How To Be a Responsible Credit Card User

No need to be afraid of credit cards—if you use them wisely. Follow these guidelines to help you charge responsibly.

Credit cards are a modern convenience that make shopping easier and safer. They can be better than cash for large purchases, and they’re a good option for shopping online if you’re concerned about the security of digital transactions. You can also find useful benefits such as cash-back or rewards points that can help you with other spending needs. A credit card can also be key for establishing and building a credit history, which is essential when financing large purchases such as a car or a home.

But like many things in life, the ease of credit cards comes with an opportunity cost. Excessive use of credit over time can lead to future financial problems. But credit doesn’t have to control your financial life, if you take control of your credit and learn how be a responsible credit card user.

Use your credit card like a debit card. Make purchases on your credit card only when you have enough money in your bank account to pay for them. This approach can help you pay off debts as you realize them, while you build a solid credit report and reap rewards at the same time.

Be prudent with credit. A credit card can be useful in helping you pay for large purchases when you don’t have enough savings, as long as you have a plan to pay off the purchase in a few months. There are some purchases that are not a prudent use of credit; for instance, paying taxes, your rent or mortgage, or significant medical bills. Once you start paying for these expenses with credit, it’s easy to keep doing it. That’s a quick way to dig yourself into a hole of debt.

Make minimum payments on time. Always pay your full credit card balance every month. This is the best approach for avoiding interest changes. But there may be times when you cannot pay off your full balance. If so, you should at least pay the minimum amount due on time. Nearly all credit cards charge fees for late or missed payments, and some banks are likely to apply higher interest rates as well. Late and missed payments can also become black marks on your credit history that are hard to erase.

Don’t max out your credit. The convenience that credit cards offer is great, but that ease of use can also lead to trouble if you continue to make purchases with credit. If you don’t pay off these purchases and continue to shop with your card, eventually you’ll hit your credit limit. Carrying a high credit card balance can weigh on your credit score. If you need to carry a balance from month to month, make sure it only represents a small portion of your credit limit.

How Tax-Loss Harvesting May Help Lower Your Tax Bill

A volatile year in the financial markets can create opportunities for reducing your taxable income.

Many investors use the closing months of the year to review their portfolios and assess their winning and losing investments. It’s also a good time to do tax planning for the upcoming filing season; decisions you make before year-end can help you lower the taxes you own on your ordinary and investment income.

Tax-loss harvesting is one strategy many investors use to offset taxable investment income and capital gains with capital losses. After a volatile year in the markets, you may see a stark divide between winners and losers in your portfolio. There is opportunity, however, to consider selling certain investments that realize losses you can use to lower your overall tax bill.

Use losses to lower your tax liability. Tax laws permit you to take a credit for any investment losses you incur during the calendar year to lower realized capital gains and possibly your taxable income. For example, let’s say earlier this year you sold a stock position you’ve held for several years and realized a profit of $1,000. This profit will be taxed as a capital gain at a rate of as much as 20%, depending on your tax bracket. However, let’s say you sold another long-term stock position this past year for a loss of $600. You can use this capital loss to reduce your total capital gains for the year to $400. The most you’d pay in taxes would be $80. ($400 capital gain x 20% maximum cap-gain tax rate.)

You can also use tax-loss harvesting to reduce your ordinary taxable income, if you realize losses in excess of your total capital gains for the year. You can apply capital losses up to $3,000 in a calendar year—a small amount, but potentially significant if the credit lowers your total annual taxable income and keeps you from moving into a higher tax bracket.

Carry over excess losses for the future. If your total losses for the year exceed your total capital gains, you can also apply these losses against future capital gains by carrying them over to another tax year. The IRS caps this capital-loss carryover at $3,000 per year, but you can extend the losses over consecutive years until the entire amount of the capital loss is applied.

Know the “wash sale” rule. If you plan to sell a security for a loss, the IRS forbids the purchase of the same security or a “substantially similar” security for 30 days before and after the sale. This type of transaction is known as a “wash sale”. It’s an important rule to remember if, for example, you want to sell an indexed ETF and purchase another ETF linked to the same index. Violating the wash-sale rule could disallow any offset losses, not only for the current tax year but potentially future tax years as well.

Budget-Friendly Options for Any Gift-Giving Occasion

You can show your love to friends and family without breaking your bank account. Here’s how.

Holidays and stress seem to go together like a hand in glove. One common cause of stress comes in picking out the perfect present for their loved ones. But that can also create a difference source of stress—spending too much on gifts and going deep into debt.

As a result, many people feel pulled in two directions at once. But you can give thoughtful gifts and keep your spending under control. Consider these budget-friends gifting options:

Give with a personal touch. Photos are a great way to be thoughtful during gift-giving season, but you have options beyond picture frames and prints. These days, you can put a digital photo on just about any object, which makes your gift personal and practical. Consider screening a favorite photo on everyday items such as coffee mugs or coasters.

Make an event out of it. Even while you’re practicing social distancing with family and friends, you can look ahead for getting back together in the future with tickets or coupons for social activities. Local events are great for for planning an outing with friends or family members, or creating a reason for a “date night” with a partner or spouse. Plus, you don’t have to break the bank with pricey concert or theater tickets. You may find some great deals right now on movies, theater, concerts and musical performances from arts organizations looking stay connected with their communities.

Do it yourself. Maybe you don’t have a creative bone in your body and a DIY gift isn’t your style. You can still think outside the box to craft thoughtful gifts that don’t come from a store and won’t cost you a lot of money. Edible gifts are almost always welcome, whether you bake something from scratch or assemble a basket of favorite foods.

It’s the Gift That Counts: Considering Different Charitable Donations

Whatever your reason for giving, think of different ways you can have an impact on the causes you care about.

If you plan to itemize deductions on your federal tax return, charitable donations can be an effective way to lower your overall tax bill. But even when there’s no tax benefit, donating money or volunteering time helps you put the wealth you’ve earned to work toward a worthy cause or to improve the lives of people in your community.

Donating money and other financial assets. Making donations of cash is straightforward—the full amount of your monetary donation is tax deductible if you’re itemizing deductions this tax year. Be sure to get receipts for all your cash donations for tax reporting purposes.

If you donate securities such as shares of stock, you may use the full fair market value of these securities as a tax deduction, as long as you’ve held the securities for more than a year and the deductible amount doesn’t exceed 30 percent of your adjusted gross income. Also, you won’t incur capital gain taxes when you donate securities.

Employer matching opportunities. These days, many companies are using employer matching donations as a way to stay in touch with their local communities and build employee engagement. If your employer offers a matching donation program, it can be a great way to extend the impact of your charitable contributions.

Donor-advised funds. As an alternative to setting up a foundation to manage charitable contributions, donor-advised funds are an easy and cost-effective way to support causes you care about. With these charitable giving accounts, money you contribute is managed by a sponsoring organization, but you still control where to direct your donations and how much to give. In addition, your donations may still qualify as tax deductions.

Giving physical assets. Many charitable organizations accept donations of clothing, furniture, appliances and other household items. In many cases, you can take the fair market value of these donations as tax deductions if you are itemizing this year. You may also be able to donate cars, boats, motorcycles and other large vehicles. Before you donate a car, do your homework on the charitable organization to make sure they’re legitimate and know the rules about deducting the proceeds from the sale.

Volunteering your time. There’s no tax benefit to volunteering for a favorite cause or charity, but it’s still a great way to show your support and participate in a community activity. Volunteer work is suitable for anyone at any age—teens can start to build work experience through charity work, adults can mingle in a network of like-minded people, and retirees can find ways to stay busy and social with others in their communities.