Question: Tim in Burlington: My 21 year old daughter just got her first credit card. I’m a little nervous because I got into debt when I was young and I don’t want that to happen to him. Besides paying her bills on time, what advice do you have for her?
A: From your perspective, paying bills on time will be key – especially since payment history is the largest component of a FICO credit score (the most popular of credit scores). And while FICO, surprisingly, doesn’t really care if someone makes full payments or carries a balance from month to month, we strongly recommend that they get into the habit now of paying the full balance. of his statement each month. Because, as you may remember from your own experience, having a balance means paying interest charges – which can get expensive. Just consider this: Let’s say she racks up $3,000 in debt (a pretty modest amount considering the average American household has around $8,000 according to WalletHub). If her card has an interest rate of 16% and she only puts $100 a month on that balance, it will take her a little over three years to pay it off. Plus, she would pay nearly $800 more in interest!
Also, she shouldn’t get too close to her card’s credit limit. Typical advice is not to use more than 30% each month, because using more can hurt her credit score (meaning if she has, say, a $5,000 limit, she shouldn’t spend more of $1,500). However, ideally we suggest she tries to stick to a maximum of 10% per month ($500 in this example).
We also recommend that she check her statement every month, for two reasons: first, it can give her a detailed overview of her spending; and second, it’s an easy way to make sure there are no suspicious charges. It should also enable any security and fraud alert functionality.
Here’s Allworth’s advice: credit cards often get bad press. But in reality, they can be a great tool for building credit — especially for someone as young as your daughter — as long as they’re used responsibly. And we’ll tell your daughter the same thing we love to tell our Simply Money radio listeners: she should strive to be a credit card issuer’s worst customer; because by paying the bills in full and on time, the issuer does not earn money from it.
Q: SJ from Hamilton County: I recently started applying for Social Security. Will I have to pay taxes on this money this year?
A: It depends on what the Social Security Administration calls your “combined income.” This number is the sum of your adjusted gross income (AGI), any non-taxable interest you may receive (such as municipal bond interest), and half of your Social Security benefit. If you are an individual filer and this total is less than $25,000, you will not have to pay federal tax on your benefit. If it’s between $25,000 and $34,000, you may have to pay tax up to 50% of your benefit, and if it’s over $34,000, you may have to pay tax. up to 85% of your benefit. (Note: 13 states also tax Social Security benefits, but Ohio is not one of them.)
Allworth’s advice is that you should take the time to work out your combined income to really know if you’ll be taxed (if you need help calculating it, the IRS website has a tool you can can use). The Social Security Administration estimates that about 56% of recipients pay taxes on their benefits, so it’s a very real possibility for many retirees — and one that catches many off guard.
Each week, Amy Wagner and Steve Sprovach of Allworth Financial answer your questions. If you or a friend or family member has a money problem or problem, please feel free to send these questions to [email protected]
The answers are provided for informational purposes only and individuals should consider whether any general recommendation contained in these answers is appropriate for their particular situation based on their investment objectives, financial situation and needs. To the extent a reader has any questions regarding the applicability of any specific matter discussed above to their individual situation, they are encouraged to consult with professional advisor of their choice, including a tax advisor and/or attorney. . Retirement planning services offered by Allworth Financial, an SEC-registered investment adviser. Securities offered by AW Securities, a registered broker/dealer, Member FINRA/SIPC. Call 513-469-7500 or visit allworthfinancial.com.