPB), found that by using cash for purchases under $20, consumers were able to lower the amount of credit card debt they carried over month to month. We’ve shared this tip with you before.

Revolving credit card debt can have a huge impact on your credit score and the cost of credit in general. The less month-to-month credit debt you carry, the better. Learn more about achieving an excellent credit score here.

You can borrow the CFPB’s rule as well. You don’t necessarily have to use the $20 limit, but it’s a solid starting place. Try keeping a $20 bill on you to prevent yourself from accumulating more debt while you work on paying it off. If a transaction falls under $20, you can use cash instead of swiping a credit card.

Urban Institute researchers monitored the habits of nearly 14,000 Arizona Federal Credit Union account holders identified as credit card revolvers — those who had carried a balance on their credit card for at least two out of the six months before the start of the study.

Researchers used two rules of thumb:

  • Don’t swipe the small stuff: Use cash when it’s under $20
  • Credit keeps charging: It adds approximately 20% to the total

The participants either received one of the two rules to follow, or they were placed in a control group. They were then reminded of the rule they were to follow via email, web portal banners, and refrigerator calendar magnets for six months in 2015.

They found participants who followed the first rule saw on average a 2% decrease in their Arizona Federal Credit card balances, compared to those in the control group.  After six months, the $20 rule followers’ balances were on average $104 lower than they were prior to the study.

Tip #4: Set up accountability reminders

Getting someone (or something) to send you helpful reminders to pay down your debt can help you become more motivated to pay it off, according a 2015 study by Clarifi, a nonprofit organization that provides consumers low-cost access to financial products and services.

Researchers worked with clients to test the effects of text messaging and peer support programs on their financial outcomes. The researchers randomly selected individuals to receive peer support, reminder text messages, or both.

Those offered peer support choose one to two peers to monitor their progress on a debt management plan. The peers they chose received updates on their progress and a notification when they missed a scheduled debt payment.

Participants who received text message reminders were subscribed to a messaging service they could opt out of. They received either task-oriented or goal-oriented messages, either bi-weekly (high frequency) or once a month (low frequency) and a week before each debt management payment was due.

Researchers found those who received bi-weekly task-oriented reminder messages were 6% more likely to be on track with their debt management plan and 8% more likely to have met their scheduled payment amount or completed the debt management plan in any given

month than clients who received no reminder messages.

You can mimic this effect by setting up bill pay reminders on your recurring monthly bills. You can download the mobile app for most banks, for example, and set a reminder to alert you when your bill is coming up or when a transaction is charged to your account. You can also use a number of mobile apps, like Clarity Money or Mint that will alert you if you are overspending in areas of your budget.

Tip #5: Treat all money the same

According the mental accounting theory held among behavioral economists, when people treat money differently depending on how they receive it.

And that could be ultimately hurting your progress toward paying down debt.

For example, let’s say you always consider your tax refund as a means to pay for your annual vacation. Even if you have some credit card debt to pay down, you’re mentally designating your tax refund toward your vacation spending, overlooking the fact that you might be better off using that money to pay down your debt instead.

Or, you may not even consider taking your annual bonus and using it to pay off your auto loan, but instead, use the cash to buy yourself a new gadget because it seems like the kind of treat a bonus should be used for. You may be current on your auto payments and in no rush to pay off your vehicle, but that money could have been used to pay off the auto loan and save yourself a chunk of interest payments.

The trick is not to mentally allocate that money toward spending when it may be more beneficial to allocate it toward debt, considering what the debt would cost you.

In short, treating all of your dollars with a holistic approach, asking yourself how you can use them in the best possible way to improve your total financial outlook, may help you pay off your debts faster.

Try it now. Think of money you’ll receive soon like a bonus, a refund, or reimbursement. Have you already decided what you’ll spend it on? If you have, think before you spend. Can that money better serve another area of your life If you haven’t spent the incoming money (in your head) already, good work. Now, weigh your options. Look at all of your accounts and consider your financial goals, then choose to put the money to use where it makes the most fiscal sense.

Tip #6:  Practice money mindfulness

Keeping track of where and how you are spending your money could help you spend less of it, and use those savings toward your debt, according to a 2009 study on the intersection of mindfulness and financial well-being.

Researchers looked into whether practicing mindfulness — a state of receptive attention to present events and experience —would promote more modest wealth-related desires.  They found mindfulness was associated with a smaller financial desire discrepancy, meaning those who practiced mindfulness were less likely to experience discrepancies between what they have financially and what they want.  Mindful money managers consequently experience a higher level of subjective well-being.

In the study, Knox College psychology department chair Tim Kasser argues mindfulness can better a consumer’s relationship with money. Since they would learn to be content with the money and assets they currently have, mindfulness practice could reduce the influence of advertising and materialist motivations to swipe a credit card.

Making an effort to stay on top of when, how, and why you are spending or saving money may help you notice your feelings, strengths, and weaknesses related to financial management. In turn, practicing mindfulness could help you pay off and stay out of debt.

Stopping to consider if a purchase less than $20 is worth swiping your credit card is one way to practice mindful spending. You could also make an effort to pause before a purchase and ask yourself if it is a need or a want. If the purchase is no a ‘need,’ then you may be better off waiting a couple of days, or deciding not to make the purchase at all. Switching to using cash-only for day-to-day purchases is an easy and quick way to bring awareness to your spending, too, since you can see and feel the money being spent as opposed to using a credit or debit card.

The Joy app, launched by behavioral finance company Happy Money, specifically uses psychology to encourage money mindfulness. The app tracks spending and has users rate each transaction with a smiley face or frowning face, then shows the user their spending stats based on what they input over time.

Tip #7:  Nudge yourself along the way

The power of “nudges,” as coined by Nobel Prize-winning behavioral economist Richard H. Thaler, received a lot of attention in 2017.

“A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives,” described Thaler in “Nudge – Improving Decisions about Health, Wealth and Happiness.”

Nudges are different from financial rules of thumb (like saving 10% of your income for retirement, or six months’ worth of expenses for emergencies). Nudges are not rules but rather simple interventions. For example, placing gum and candy at the checkout counter nudges you to add these items to your purchase, or putting your keys by the door in your house nudges you to remember to grab them on the way out.

Nudges make it easy for you to not think about doing what the nudge wants you to do.

You can create nudges to pay down debt as well. Put your money-tracking, credit card, and other banking apps on your cellphone’s home screen, so that you are more likely to check on your funds.

Hide your cards from yourself (or literally freeze them) so that they are out of sight and  thus not your first payment option. If you're a serial online shopper and you’ve memorized your card information, order a replacement credit card and tuck it away.

If you know you spend more money when you walk up and down the grocery store aisles in person, order the groceries you need online and pick them up at the store with a service like Instacart. You save time, and avoid paying delivery fees and overspending.

The key is simple: Know thyself, and make it more difficult to become the version of you who is stuck in revolving debt.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Tax Reform 2018 Explained

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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As promised, the bill formerly known as The Tax Cuts and Jobs Act arrived on President Donald Trump’s desk before Christmas. He signed it into law today.

The House (again) approved the final version of the the most sweeping rewrite of the tax code in more than 30 years. The tax bill previously passed the House — it was a 227-203 vote, no Democrats supported the bill — on Dec. 19. Then, the Senate passed the final version of the $1.5 trillion tax bill in the early hours of the morning Wednesday, Dec. 20. The vote was 51-48 along party lines.

However, in a plot twist that had to do with archaic Senate rules, the Senate’s infamous Byrd Rule forced Senate Republicans to change the bill’s name and eliminate two of its proposed provisions before taking a vote, so the House had to reapprove.

Officially, the new name of the bill is “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”, but it’s been called the Tax Cuts and Jobs Act since it was introduced back in November 2017. The Senate parliamentarian ruled the bill’s name and two other provisions — one that would have allowed parents to pay for homeschooling with money from 529 savings accounts and another that was part of criteria used to determine which colleges would qualify for a new excise tax — had to change else the bill would violate the budget rules Senate Republicans have to follow to pass their bill through a process that prevents Democrats from filibustering.

What’s changing

Here is a breakdown of changes to come. The majority go into effect Jan. 1, 2018. Read on or jump ahead to the rules you’re most interested in:

Tax brackets and income taxes

Old Rule

New Rule (Effective Jan. 1, 2018)

There are currently seven tax brackets.

The rate on the highest earners is 39.6 percent for taxpayers earning above $418,400 for individuals and $470,700 for married couples filing taxes jointly.

New Rule (Effective Jan. 1, 2018)

The new rules retain seven tax brackets, but the brackets have been modified to lower most individual income tax rates. The new brackets expire in 2027.

Top income earners — above $500,000 for individuals and above $600,000 for married couples filing jointly — falls from 39.6 percent to 37 percent.

The majority of individual income tax changes would be temporary, expiring after Dec.
31, 2025.

2017 Tax Brackets

New Tax Brackets (Effective Jan. 1, 2018)

Single Individuals

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$9,325 or less

10%

$9,525 or less

10%

$9,326-$37,950

15%

$9,526-$38,700

12%

$37,951-$91,900

25%

$38,701-$82,500

22%

$91,901-$191,650

28%

$82,501-$157,500

24%

$191,651-$416,700

33%

$157,501-$200,000

32%

$416,701-$418,400

35%

$200,001-$500,000

35%

Over $418,400

39.60%

Over $500,000

37%

Married Individuals Filing Joint Returns and Surviving Spouses

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$18,650 or less

10%

$19,050 or less

10%

$18,651-$75,900

15%

$19,051-$77,400

12%

$75,901-$153,100

25%

$77,401-$165,000

22%

$153,101-$233,350

28%

$165,001-$315,000

24%

$233,351-$416,700

33%

$315,001-$400,000

32%

$416,701-$470,700

35%

$400,001-$600,000

35%

Over $470,700

39.60%

Over $600,000

37%

Heads of Households

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$13,350 or less

10%

$13,600 or less

10%

$13,351-$50,800

15%

$13,601-$51,800

12%

$50,801-$131,200

25%

$51,801-$82,500

22%

$131,201-$212,500

28%

$82,501-$157,500

24%

$212,501-$416,700

33%

$157,501-$200,000

32%

$416,701-$444,550

35%

$200,001-$500,000

35%

Over $444,550

39.60%

Over $500,000

37%

Married Individuals Filing Separate Returns

Taxable Income

Tax Bracket

Taxable Income

Tax Bracket

$9,325 or less

10%

Not over $9,525

10%

$9,326-$37,950

15%

$9,525-$38,700

12%

$37,951-$76,550

25%

$38,701-$82,500

22%

$76,551-$116,675

28%

$82,501-$157,500

24%

$116,676- $208,350

33%

$157,501-$200,000

32%

$208,351-$235,350

35%

$200,001-$300,000

35%

Over $235,350

39.60%

Over $300,000

37%

Standard deductions

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers who do not itemize can claim the current standard deduction of $6,350 for single individuals, $9,350 for heads of household or $12,700 for married couples filing jointly

New Rule (Effective Jan. 1, 2018)

Standard deductions for all nearly double under the new rules.

Individuals see standard deductions rise to $12,000; fo heads of household, it rises to $18,000; and for married couples filing jointly the standard deduction increases to $24,000.

Child tax credit

Old Rule

New Rule (Effective Jan. 1, 2018)

The current child tax credit is $1,000 per child under the age of 17.

The credit is reduced by $50 for each $1,000 a taxpayer earns over certain thresholds. The phase-out thresholds start at a modified adjusted gross income (AGI) over $75,000 for single individuals and heads of household, $110,000 for married couples filing jointly and $55,000 for married couples filing separately.

New Rule (Effective Jan. 1, 2018)

The child tax credit doubles to $2,000 per qualifying child. Up to $1,400 of the child tax credit can be received as refundable credit (meaning it can go toward a tax refund). The new rule also includes a $500 nonrefundable credit per dependent other than a qualifying child.

The credit begins to phase out at an AGI over $200,000 — for married couples, the phase-out starts at an AGI over $400,000.

This rule is in effect through 2025.

Personal exemptions

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers can reduce their adjusted gross income by claiming personal exemptions — generally for the taxpayer, their spouse and their dependents.

Taxpayers could deduct $4,050 per exemption in 2017, though the deduction is phased out for taxpayers earning more than certain AGI thresholds. The phase out begins at an AGI over $313,800 for married couples filing jointly, $287,650 for heads of household, $156,900 for married couples filing separately and $261,500 for all other taxpayers.

New Rule (Effective Jan. 1, 2018)

Personal exemptions have been suspended through 2025.

Mortgage interest deduction

Old Rule

New Rule (Effective Jan. 1, 2018)

Currently homeowners are allowed to deduct interest paid on mortgages valued up to $1 million on a taxpayer’s principal residence and one other qualified residence.

They can also deduct interest paid on a home equity loan or home equity line of credit no greater than $100,000. These are itemized deductions.

New Rule (Effective Jan. 1, 2018)

New homeowners can include mortgage interest paid on up to $750,000 of principal value on a new home in their itemized deductions.

The old, $1 million caps continues to apply to current homeowners (those who took out their mortgages on or before Dec. 15, 2017), as well as refinancing on mortgages taken out on or before Dec. 15, 2017, as long as new mortgage amount does not exceed the amount of debt being refinanced.

Homeowners may not deduct interest paid on a home equity line of credit or home equity loan.

The $750,000 cap and the suspension on deducting home equity interest expire after 2025.

State and local tax (SALT) deduction

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers may include state and local property, income and sales taxes as itemized deductions.

New Rule (Effective Jan. 1, 2018)

Taxpayers are limited claiming an itemized deduction of $10,000 in combined state and local income, sales and property taxes, starting in 2018 through 2025.

Taxpayers cannot get around these limits by prepaying 2018 state and local income taxes while it is still 2017. The bill says nothing about prepaying 2018 property taxes.

Bicycle commuting

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers can exclude up to $20 a month of qualified bicycle commuting reimbursements from their gross income. That includes payments from employers for things like a bicycle purchase, bike maintenance or storage. Workers can claim the exclusion in any month they regularly use a bicycle to commute to work and do not receive other transit benefits.

New Rule (Effective Jan. 1, 2018)

The exclusion is suspended through 2025.

Personal casualty or theft

Old Rule

New Rule (Effective Jan. 1, 2018)

Under current tax law individuals can deduct uninsured losses above $100 when property is lost to a fire, shipwreck, flood, storm, earthquake or other natural disaster. The deduction is allowed as long as the total loss amounts to greater than 10 percent of the taxpayer’s adjusted gross income.

New Rule (Effective Jan. 1, 2018)

The new tax bill only allows taxpayers to claim the deduction if the loss occurred during a federally declared disaster, through 2025.

Alimony

Old Rule

New Rule (Effective Jan. 1, 2019)

The individual paying alimony or maintenance payments can deduct payments from their income. The person receiving the payments includes them as income.

New Rule (Effective Jan. 1, 2019)

The person making alimony or maintenance payments does not get to deduct them, and the recipient does not claim the payments as income. This goes into effect for any divorce or separation agreement signed or modified on or after Jan. 1, 2019.

Moving expenses

Old Rule

New Rule (Effective Jan. 1, 2018)

Current law allows taxpayers to deduct moving expenses as long as the move is of a certain distance from the taxpayer’s previous home and the job in the new location is full-time.

New Rule (Effective Jan. 1, 2018)

The new tax bill suspends the moving expense deduction through 2025. Until then, taxpayers are not permitted to deduct moving expenses.

Moving-related deductions and exclusions remain in place for members of the military.

Gains made on home sales

Old Rule

New Rule (Effective Jan. 1, 2018)

Homeowners can exclude up to $250,000 (or $500,000, if married filing jointly) of gains made when selling their primary residence, as long as they owned and primarily lived in the home for at least two of the five years before the sale. The exclusion can be claimed only once in a two-year period.

New Rule (Effective Jan. 1, 2018)

Homeowners can still exclude gains up to $250,000 (or $500,000 if married filing jointly) when they sell their primary residence, but they have to have lived there longer. People who sell their homes after Dec. 31, 2017 now have to use the home as their primary residence for five of the eight years before the sale in order to claim the exclusion. It can only be claimed once in a five-year period.

The new rule expires on Dec. 31, 2025.

Student loan debt discharge

Old Rule

New Rule (Effective Jan. 1, 2018)

Currently, student loan debt discharged due to death or disability is taxed as income.

New Rule (Effective Jan. 1, 2018)

Under the new tax bill, student loan debt discharged due to death or disability after Dec. 31, 2017, will not be taxed as income. The rule lasts through 2025.

Estate taxes

The estate tax, aka the “Death Tax” is a tax levied on significantly large estates that are passed down to heirs.

Old Rule

New Rule (Effective Jan. 1, 2018)

Estates up to $5.49 million in value were exempt from the tax.

The top tax rate was 40 percent.

New Rule (Effective Jan. 1, 2018)

Doubles the exemption for the estate tax.

Now, estates up to $11.2 million are exempt from the tax.

Corporate taxes

Old Rule

New Rule (Effective Jan. 1, 2018)

Under a four-step graduated rate structure, the current top corporate tax rate is 35 percent on taxable income greater than $10 million.

New Rule (Effective Jan. 1, 2018)

Permanently cuts the top corporate tax rate to 21 percent.

Pass-through businesses

Pass-through businesses are generally small businesses (also some big firms) that don't pay the corporate income tax. Instead, the owners report the corporate profits as their own income and pay taxes based on the individual tax rates along with their regular personal income tax.

Some of the common types of pass-through businesses are partnerships, LLCs (limited liability companies), S corporations and sole proprietorships.

Old Rule

New Rule (Effective Jan. 1, 2018)

All pass-through business owners’ income was previously subject to regular personal income tax.

New Rule (Effective Jan. 1, 2018)

Under the new laws, pass-through business owners can deduct up to 20 percent of their qualified business income from a partnership, S corporation or sole proprietorship.

Individuals earning $157,500 and married couples earning $315,000 are eligible for the fullest deduction.

Medical expenses

Old Rule

New Rule

Taxpayers were previously allowed to deduct out-of-pocket medical expenses that exceed 10 percent of their adjusted gross income or 7.5 percent if they or their spouse were 65 or older.

New Rule

The threshold for all taxpayers to claim an itemized deduction for medical expenses is lowered to 7.5 percent of a filer’s adjusted gross income.

The change applies to taxable years from Dec. 31, 2016 to Jan. 1, 2019.

ACA individual mandate

The individual mandate was a key provision of the Affordable Care Act that required non-exempt U.S. citizens and noncitizens who lawfully reside in the country to have health insurance.

Old Rule

New Rule (Effective Jan. 1, 2019)

Consumers who did not qualify for an exemption and chose not to purchase insurance faced a range of tax penalties, depending on income.

New Rule (Effective Jan. 1, 2019)

The individual mandate is out.

Starting Jan. 1, 2019, consumers who do not purchase health insurance will no longer face penalties.

GOP lawmakers argue that the measure will decrease spending on the tax subsidies it offers to balance out the cost of premiums for millions of Obamacare enrollees.

However, without the mandate, experts caution that fewer healthy and young people will sign up for health coverage through the insurance marketplace, which will likely lead to increases in premium costs for those who remain the marketplace and could even induce some insurers to drop out of the market altogether. It’s a big blow to supporters of the long-embattled health care law.

529 college savings plans

A 529 college savings plan is a tax-advantaged savings account designed to encourage saving for qualified future higher-education costs, such as tuition, fees and room and board. Your money is invested and grows tax free.

Old Rule

New Rule (Effective Jan. 1, 2018)

Previously, 529 plan savings could only be used on qualified higher education expenses.

New Rule (Effective Jan. 1, 2018)

In a major victory for wealthier families, you can now use 529 savings for private K-12 schooling.

Tax benefits are now extended to eligible education expenses for an elementary or secondary public, private, or religious school.

The new rules allow you to withdraw up to $10,000 a year per student (child) for education costs.

Alternative minimum tax

The individual alternative minimum tax, or AMT, often imposed on higher-income families, especially those with children, who live in high-tax states — but not necessarily the ultra rich. It requires many households or individuals to calculate their tax due under the AMT rules alongside the rules for regular income tax. They have to pay the higher amount. Whether or not a someone pays AMT depends on their alternative minimum taxable income (AMTI). AMTI is determined through a series of assessments of a taxpayer’s income and assets — the explanation of calculating AMTI takes up two pages in the tax bill, so we’re not getting into the details here.

Old Rule

New Rule (Effective Jan. 1, 2018)

The exemption amount is $84,500 for married joint-filing couples, $54,300 for single filers and $42,250 for married couples filing separately.

The AMT exemption begins to phase out at $120,700 for singles, $160,900 for married couples filing jointly and $80,450 for married couples filing separately.

New Rule (Effective Jan. 1, 2018)

The AMT is here to stay but fewer households will have to face it.

Under the new rules, which are in effect from Jan. 1, 2018 through Dec. 31, 2025, married couples filing jointly will be exempt from the alternative minimum tax starting at $109,400. Exemption starts at $70,300 for all other taxpayers (other than estates and trusts).

The exemption phase-out thresholds will rise to $1,000,000 for married couples filing jointly, and $500,000 for all other taxpayers.

Miscellaneous tax deductions

Taxpayers can take the miscellaneous tax deduction if the items total more than 2 percent of their adjusted gross income. The amount that’s deductible is the the amount that exceeds the 2 percent threshold. These are some of the major changes coming to the miscellaneous tax deduction.

Old Rule

New Rule (Effective Jan. 1, 2018)

Tax preparation: Taxpayers can today claim an itemized deduction of the amount of money they pay for tax-related expenses, like the person who prepares their taxes or any software purchased pr fees paid to fee to file forms electronically.

Work-related expenses: Under current law, workers can deduct unreimbursed business expense as an itemized deduction, like the cost of a home office, job-search costs, professional license fees and more.

Investment fees: Taxpayers can currently deduct fees paid to advisors and brokers to manage their money.

New Rule (Effective Jan. 1, 2018)

Tax preparation: Taxpayers may not claim tax-preparation expenses as an itemized deduction through 2025.

Work-related expenses: The bill suspends work-related expenses as an itemized deduction through 2025.

Investment fees: Under the new rules, the investment fee deduction is suspended until 2025.

Tax deductions that won’t be changing

Teacher deduction

Teachers can deduct up to $250 for unreimbursed expenses for classroom supplies or school materials from their taxable income.

Electric cars

Electric car owners who bought a vehicle after 2010 may be given tax credit of up to $7,500, depending on the battery capacity.

Adoption assistance

Adoptive parents are allowed a tax credit and employer-provided benefits up to $13,570 per eligible child in 2017.

Student loan interest deduction

Student loan borrowers may deduct up to $2,500 on the interest paid for student loans every year.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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How to Maximize Your FSA and Transit Benefit Before You Lose It

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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The end of the calendar year is generally an important time to pay attention to your workplace benefits accounts. You may already have gotten an email from the head of your workplace’s HR department about making your elections for the coming year and maybe even made them already. While you’re at it, take a look at the balances in your flexible spending accounts and transportation benefits accounts — they may need your attention.

Workplace benefit accounts like your health flexible spending account (FSA) and transportation benefits accounts help you save money on the important line items in your budget like your healthcare bills and getting yourself to and from work. Since the accounts are funded with pre-tax dollars, you could help your dollars go up to 40% further on common expenses — like getting a checkup or a bus pass — that help you keep and maintain your job. However, if you don’t quite know how to best use these accounts, you could actually end up losing the money you have socked away in your benefits accounts.

Read on or click ahead to learn the ins and outs of using these benefits accounts and what you can do, if anything, to save your money when you’re in danger of losing it.

Flexible spending accounts

What is a flexible spending account?

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A flexible spending account (FSA) is an employer sponsored reimbursement plan. It allows you to set aside pre-tax money and spend it on eligible medical expenses.

For 2018, you can contribute up to $2,650 to your health FSAs, up from the 2017’s limit of $2,600.

In an ideal world, you’ll avoid losing income by using up all your funds for eligible medical expenses by deadline. But the reality is that it’s tricky to budget for medical expenses for the next year (generally you can only adjust your contribution from each paycheck during open enrollment or during a qualifying life event, such as marriage or birth of a child). Many find themselves with excessive balance in their medical FSA at the end of the year.

It’s actually not that flexible given its “use it or lose it” rule — you have to use all the funds by the deadline, otherwise you lose the money. Several plan advisers confirmed to MagnifyMoney that many people underutilize their medical benefits. FSAStore.com, a one-stop-shop website stocked with FSA-eligible products, reported that each year, hundreds of millions of dollars was forfeited back to employers simply because consumers do not deplete the funds in their accounts.

So how can you make the best use of your medical FSA and avoid wasting money? We have done research and asked experts for you.

How can I use my health FSA funds?

First off, the medical FSA reimburses you for you or your dependent's expenses that are not paid by your health insurance.

The eligible expenses include copayments, coinsurance and deductibles, prescription costs, vision and dental expenses and many over-the-counter (OTC) items — prescribed or unprescribed. But note that you cannot pay your monthly insurance premiums with the FSA.

If you have money left over in your FSA, you may want to consider getting new prescription glasses, prescription sunglasses and contact lenses. Those are some of the most common big-ticket items you can purchase with your FSA.

You can also stock up on things like first aid kits, contact solution, bandages and sunscreen that you may use year-round.

Your FSA plan provider will have a list of eligible over-the-counter items you can purchase at the pharmacy with your FSA, such as this one. Many of the pharmacy sites have sections of their sites that list all the FSA eligible items.

Another possible way to use the money would be scheduling check-ups with all your physicians. Your annual physicals and other preventative care are covered by your health plan, but if you need special medical treatment, you can use the remaining funds for copays, coinsurance or prescriptions.

Many FSA providers recommend you visit FSAStore.com.

How much should I contribute to my health FSA?

Becky Seefeldt, director of marketing at Benefit Resource, a benefits programs provider, said the average 2017 contribution was $1,250, based on the company’s 300,000 participants. That’s roughly half of the maximum amount one could contribute for the year. For those who over-contribute to their FSAs, by the end of the year, Seefeldt said, they usually have less than $100 left in their account.

Experts suggest you contribute conservatively because there is a chance that the unspent money might be forfeited. But everyone has a different situation; it’s hard to give a single guideline that fits all.

You really need to do the math when budgeting your contribution for the next plan year during open enrollment.

Nicole Wruck, a national health practice leader at Alight Solutions, told MagnifyMoney that most of the company’s clients over-contribute every year. She suggests consumers keep track of their health care expenses they had over the last year and plan accordingly for the coming year.

You will need to do the math based on the factors below:

  • What did you spend on prescription drugs?
  • What did you spend at the doctor, or the dentist, or the eye doctor?
  • Do you have any upcoming things planned in the next year that might make you experience some additional costs? For example, are you or your dependent expecting a baby? Will you need new glasses?

To help yourself run the numbers, you will want to study your health care plans. Know your deductibles — the amount you pay for health care services before your health insurance begins to kick in — as well as your copays and coinsurance. Learn what your out-of-pocket maximum is — the most you have to pay for health care services in a plan year. After you hit your out-of-pocket max, your insurance company covers your healthcare costs for the rest of the year.

Visiting your doctors can also help. Sometimes your year-end doctor visits can help you estimate your next year’s out-of-pocket medical expense. For instance, if your dentist tells you that you will need orthodontic treatment in the near future, then consider maxing out your FSA for the next plan year to cover the big dentist bills your insurance company won’t pay.

What happens to leftover funds at the end of the plan year?

Traditionally, you would have to use up all your remaining funds by Dec. 31. But there are two options employers can adopt to make the rules more lenient now.

The roll-over option. It allows up to $500 in your FSA per year to roll over into the next plan year, so participants don’t have to rush to use the remaining funds. Seefeldt said about 40 percent of employers now adopt the roll-over option.

An extended grace period. This gives participants an additional two and half months — through March 15 — to use up the money from the previous year. At the end of the grace period, all unspent funds will be forfeited to the employer.

Depending on how your company decides to do with the FSAs, you may have a little bit more leeway to use your funds by the year end. Check with your human resource department and your FSA plan provider to find out which option is available to you.

What happens if I leave the company before I use all my FSA funds?

If your eligible expenses incurred before you left the company, you may be able to request reimbursement through your company’s claim submission deadline.

If you leave the company in the middle of the year but you have used more funds in your flexible spending account than contributed. You may not be required to pay back your company.

You have access to the total amount you have allocated for the year after your first medical FSA deposit, regardless of the balance in your flexible spending account. You are reimbursed based on your company’s pay schedule as you submit claims.

For example, if you elected to put $2,000 into your FSA throughout the year, and you have a $2,000 dental expense in May, your FSA would reimburse you for the whole $2,000, even though you’ve only contributed about $833 by then.

If you jump ship in August, you may not have to pay back the rest of your contribution. Your company will cover it: It agrees to take the potential financial risk when it signs up for the FSA program. Don’t feel too guilty just yet — your company may be able to offset the financial loss with the unspent funds forfeited from other employees.

Now, if you have money left unused in your FSA, first, try to use it as much as you can before you part ways. But If you can’t use it up by your last day, you may have a chance to extend your FSA benefits if you choose to enroll in COBRA.

COBRA allows former employees, retirees, spouses and dependents to get temporary continuation of health benefits at group rates. FSA is one of the COBRA-eligible benefits.

Generally, you have until the end of plan year to use up money left in your FSA through your prior employer, but it’s most common for someone to take their FSA COBRA for one or two months and use the funds quickly, Seefeldt said. Under COBRA, you can continue to make your health plan contributions (but pay an additional 2 percent administrative fee) before the new plan kicks in, according to the Society for Human Resource Management.

Say you leave your company in August but there is $400 left in your FSA, and you plan to continue your health insurance coverage through your previous employer for two months before your new insurance plan kicks in, you can keep submitting expenses up to $400 in that period of time but pay an administrative fee that’s 2 percent of your monthly premium. But you are not required to purchase the health coverage in order to use your FSA balance.

Again, money in your FSA cannot be used to pay your premiums. But you can use it to cover eligible medical costs.

If you're not eligible to continue your FSA through COBRA, try to use up the money before your job ends so that you won’t leave it on the table.

Transportation benefit accounts

What are commuter benefits?

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Transportation benefit accounts, also known as commuter benefits accounts, let employees use pre-tax dollars to pay for the costs of commuting. The accounts are meant to act as an incentive for employees to use eco-friendly transportation options like carpools, mass transit or bikes on their commute to the workplace.

Commuter benefits help many workers save on their transportation costs. But, it’s possible just as many workers aren’t completely sure how their transit benefit account works, or how to make the most of it.

How can I use my commuter benefits?

If you drive to a park-and-ride, catch mass transit or ride a bike to get to work, you may be able to use pre-tax dollars contributed to a commuter benefits account to cover some or all of the cost of your commute. However, if you ride solo to work or don’t use a bike or mass transit options available to you, you won’t be able to use commuter benefits to, let’s say, pay for the gas your personal vehicle burns during your bumper-to-bumper commute each morning.

However, you may be able to take advantage of parking benefits, which we’ll explain below.

You can use the money in a transportation benefits account to pay for any of the following eligible expenses:

  • A ride in a “commuter highway vehicle” to or from home and work.
    • This is another way of saying carpooling. Riding to work in a commuter highway vehicle counts if the vehicle can seat at least 6 passengers, according to the IRS. You might not have to go through the hassle of organizing a carpool with your coworkers or neighbors to use your transportation funds this way. Some commuter benefits programs allow you to carpool using rideshare apps like Lyft or Uber, too. All you’d need to do is use your commuter benefits card to pay for UberPOOL or Lyft Line rides and join the carpool when it arrives to pick you up.
  • A transit pass.
    • A transit pass is any pass, token or other tool that permits you to ride mass transit — like a train, ferry or bus — to work.
  • Qualified parking.
    • If you need to pay to park on or near your workplace, or you have to pay for parking in order to catch a ride on public transit for work or you pay for parking for any other work-related reason, you can use your transportation benefits to cover the charge.
  • Qualified bicycle commuting reimbursement.
    • You can use up to $20 per month in transportation benefits to purchase a bicycle, make improvements or repairs to the bike, and pay for bike storage as long as you use the bicycle for regular travel between home and your workplace. Be warned: If you use your transportation benefit to be reimbursed for commuting via bicycle at some point during the month, per IRS rule, you won’t be able to use the transportation funds for any of the three aforementioned eligible expenses in that particular month.

How much should I contribute to my transit benefit?

How much you contribute to your commuter benefits account will depend on how much you spend on transportation to and from work each month. Look at your monthly commuting expenses. Do the math to figure out what you would need to contribute from each paycheck to cover the cost of your commute to work. To avoid over-contributing to your transportation benefits account, be sure to to pull out a calculator.

Step 1: Estimate how much you spend on transportation expenses — monthly parking pass, bus pass, etc. — each pay period.

Estimating your commuter benefits should be easier than, say, trying to guess how many doctor’s visits or prescriptions you’ll need to cover in the coming year. “With a commuter benefit you are making an estimate,” says Joseph Priselac, Jr., CEO P&A Group, a Buffalo, N.Y.-based employee benefits administration company. “As long as you have a job and you know you're going to keep going to it, you know how much you will spend.”

Step 2: Elect to contribute that amount for the year. The amount you elect will be divided by the total number of remaining pay periods for the year. The benefit will be deducted from each paycheck and placed in your transportation account for your use when you need it. If you change your annual contribution, the remaining number of deductions will be adjusted accordingly to reflect the change. If, for example, you elect $1,200 for the year and are paid monthly, $100 pre-tax will be deducted from your paycheck to your transportation account.

Beware of contribution limits

Commuter benefits: In 2017, the maximum monthly pre-tax contribution limit for commuter benefits is $255, or $3,060 in a year. Moving forward, the IRS may decide to change that limit. The federal agency reviews and sets the limit annually. If you bike to work, you max out at $20 per month.

Parking benefits: An additional $255 per month. If you’ve got to ride mass transit to get to work and pay for parking, Priselac says that limit is technically doubled, since you can max out $255 for parking and another $255 for mass transit passes each month.

Unless you are certain sure you will use up the maximum in transportation spending for the year, don’t simply contribute the maximum amount you can to your transportation benefits account.

What if I want to reduce my contribution?

If, for whatever reason, you decide you don’t need to contribute as much or you want to contribute more to your transit benefit fund during the year, that’s not a problem.

Unlike an FSA, for which your contribution election can’t be changed during the year, “you can change your election anytime you want,” says Priselac.

To clarify, you can change your commuter benefits election as often as your company allows. For some, that may be once per pay period, for others, it may be once per quarter. It’s one of the few benefits you can change mid-year. Consult with your employer’s human resources department to find out how often you are able to change your election.

“If you're not sure how much you will be spending, start by contributing a small amount,” says Caspar Yen, Senior Director of Product Management at Zenefits, a human resources software company. “There's no need to over contribute to play it safe.”

That said, if you feel you’ve contributed too much to your commuter benefits account to use up within the period, you can stop the deductions and use up the balance you’ve accumulated until it runs out, then restart your contributions. Just be sure to keep an eye on your transportation benefits balance so you know when to restart your contributions.

What happens to leftover funds at the end of the year?

Transit benefits rollover each year so long as you are still with the company and the company still offers the benefit. That means you don’t have to rush to use leftover funds at the end of the year.

This is in contrast to a flexible spending account, which has a ‘use it or lose it’ rule, which we covered above.

In a sense, there is no ‘plan year’ for transportation benefits, although your company may ask that you confirm you’d like to stay enrolled in the program each year when you elect your annual benefit contributions. Transportation benefits accounts roll over each pay period and should roll over into the coming period at the end of the year. That means there’s no danger of losing any of the money you’ve contributed so far, as long as you remain employed with that particular employer.

What if I quit my job or get laid off?

“As long as you are still working there and you have work related transit expenses the money stays,” says Priselac.

But if you quit your job or are laid off you could lose some or all of the money remaining in your transportation benefits account. If you’ve been over-contributing, any money you don’t use up will be lost to you, and returned to your employer.

The good news is that some benefit programs will give employees a grace period to submit reimbursements requests for any transportation expenses incurred during their employment — even if they quit.

If you know you may no longer be with the company or the company is planning to terminate its program, there’s one thing you can do to save your money.

“Before leaving a company, employees can make a large eligible purchase,” says Yen.

In the Bay Area, for example, an employee can purchase a clipper card with up to $300 in credits. If the transit method you take offers individual tickets, you could purchase a large number. Or, if you are able to load your transit pass with cash, you could place a large amount on your pass.

For example, those in the New York City metro area might load a large amount of money onto their MetroCard and use it up until it’s depleted.

Whenever you’re making a decision about benefits, it helps to talk to your HR department or the benefit provider, just to be sure you understand the rules. Mistakes you make when choosing benefits can end up costing you a lot of money, so ask questions and avoid leaving your decisions to the last minute of open enrollment.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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How Apple Pay Cash Stacks Up Against Venmo

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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As part of an early release of its updated iOS 11.2 mobile operating system, Apple is rolling out a P2P payments platform, Apple Pay Cash, available to anyone with an iPhone or Apple tablet, Apple Watch.

Apple Pay Cash already has a lot of competition. The person-to-person (P2P) payments market is fairly saturated with other platforms like Venmo, Paypal, Square Cash, Google Wallet and the like. At the moment, Apple’s largest competition in the P2P space is social payment app Venmo, which is owned by yet another competing payments processor, Paypal. Like competitors Venmo and Paypal, Apple Pay Cash is easy to use with one way we communicate most: via text. But unlike its major competitors, Apple is leveraging its user base to provide a P2P service that comes along with ownership, rather than requiring you to download another application.

Venmo uses emojis and a social feed in an attempt to take the “awkward” out of paying or charging your friends money. The tactic seems to work. Venmo’s user base completed $9 billion in transaction last quarter, about 93% more than the same quarter a year earlier. Since September 2016, the app allowed its users to pay via iMessage and Siri, expanded its online payments business, and tested out a physical debit card with some users. The company is also reportedly, like many other P2P processors, exploring instant deposits, too, to the tune of about $0.25 per transfer.

Apple Pay Cash seems to imitate several of Venmo’s features, so the 68% of millennial mobile payment users who say they use Venmo most seemingly won’t have too much incentive to make a switch to Apple Pay Cash. However, a relatively easy setup with Apple Wallet, may appeal to those outside of the millennial demographic who aren’t already attached to Venmo, but need to send mobile payments, too.

What is Apple Pay Cash?

Apple Pay Cash is Apple’s person-to-person money transfer service. Apple users can use Apple Pay Cash to quickly send and receive money to and from friends, acquaintances and family members using Apple’s built-in messaging app iMessage. The service is available in the U.S. on iPhone SE, iPhone 6 and later, Apple Watch, iPad Pro, iPad 5th Generation, iPad Air 2 and iPad mini 3 or later. You can also ask Apple’s intelligent personal assistant, Siri, to pay someone via Apple Pay Cash.

Source: Apple

How does Apple Pay Cash Work?

You can say, “Hey Siri, send $[an amount of money] to [one of your contacts]” to prompt a message asking them which app you want to use to send the funds, including Venmo. You can also send money via iMessage by tapping the app store icon and selecting Apple Pay at the bottom.

The money you send will come from one of two sources in the Apple Wallet application: The digital Apple Pay Cash Card or any linked debit or credit cards in your Apple Wallet. The transaction is free if you pay someone using a debit card. If you use a credit card to pay another person, you’ll be charged a 3% fee. Payments are approved using a finger with Touch ID or a smile with Face ID if you have an iPhone X.

When you get paid, the money you receive is automatically credited to a digital Apple Pay Cash Card that lives in Apple Wallet, for use right away. Unlike Square Cash, you don’t get a physical card to use, but the digital Apple Pay Cash Card, like a gift card, can be used like any other debit or credit card in the Apple Wallet. You also have the option of transferring the funds on your Apple Pay Cash Card to a bank account, but that may take up to three business days.

When not using Apple Pay Cash to pay a roommate your share of the light bill or charge a friend for his share of the a group vacation, you can use the digital Apple Pay Cash Card — or another card in your Apple Pay account — at any of these retailers to pay online or in stores.

How do I get Apple Pay Cash?

To do to gain access to Apple Pay Cash, update your compatible device to iOS 11.2 or watchOS 4.2 and set up the Apple Pay Cash Card in Apple Wallet. Apple Pay Cash is not available on non-Apple devices or for use outside of the United States.

Step 1: Update your Apple device

To update the device, go to Settings, then General, then Software update. An on-screen message will let you know what version of iOS your device is running and prompt you to update if you’re using old software.

Step 2: Set up your Apple Pay Cash card

Once the device is updated, it’s time to set up the Apple Pay Cash card. In Settings, go to Wallet & Apple pay. There you will see the “Add Credit or Debit Card” option or your Apple Pay Cash card. Click on the card to set it up. Hit continue, and agree to the terms and conditions after reading them thoroughly.

Verification

The device may or may not prompt you to verify your identity when setting up the Apple Pay Cash card, but you should if you want to send or receive more than $500 per transaction.

To verify on iPhone, click the small ‘i’ with a circle around it next to the Apple Pay Cash card in the Apple Wallet app and tap Verify Identity. You will be prompted to enter personal information like your name, Social Security number and date of birth. You may also need to answer questions about your personal history or submit an image of a photo ID like a driver’s license for verification.

You can then load the card with funds using other linked debit or credit cards in Apple Wallet. The Apple Pay Cash card requires a minimum $10 deposit. However, users don’t have to load and Apple Pay Cash card with funds before you can use Apple Pay Cash to send and receive funds. They can use Apple Pay Cash with any of their other linked debit or credit cards in Apple Wallet.

When the two steps are complete, you can then begin using Apple Pay Cash.

Source: Apple

How does Apple Pay Cash stack up to Venmo?

Apple’s main competition in the P2P space is Venmo. Here’s a breakdown of how Apple Pay Cash stacks up to the leading P2P payments platform.

Where Apple Pay Cash beats Venmo

No need to download an app

Apple Pay Cash is built into Apple’s iOS operating system, so you don’t have to download another app that could take up precious phone memory drain your battery life. To use Venmo on the go, you need to download and set up the Venmo app, which can be a tedious hurdle for some.

Easily change between payment options

You can’t easily switch between payment options in iMessage using Venmo like you can with Apple Pay Cash. The only way to switch payment option is using the Venmo app and changing payment options requires going to Settings, then Banks and Cards, then setting one card or bank account for use in payments to peers. After going through multiple screens to complete that process, you can then pay with the selected payment source.

With Apple Pay Cash, you can switch payment options in your Apple Wallet right in the iMessage app, in the middle of making a transaction.

Apple Pay Cash automatically gives you an in-app card

The Apple Pay Cash card is an interesting addition to the P2P space, as it allows you to automatically access to the funds you receive via Apple Pay Cash. The digital card lives in Apple Wallet and can be used like a gift card to make purchases in physical stores or online at retailers who use Apple Pay.

Source: Apple

Transfer limits

Apple Pay Cash lets you send more money per transaction and on a weekly basis than Venmo does. Apple lets you send up to $3,000 in a single transaction and $10,000 in a seven-day period. Venmo has a $2,000 transaction limit and a seven-day limit of $2,999.99. Venmo users can send or receive up to $4,999.99 in a seven-day period and may not complete more than 30 transactions in a 24-hour period.

Where Venmo has the edge over Apple Pay Cash

Venmo has a wider reach

Venmo offers its same P2P service online at Venmo.com, where you can log in and do everything you do on the Venmo app on your desktop or laptop. Apple Pay Cash is exclusively offered on Apple’s mobile devices. Exclusivity may or may not be a downfall for Apple Pay Cash, as exclusive offerings like iMessage and FaceTime have long set Apple apart from its competitors. Those who own Apple Macbooks or desktop devices can pay for items online using their Apple Wallet but aren’t be able to set up Apple Pay Cash without access to an iPhone or iPod touch. Android users and those who don’t have a mobile iOS device, can’t use Apple Pay Cash.

Venmo might give you a physical debit card

Venmo reportedly sent some users invitations to test out a physical Venmo card over the summer months in 2017. Users who opt ed in didn’t pay a fee to use the card, which pulls funds from the user’s Venmo balance. There is no confirmation of a future rollout of physical-card invites to all users.

Send money from a bank account

You cannot use Apple Pay Cash to send money directly from a bank account, like you can using Venmo and practically any other existing P2P platform. Apple Pay Cash does allow you to send money using linked debit cards, however. Arguably, sending money using a debit card is the same thing as sending money from a bank account, as the funds generally come from the same place.

Where Apple Pay Cash and Venmo are the same

Ask Siri to send

When you ask Siri to send money to a contact, the AI doesn't automatically send the funds using Apple Pay Cash, but, instead, asks you to select from the options you have that can perform the task. Apple Pay is an option, but so is Venmo, if you have that downloaded.

Pay in Messages app

Way ahead of Apple, Venmo released its in-app iMessage integration back in September 2016 (also when Venmo released its Siri integration). Now, you can do the same thing with Apple Pay Cash.

B-to-C payments

In addition to paying friends and family, Apple Pay lets you pay businesses using Apple Pay Cash. You could technically already use Apple Pay where available in stores and online, but now you can use the balance accrued from received payments or loaded onto an Apple Pay Cash card in Apple Wallet. Venmo users can also complete online transactions to businesses using Venmo, a feature Venmo debuted October 2017.

Cost

There is no cost difference between Venmo and Apple Pay Cash. Both systems charge no fee to send money using a debit card and charge a 3% fee to send money using a credit card. Venmo also doesn’t charge for sending money from a linked bank account. Apple pay Cash doesn’t offer the option to link a bank account.

The bottom line

If you are a loyal Apple user and a late adopter to person-to-person payment systems, Apple Pay Cash could act as a kind nudge into the P2P payments space. In addition, Apple Pay Cash’s iMessage integration and quick setup process make it easy for the less-tech-savvy among us to start sending and receiving funds electronically. On top of that, having an Apple Pay Cash card already in our Apple Wallet makes it easy to spend any money you receive at vendors that accept Apple Pay, without having to wait a day or two for the money to show up in your bank account.

If you’re already a Venmo user, other than Apple Pay Cash’s automatic addition into your Apple devices with the iOS 11.2 update, there’s far less incentive to switch over to Apple Pay Cash. If you like to make your P2P payments and requests on a desktop or want to send funds directly from your bank account, stick with Venmo.

Aside from those features, Venmo and Apple Pay Cash cost the same and are about as simple to use. 

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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News

Why That Stroller Strains So Many Parents’ Budgets

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Miami mom Stephanie Viney, 28, says she chose a pricey UPPAbaby stroller for its many features and sturdiness. Baby strollers come in a variety of styles and price points, from $20 to more than $1,000. (Photo courtesy of Viney.)

No one needs to tell a new parent that raising a child in America is a pricey endeavor.

New parents can expect to spend about $233,610 on a child’s basic needs through age 17, excluding savings for higher education, according to the U.S. Department of Agriculture.

One of the first purchases you’re likely to make as a new parent is a stroller. When it came time for Brooklyn resident JiaYao Liu, 23, and her baby’s father to buy a stroller for their baby boy, now 3, they walked into Babies R Us expecting to spend about $80-$100. They were sorely mistaken.

“I didn't expect it to be that expensive until I went and I looked,” Liu says.“You just want to carry your child from Point A to Point B, and there are some strollers with a whole bunch of toys on them, and I don’t think it’s necessary.”

The couple ultimately purchased the most-affordable stroller they could find. Liu says it was a store brand and the practical choice, based on her needs. Still, at around $130, it was a little outside their price range.

New Orleans resident Demetra Pinckney, 29, had a similar experience when she and her husband picked out a stroller for their baby registry.

“They have some strollers that are $500, $600,” Pinckney says. “I’m thinking: ‘Oh my goodness. No, I have to live. They have good strollers that don't have to cost you a whole paycheck.’”

The stroller she picked out and ultimately received as a gift cost about $400.

Over the past few decades the baby stroller has gone from a practical parenting necessity to a luxury item for some, says Paul Hope, senior home editor at Consumer Reports. While you can still find a budget-friendly stroller, an increasing number of new premium models are priced north of $1,000.

“What I think has happened is that we have really seen the emergence of a lot of premium brands and they have become sort of a status symbol,” says Hope.

Why are baby strollers so expensive?

Marketers and manufacturers have capitalized on a ripe market, says David Katzner, president of The National Parenting Center, a parent advocacy organization, explaining why more high-priced strollers have entered the market. The organization has reviewed parenting products since 1990 and this year reviewed its first $1,300 stroller.

“For parents, our testers, the sticker shock is remarkable,” Katzner tells MagnifyMoney. He says the high prices prompt some parents to jokingly ask if the stroller is magical — for the money, can it educate the children, or even change a diaper?

Some parents are willing to spend top dollar even for products that will only be used until their little ones are able to walk on their own.

Miami mom Stephanie Viney, 28, says an expensive stroller is worth it if you have the money to spend.

When she and her husband were getting ready to have their first child, Finn, now 23 months old, they picked out an upscale traditional stroller: the UPPAbaby Cruz stroller, car seat and accessories totalling $1,100 for their baby registry.

“It is definitely expensive once you get everything you need; what sold me on it was the big, easy-access basket underneath,” says Viney. The stay-at-home mother and hairdresser says the stroller has held up well and is practical for her on-the-go lifestyle. “The UPPAs are sturdy strong strollers. You get what you pay for.”

A year after they received their first stroller, the couple shelled out $1,200 to upgrade to an UPPAbaby Vista stroller, large enough to hold both Finn and his four-month-old baby brother.

What you’re getting for the money

The most expensive strollers may be made with premium materials like leather upholstery, have some extra padding in the seat area, larger wheels that absorb shock, cupholders or extra basket space underneath. Viney’s UPPAbaby Vista even incorporates a “piggyback” attachment, which will allow one child to stand and ride along when they’re big enough. She and her husband are both tall, so she says it helps they can adjust the handlebar up and down, too.

“With very premium priced strollers, you might get premium materials and construction [or] the brand name, but there are very few categories of anything we test where paying more gets you more in the way of reliability or performance or even longevity,” says Hope.

How to make an informed stroller purchase

Even for Katzner, who has been reviewing parenting products for over a decade, navigating the stroller industry is at times “very, very confusing.”

“Worst of all is walking a trade show floor when they are all just filled with all the same product,” says Katzner, whose position requires he often attend trade shows where manufacturers display new strollers, car seats, feeding and nursing systems and other baby products.

“In many cases the person in the booth is struggling to show how their stroller is different from the guy next to them,” he says. “You might find as a parent you are in the exact same place. You might say, ‘what's the difference?’”

Compare and test drive

A stroller is not an insignificant purchase. You’ll need to purchase one just like you would need to purchase a car seat or any other baby items and you will likely use it for a number of years. With many options to consider, your decision may depend on myriad factors.

Whatever you do, don’t let peer pressure be one of them, says Katzner. He advises parents not to simply choose what’s popular or has the best ratings online.

He recommends parents to some online research, take notes, then go test out strollers in person before they settle on a pick.

If you feel pressured to keep up with your peers, keep in mind, Consumer Reports has not found any reason to buy a stroller that costs more than $1,000, says Hope.

While you’re at the store, try any of these shopping tips to help make your decision.

Consider your lifestyle

Stroller options can be categorized into three main families: traditional, jogger, and umbrella. (Though you can find strollers with mixed features.)

What you ultimately choose will depend on how you plan you use the stroller.

If you are very active and plan to exercise with the stroller or take it along with you on tough terrains, you may want to consider a jogger. On the other hand, if you will need to lift the stroller often, you may choose, instead, an umbrella stroller.

“Umbrella strollers are really fabulous for collapsing on the subway or in transit going to the airport,” Hope says.

After her son turned 2, Liu supplemented her first stroller purchase with a $20 umbrella stroller from Target.

“It was difficult because of the subway stations,” she says of her first stroller. “Every time I had to fold the stroller and carry my bags, my son and his bags up the stairs.”

However, many jogging and umbrella strollers can’t be used with children less than 6 months old, because they don’t always accept car seats. That’s why Liu bought the big, chunky stroller, first. Hope says most people opt for the traditional stroller, as it suits most needs.

“Traditional strollers that accept an infant car seat or are compatible are typically the best value,” says Hope. “You're guaranteed that the stroller will be safe to use with a baby that is under six months.”

Test for ease of use

Put the stroller through a comprehensive test when you're shopping to test how easy it is for you to use. After all, you're the one who will be spending the most time with the stroller. Katzner recommends you choose something that makes your life easier.

Everyone will have different determining factors. In general, Hope suggests shoppers check for how it feels to do things like lift the stroller, strap in the child, adjust the backrest or lock the wheel brakes.

In addition, he advises shoppers to take the stroller for a ride to test how easy it is to navigate. Hope suggests going with a small child if you already have one — or ask a friend or family member if you can take their youngster for a test drive — to simulate real-life situations like making tight turns and encountering curbs.

Liu says her first stroller weighed about 10 to 15 pounds, and she could fold and carry it with one hand when traveling in the city. She says a basket underneath also came in handy when she went out grocery shopping or had her son with her and had to bring along a bunch of his things.

On the other hand, the Pinckneys have a pickup truck, which makes it easy to load and unload a bulkier stroller. They also live in a suburban area, where they are less likely to need to lift or fold the stroller.

Look for the JPMA logo

“There is not a whole lot you can look for as a consumer in the way of safety,” says Hope. But, organizations like the Juvenile Product Manufacturers Association (JPMA) regulate strollers and they test for a whole host of safety factors, so you don’t have to. Look for the JPMA logo on the stroller box to feel confident the stroller you put your baby in meets today’s safety standards.

Some strollers and online retailers like Amazon.com may display the National Parenting Center’s seal of approval, too. The organization has real parents test and review children’s products on many features, so you can get a sense of what it’s like to actually use the stroller. Although the strollers the NPC reviews are generally already JCMA-approved, the organization notes that its seal of approval does not imply or guarantee product safety.

Question the salesperson

The salesperson’s job is to make sales, but your job is to be a responsible consumer. If you get to the store with one stroller in mind, but the salesperson pushes you toward a different pick, ask why, says Katzner.

“Of course the salesman is going to try to sell you the $600 stroller,” says Katzner. “Put them to the test and ask why. What does it do? What's the difference?”

In the end, you’ll walk out more confident in your choice having asked all your questions, instead of feeling as if you were coerced into choosing a stroller with features you weren’t interested in, or may not ever use.

Think ahead

Hope says most traditional strollers that carry an infant car seat can be used from when the baby is born until they are about four or five years old; traditional strollers commonly adjust to accept a child that weighs up to about 50 to 60 pounds.

If you plan to have more children, you’ll need to do some forward thinking when choosing your first baby stroller. A durable stroller can go a long way. And, as long as safety standards don’t drastically change, it could serve you for more than one child.

When they had their second child, Viney ran into an issue. She now needed a double stroller, but her UPPAbaby Cruz couldn’t be converted into one.

“Once I realized I got the wrong UPPAbaby I was very upset,” Viney says. Because they already had $500 worth of seats and accessories, they decided to stay with the same brand and get a UPPAbaby Vista — the new stroller and a second seat cost about $1,200.

“The sales guy should have definitely asked if we were going to plan for more kids because when spending this kind of money you want to have it for long,” says Viney.

The bottom line: Don’t follow the crowd

Asked if she would have chosen a more expensive stroller, were money no object, Liu says no.

“If at the time I had more money or wasn't strapped for cash I would have gone with the same thing. It was practical. It was fine. I have no complaints about it,” says Liu.

Pinckney, on the other hand, says she would choose a more expensive stroller if it had features her current stroller is missing like a tray up top, for parents, or cupholders.

It all comes down to personal preference. Choose the stroller that best fits your lifestyle at the best price point for your budget. Most importantly, pick a stroller that will make your life as a parent that much easier.

“Do not go beyond your means,” says Katzner. “Do not get something that is going to be unwieldy and make your life more difficult.”

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Credit Cards

Uber Visa Card Review: Uber’s First Credit Card Offers a Lot for Millennials to Love

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities. This site may be compensated through a credit card partnership.

The rumors were true. Uber’s making the leap from the smartphone in your pocket to the wallet in, well, your other pocket.

The ride-hailing company has teamed up with Barclaycard, the credit card division of UK-based Barclays PLC, to launch what is shaping up to be an excellent no-fee rewards credit card for millennials, urbanites and business travelers alike. The new offering, dubbed the Uber Visa Card, will be available nationwide Nov. 2.

Uber’s first branded credit card lets cardholders earn 4% back on dining, 3% on hotels and airfare, 2% on online purchases including Uber, online shopping and video and music streaming services, and 1% on most everything else. Individually, the bonus categories are similar to those of a few existing no-fee cards with special category bonuses. But the Uber Visa Card’s 4-3-2-1 cashback rewards structure makes for a leading bonus category rewards credit card.

And that 4% cashback bonus makes the Uber Visa Card a leader in dining rewards.

Heavy Uber-app users need look no further for a cashback offering. However, to get the best bang for their buck, they should pair the Uber Visa Card with a flat-rate 2% cashback card such as the Citi® Double Cash Card or PayPal Cashback Mastercard®.

Uber Visa Card

Uber Visa Card

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
4% back on dining, 3% back on hotel and airfare, 2% back for online purchases, and 1% on everything else
Regular Purchase APR
16.24%-24.99%

variable

Part I: Card benefits: At a glance

The Uber Visa Card boasts an impressive 4-3-2-1 rewards program, as described above, in addition to other bonuses. But those aren’t the only perks this car packs. The company is clearly making a play for millennials, with unique benefits like account credits for digital subscription services (a la Netflix or Hulu) and mobile phone protection.

With its rewards package, the Uber Visa Card might could act as bait to convince some millennials to use credit more often. (Recent research shows the generation favors debit and cash for everyday purchases.)

Cashback rewards

The pros

The cons

  • Unlimited 4% cash back on dining and takeout.
  • Unlimited 3% on hotel and airfare
  • Unlimited 2% back on online purchases including Uber.
  • Unlimited 1% back on all other purchases.
  • No annual fee
  • No foreign transaction fees.
  • 10,000-point bonus, redeemable for $100 cash back, after you spend $500 or more in purchases within the first 90 days after opening an account.
  • Cardholders who spend $5,000 or more per year, are rewarded with a $50 credit to use on digital subscription services.
  • Cardholders who use the card to pay their phone bill each month also get up to $600 for mobile phone supplemental insurance.
  • Cardholders can only redeem up to $500 worth of points per day for Uber Credits and bank deposits.
  • Online limitations to those 2% cash-back rewards.
  • No interest-free balance transfer period.

High rewards for no fee

The Uber Visa Card grants consumers comparatively lucrative ongoing-bonus-category rewards for no annual fee, and the card charges no foreign transaction fees. That’s rare, even in a market where banks are spending more and more on credit rewards to attract consumers.

The card that comes closest to offering a similar level of bonus rewards is the Chase Sapphire ReserveSM. It earns users an annual $300 travel credit, unlimited triple points on dining and travel, and 1% back on all other purchases. But it charges a hefty $450 annual fee.

If you don’t have an extra $450 in your budget but still want to earn big on dining and travel, the no-fee Uber Visa Card may be the better choice.

Chase Sapphire ReserveSM altered one cardholder perk in January – the lucrative 100,000-point-bonus signup offer. After less than a year on the market, Chase cut back a 100,000-point Ultimate Rewards bonus after spending $4,000 within three months to just 50,000 bonus points after you spend $4,000 in the first 3 months from account opening.

An Uber spokesperson tells MagnifyMoney that the Uber Visa Card’s rewards are not temporary, and there are no plans afoot to change them.

It’s important to note the Chase Sapphire ReserveSM does offer other traveler perks like up to $300 in statement credits for travel reimbursements per year, a $100 statement credit for applying for Global Entry or TSA PreCheck, and several travel protection benefits. If you use those perks, it may be worth it to you to pay the beefy annual fee for Sapphire.

4% cash back on dining

The Uber Visa Card awards a whopping 4% unlimited cash back on dining, which includes restaurants, cafes, bars and even takeout like UberEATS. The category’s cashback rate leads the industry, beating the Chase AARP Visa and Costco Anywhere Visa, which award only 3% cash back on dining.

The Uber Visa Card also beats the Chase Sapphire ReserveSM's 3x points on dining, since 4% cash back is equivalent to earning 4 points.

As mentioned, the Uber card awards 4% on takeout, too, and millennial cardholders may enjoy this perk the most. According to a recent Bankrate report, the average millennial dines out or orders in five times a week. The average member of the avocado toast generation spends about $233 on both dine in and take out meals, compared to just $182 a month for older generations. If a cardholder spends a weekly $233 on dining, he or she will earn about $9.32 a week, or $484.64 in cash back annually.

3% cash back on hotel and airfare

Cardholders earn 3% cash back on hotel and airfare purchases made using the Uber Visa Card. Another bonus for millennials: Cash back applies to vacation home rental services, like Airbnb.

According to travel website Hipmunk, nearly three-fourths of millennial travelers have used a vacation rental service like Airbnb while traveling for work, compared to only 38% of Gen-Y and 20% of Boomers. And, about 81% of millennial travelers said they would add extra time to business trip to make some room for leisure.

While Uber’s 3% offer on airfare and hotels is a good offer for the average frequent flyer, consumers can find the same deal with some other no-fee cards, like the AAA Member Rewards Visa, Chase Sapphire ReserveSM and Costco Anywhere Visa.

Beware: Although it offers the same amount of cash back on travel, the Chase Sapphire ReserveSM technically beats out the Uber Visa Card when cardholders use their points for travel rewards.

With Uber, 1 point = $0.01, but if users redeem points using the Chase Ultimate Rewards® portal 1 point = $.015, so your points go about 50% further with Chase, allowing cardholders to purchase more with the same point value. Put another way: A 50,000-point bonus is really worth $750, instead of $500.

Up to $50 streaming credit bonus

Here’s a perk you won’t find on many rewards cards these days.

If a cardholder spends $5,000 or more in a cardmembership year — the 12 consecutive months following your account's anniversary date — he or she stands to earn up to $50 for digital streaming purchases. Cardholders can earn the subscription credit each year.

The $50 credit is automatically applied as a statement credit for eligible digital subscription services once the cardholder meets the $5,000 spending threshold. If the cardholder hasn’t made $50 worth of eligible purchases by the time he/she spends $5,000, the result is a statement credit for any new eligible digital subscription services charged to the card up to $50.

Cardholders can track their progress toward the annual spending threshold on BarclaycardUS.com.

Up to $600 worth of mobile phone insurance coverage

When cardholders use their Uber Visa Card to pay for their monthly wireless bill, they receive up to $600 for mobile phone damage or theft for each phone listed on the wireless account. Coverage begins one month after the first bill was charged to the Uber Visa Card.

Depending on the kind of coverage a cardholder currently has through a carrier, those who take advantage of this perk could save a good chunk of money. Those under one of the four major carriers could see savings of $7 to $15 a month for a single device or up to $35 a month to cover up to three devices on one account.

There is a $25 deductible to use the protection. After that is paid, the protection covers up to $600 per claim on up to two claims in a 12-month period. If the phone has to be replaced, the protection awards the suggested retail value of the replacement phone, up to the $600 maximum per claim.

2% cash back on online purchases

The Uber Visa Card pays cardholders 2% cash back on online shopping, purchases made through Uber, video and music streaming services and online services like Instacart and TaskRabbit.

The cool thing about this perk is that cardholders can earn cash back on subscription services like Netflix, Amazon Prime and Spotify. Millennials, the leaders of the cord-cutting movement, will likely benefit by simply “setting and forgetting” their Uber Visa Card to pay for their favorite streaming services.

Update: Barclaycard sent cardholders an email Dec. 5 saying "using a third party payment method including PayPal, Venmo, Apple Pay, Samsung Pay, and Android Pay will now earn 2% back." Take note: Using a credit card to make a person-to-person (P2P) transfer often carries a fee of about 3% of the transaction. Be sure to review the cards terms & conditions for details.

The 2% cash back on online purchases is good, but the bonus category offer isn't a leading rate. Consumers who don’t do all their shopping online could benefit more from cashback options that earn double points on all purchases, not just those made online, like the Citi® Double Cash Card, Fidelity® Rewards Visa Signature® Card, or PayPal Cashback Mastercard®.

1% cashback on all other purchases

The Uber Visa Card still rewards spending if you don’t purchase in one of the bonus categories,. The card rewards cardholders 1% back on all other purchases, so it’s a good go-to card for everyday purchases, in addition to bonus-category buys. The 1% offer isn’t very competitive, as there are many existing cards that offer 2% on all purchases, but it ensures cardholders earn at least a little something on everything they buy with the Uber Visa Card.

Part II: Applying for the Uber Visa Card

The Uber Visa Card opens for applications Nov. 2. Interested applicants can apply for the unsecured rewards card online or directly through the Uber phone app and see an approval within minutes. The in-app application may be more of a win for Uber than for millennials, but it makes the application process easy for anyone who already has the Uber app, so may appeal to digital natives, too.

Once the application is approved, the card is made available for use immediately on rides and UberEATS purchases made through the Uber application on the cardholder’s mobile device. Cardholders should receive a physical card in the mail within 1 - 2 weeks of approval.

What it takes to qualify

Borrowers with higher credit scores are more likely to qualify for the lower interest rates, while those with lower scores are likely to qualify for the higher APR. At this time, there is not a way for applicants to check to see if they prequalify.

This card is best for ...

The Uber Visa Card is best for the regular Uber customer who dines out often, frequently travels for work, handles most shopping and bill paying online, and pays his/her balance in full each month. The unsecured rewards credit card’s features will likely hold the most appeal for traveling business people and city-dwelling millennials.

Consumers who spend heavily on dining, travel and online purchases would have the best shot at maximizing the Uber Visa Card’s rewards offers. However, the benefit is canceled out if a user carries a balance, thanks to a high interest charge on purchases.

Uber loyalists will benefit most from Uber app-centric perks like the ability to manage and redeem point using the app, and redeem rewards for Uber Credits for Uber rides and UberEATS.

Again, millennials may reap the greatest reward here as they more likely to use ride-hailing services like Uber on a regular basis. According to Pew Research, 7% of all 18- to 29-year-olds use ride-hailing on a daily or weekly basis; that figure rises to 10% among 18- to 29-year-olds living in urban areas.

Depending on how much an Uber app user spends and how often Uber gets used.

Those who aren’t frequent users of Uber’s app may benefit from earning cash back on spending in the card’s bonus categories, but may not realize as much value in the various app-centric perks.

Part III: Redeeming rewards

Cardholders can redeem cash back via Uber credits, gift cards, statement credit or direct deposit. Cardholders can start redeeming cash back for Uber credits once their cashback balance reaches $5, or 500 points.

As long as the account is active and in good standing, points never expire. The cashback balance must reach $25 before users can access it for gift cards, statement credit or direct deposit.

Cardholders are able to redeem rewards through the Uber app, online through the cardholder portal at BarclaycardUS.com, or by calling the customer service number on the back of the card. Cashback redemption is capped daily at $500.

If there are any authorized users on the card, they can earn and redeem points for gift cards and cash back, but not for Uber credits. Each cashback point is equivalent to $0.01 (2,500 points = $25).

How to redeem rewards for Uber credits in the Uber app

Uber lets cardholders directly manage the rewards points they've accumulated for Uber credits, gift cards or cash back through the Uber phone application. Users must first add the Uber Visa Card as a payment method.

Once the card is added, the user will tap on the Barclaycard mobile app menu to see a points balance. After tapping the points balance, the user should be prompted to select the amount to be redeemed.

Uber says the redemption should happen within seconds, but may take up to 24 hours to be applied to the account. The process is demonstrated in the GIF below.

Part IV: Pros and cons

What we like about the Uber Visa Card

No annual fee

The Uber Visa Card charges no annual fee, which is unusual for a card this loaded with rewards and bonuses. Cardholders can make the most of this no-fee rewards card if they charge only items that fall into the bonus rewards categories and pay the balance in full each month.

4-3-2-1 rewards perks

Uber’s card awards holders a high return on most purchases. In addition, rewards are unlimited and never expire. The card’s 4-3-2-1 cashback rewards program is appealing.

No foreign transaction fee

Cardholders can swipe to pay for items and services overseas without incurring foreign transaction fees. The lack of this fee combines with the 3% travel rewards bonus category to make the Uber Visa Card a good travel companion. Purchases made overseas also earn cashback rewards.

Apply directly in the Uber app

Uber’s 40 million active riders won’t need to rush to a computer to apply for the Uber Visa Card once the application opens Nov. 2. They can simply apply through Uber’s phone application. Uber claims users will be able to submit an application and see a decision within minutes on the app. Users can also apply for the Uber Visa Card online.

Immediate access

Approved applications are granted access to the funds immediately. Users can add the card as a payment option in the Uber mobile application for immediate use on rides and UberEATS orders.

Immediate access comes in handy if an applicant is in need of the funds ASAP. But it’s unclear if cardholders will be able to use the card immediately on purchases outside the Uber app, too.

Exclusive access to events and offers

Uber Visa Card users will get exclusive invites to events and offers in select U.S. cities. Uber app users may already be familiar with this perk if they have checked out Uber’s Visa Locals Offers. Cardholders earn Uber credit when they visit participating stores and restaurants if they pay with a Visa card (like the Uber Visa Card). Uber’s banded credit card is a Visa, so cardholders can earn rewards — like 10% Uber rewards if you shop at Whole Foods — plus the regular purchase rewards if they use the Uber Visa Card at checkout.

What to watch out for with the Uber Visa Card

$500 daily redemption limit

Cardholders can only redeem up to $500 worth of points per day on Uber Credits and cash back for a bank deposit. This may prove problematic if one wants to use points to redeem more than $500 in cash back rewards via bank deposit. There is no daily limit for cash back as a statement credit or for gift cards.

2% cash back on online purchases

2% cashback on online purchases is good, but the bonus categories offer isn't a leading rate in itself.

1% cashback on all other purchases

For all other purchases, 1% isn't a very competitive offer.

No interest-free balance transfer period

The Uber Visa Card is not a good option for anyone looking to consolidate credit card debt using a balance transfer. Unlike with the Citi® Double Cash Card, Uber Visa Card cardholders don’t pay 0% interest on balance transfers for a period. The card charges the greater of $10 or 3% of the transfer amount to transfer a balance, followed by the regular 16.24% - 24.99% variable APR the cardholder is charged on all other purchases.

Part V: Alternatives to the Uber Visa Card

Consumers who don’t use Uber, don’t dine out often, don’t travel much or don’t make most of their purchases online may not find the Uber Visa Card’s cashback offer very appealing. While they can still earn a flat 1% cash back on all purchases they won’t be able to benefit much from the card’s bonus categories. Using a flat-rate cashback card with a higher reward, or one that offers a high cashback bonus in a category they use more often, may be beneficial to those consumers.

Flat-rate cashback alternatives

A flat-rate cashback card like the leading Citi® Double Cash Card and Paypal CashBack Mastercard® is a great option for anyone who wants to earn a reward on all purchases without thinking about bonus categories.

Citi® Double Cash Card – 18 month BT offer

Annual fee

$0*

Cashback Rate

1% when you buy, 1% when you pay

Regular Purchase APR

14.74%-24.74%

Variable

The Citi® Double Cash Card is the second-highest no-fee flat-rate cashback credit card on the market. The card awards a first 1% cash back when you spend, and another 1% cash back when you pay. Cardholders receive the first 1% when they make a purchase and the second 1% when they pay at least the minimum payment due on their billing statement from the period, totalling 2% cashback.

The Citi® Double Cash Card offers an 18-month introductory 0% balance transfer offer, too, so it’s a good choice for those seeking to consolidate debt. Borrowers with good or excellent credit scores may be approved for the Citi® Double Cash Card.

PayPal Cashback Mastercard<sup>®</sup>

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

2%

Regular Purchase APR

16.99%-27.99%

Variable

Cardholders with a PayPal Cashback Mastercard® can earn an unlimited, flat 2% cashback on all eligible purchases made using the PayPal Cashback Mastercard® for no annual fee. The card charges slightly higher variable interest rates than the Uber Visa Card — 16.99%, 24.99% or 27.99% — based on creditworthiness. Borrowers with fair, good or excellent credit scores may qualify for the PayPal Cashback Mastercard®

Similar to the Uber Visa Card, those approved for the PayPal Cashback Mastercard® can use the card immediately to pay for purchases through PayPal’s online and mobile applications. Cash back can be redeemed to the cardholder’s PayPal balance. From there it can be sent to the user’s bank account or used to send money to peers or make purchases via PayPal.

Fidelity® Rewards Visa Signature® Card

Annual fee

$0

Cashback Rate

2% on all spend

Regular Purchase APR

15.24%

Variable

The Fidelity® Rewards Visa Signature® card earns cardholders 2% cash back on all purchases with no annual fee. The card is best for existing Fidelity customers, since the cashback earned has to be deposited into a Fidelity account.

Only borrowers with excellent credit should apply for this card. Fidelity also bases its credit limits on the total amount of assets it is managing on a consumer's behalf, so those approved may still be disappointed in the limit they receive if they don’t have much money with Fidelity already.

Bonus category cashback alternatives

Uber doesn’t offer the best cashback rate on airfare and travel. In addition, the bonus categories the Uber Visa Card offers may not appeal to everyone hoping to earn cash back on the purchases they make most.

Best for airfare rewards:

PenFed Premium Travel Rewards American Express® Card

Annual fee

$0

Cashback Rate

-

Regular Purchase APR

9.74%-17.99%

Variable

Cardholders earn an unlimited five points per dollar spent on airline purchases when they pay with the PenFed Premium Travel Rewards American Express® card. While the points translate to 5% cash back earned, each point is only worth 0.8 cents, so the reward is actually 4.25% when redeemed for airfare. Regardless, it’s still higher than the 3% a cardholder would ean with the Uber Visa Card.

PenFed Premium cardholders also earn a sign-on bonus of 20,000 bonus points after they spend $2,500 within three months of opening the account. The card does not charge an annual fee or foreign transaction fees. If you travel often and want to earn more than the Uber Visa Card is offering, the PenFed Premium Travel Rewards American Express® card is a solid alternative.

Best for supermarkets and fuel:

Blue Cash Everyday® Card from American Express

Annual fee

$0

Cashback Rate

3% at U.S. supermarkets, on up to $6,000 per year in purchases (then 1%), 2% at U.S. gas stations & select U.S. department stores, 1% on other purchases

Regular Purchase APR

14.24%-25.24%

Variable

The Blue Cash Everyday® Card is a good alternative for consumers who spend more money on grocery than dining and more running around IRL on gas than making online purchases. The card offers cardholders 3% cash back at U.S. supermarkets (on up to $6,000 per year in purchases, then 1%) with no annual fee. In addition to a high cashback rate on groceries, cardholders earn 2% at U.S. gas stations and select U.S. department stores, and 1% on other purchases. The card also awards new cardholders a $150 statement credit after spending $1,000 in the first three months following opening of an account.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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