Anna: Welcome back to the Noyack Expert Series. I’m Anna, the producer and host for the day. And here we’re today with Ted Rossman, senior industry analyst over at Bankrate, where he covers the economy, credit cards, banking, helping millions of Americans make smarter money moves, maximizing rewards, getting out of debt and proving their credit profiles. His work is widely spread out. You’ve likely seen him explaining consumer trends on CNBC and other outlets you also might have seen in the last time we had him on the show. Thank you so much for coming back, Ted. It’s good to be here.
Ted: That’s a very kind intro. Thank you.
Anna: Today we’re going to be talking about credit, not necessarily because we heard a lot about credit on social media. I know a lot of people my age, a little younger, a little older, we hear a lot about credit, debt, that credit cards can be scary, all of these negative side effects that come from using credit poorly. But today we’re going to flip the script a little bit on that and focus more on how credit can be an asset, how it can actually help you in your wealth building journey. And taking out loans and taking out credit cards isn’t necessarily always a bad thing. So I guess the basics is a lot of people when they think credit scores and credit and all of this in general, they jump to credit cards. Now, it’s a lot more complex than that. What would you say to someone who’s just starting to build their credit? What goes into credit beyond just the basics?
Ted: Your credit score is one of the most important numbers in your financial life. It’s basically a numerical representation of a financial report card of sorts. How likely are you to repay a lender? Chances are you’re going to need plenty of credit in your lifetime. Auto loans, mortgages, credit cards, but also younger people who say, well, I don’t need credit right now, I don’t need any of that stuff. Landlords are going to check your credit when leasing an apartment. Other examples might include utility providers, cell phone companies. Sometimes they won’t give you a plan if you don’t have good credit, they’ll charge you a higher deposit up front. There are a lot of good reasons to build and maintain a strong credit score, and it’s a lot like getting a job. Everybody wants you to have experience, right? It’s hard to get that first line or two on the resume. It takes credit to build credit. So that’s another reason why these are some of them are relatively recent changes, but it goes to show that credit’s always evolving and sometimes it’s evolving slowly. When I know the parents credit card sometimes has shifts, a lot of it has stayed the same over time. How does having a strong credit profile right now act like a financial asset? It can lower those other borrowing costs, it can open doors. But how and why does it do this?
Anna: Well, this is something I’ve been wondering. It’s not, it wasn’t on our list of questions that we came up with earlier, but I’m seeing a lot about buy now, pay later, now potentially impacting credit scores. What are I guess some of the biggest misconceptions when it even comes to these buy now, pay later and how they impact your overall financial wellbeing?
Ted: Credit reporting has been very slow to come in to the buy now pay later industry and that’s largely because companies like Affirm and Afterpay and Klarna, they behave differently from traditional forms of credit. These biweekly installments, maybe it’s four interest free and all of that. Two of the biggest financial themes over the past couple of years, and they go hand in hand, are inflation and high interest rates. Of course, the Federal Reserve pushed interest rates a lot higher to fight inflation, but that’s pushed borrowing costs way up. And I would argue the past few years it’s even more significant to have a good credit score because good credit opens doors. It helps you get approved. It gets you better rates on borrowing. There’s tens of thousands of dollars difference over the life of a mortgage. If you’re paying a half a point different, it doesn’t sound like that much, but getting a five and a half percent rate instead of a six percent rate can save you tens of thousands of interest dollars over 30 years. As these rates have gone up, it’s just been more and more significant that a few years ago you could have gotten a three percent mortgage. Well, lately it’s been in the sixes. And if you bought in the last two years, your rate might even be in the sevens. And it just goes to show how significant that can be. Credit card rates are 20 percent on average. Some people are paying upwards of 30. Car loans in the seven to eight percent range. Generally interest rates across the board have gone up. Putting your best foot forward from a credit scoring standpoint helps you with the best approval odds and the lowest rates. And even if the average credit card rate is 20%, which it is, there are zero percent promotions for people with good incomes and good credit scores. That’s what I mean by opening doors.
Anna: So yeah, credit is something that even in sort of uncertain or very volatile times, it’s not necessarily going to fix everything for you, but it can help. It can help make it a little bit better. It can help make it those couple tens of thousands of dollars better for you over the life of some of these larger loans that you might be taking out over the course of the next couple of years.
Ted: Absolutely. Credit is a tool. Most people are going to need credit numerous times across their lifetime. Maybe it’s to borrow for a higher education degree and that’s going to improve your earning power and reduce your chances of unemployment. That’s one of the so-called good debts, not that we want to be in student debt and some people frankly take on too much student debt. If you take on six figures in student debt and you don’t really have the career path and the earning potential to pay that off, that can be problematic. So it’s still important to be thoughtful, shop around, and consider the bang for your buck. But in general, student debt is a better debt. Credit card debt is a worse debt. That’s a consumer debt. It’s for stuff that you’ve already bought. It’s the vacation you already went on, it’s the outfit that you already wore, or it’s the restaurant meal you already consumed. And yet you could be paying that off for years at a 20 or 30 percent interest rate. I know you do what you have to do. Sometimes we’re financing legitimate things like groceries and the gas we need to get to work and things like that. It’s not always easy, but we do talk about good debt and bad debt. A home is a place to live. It hopefully appreciates in value. More than an investment, it’s a place to live and its roots in the community that can be seen as a better debt. Some people are taking on too much auto loan debt and they’re upside down. And I’ve seen a lot, especially on social media, you see these people, these cars and these loans, and it’s wild with some of these car loans. Yes, even if transportation is a necessity, taking out a $50,000 car loan and stretching it out over seven years and paying an eight or nine or ten percent interest rate, that’s what becomes problematic. So that’s where we do want to talk about things like, well, of course, putting your best foot forward from a credit scoring standpoint, but also thinking, can you drive your car an additional year or two? Can you buy a cheaper used vehicle? Can you sort of cut corners? Could you get by with public transportation? These are some of the questions to ask yourself because we see way too many people upside down on big car loans and a sizable percentage are paying $1,000 a month for a car, and they’re stretching the loans out longer and longer, which is leading to higher interest bills. And that’s one to be careful about when taking out any sort of debt. It’s easy to fall into. Even if it seems like, OK, this is a good debt, it’s very easy to sort of fall off the rails a little bit and your loan has now turned into more of a bad debt situation.
Anna: I know for something to be considered a good debt or a better debt, you need to look at the return, the return that you’re going to get on it, the I guess the chance that you are going to get that return on it versus the borrowing cost. How can people sort of balance these things so that they can try to make sure that any loans they’re taking out are falling more into this good debt category so that they can help build their credit and use it as a tool and not have it be detrimental?
Ted: Traditionally, we’ve thought of something like seven or eight, ten is kind of the cutoff between lower cost debt and higher cost, but nowadays seven is about average for a lot of products like car loans and student loans. And it’s not like a few years ago when you could get a three percent auto loan or a three percent mortgage rate. Rates have gone up across the board as part of the Fed’s inflation fight. So it’s harder to find a truly low cost loan these days. You do want to think about that overall budget. You want to think about your overall financial life. Some people say that rent is throwing your money away. I don’t subscribe to that theory because buying before you’re ready can be a problem if you don’t have enough of a down payment, if you don’t have a cushion for repairs and maintenance and property taxes and insurance. Rent gives you more freedom when it comes to the ability to move, maybe for a job opportunity. You want to have the long view in mind. Or we were talking about cars. I mean, maybe you need a car, but you don’t necessarily need a brand new car with all the bells and whistles and the high price tag and the higher interest rates. So it’s important for people to have the long view in mind. And that comes to building credit as well. It’s something parents can help their teenagers do, maybe adding them as authorized users on their credit card that can help you build credit or getting that student card when you’re young or wherever you are on the spectrum. Even if you’re older, there are ways to build and rebuild. Don’t be afraid to ask for help with any of these things. Credit building, getting out of debt. There are some great nonprofit credit counseling agencies like Money Management International and Greenpath, and they can help. They can transform your 25 percent credit card rate into a debt management plan with a six percent rate over four or five years and things like that can be beneficial.
Anna: We did not last week, but the week before we did an edition on the Fed cutting rates and how mortgage rates might start to come down. And our edition should focus on making sure that you’re ready to buy a house, stopping and thinking, am I in the position to actually do this? Because even if there’s a period where rates obviously as you know where rates will start to drop, it’s like OK, now is the time to buy a house. But if you’re not ready that seemingly traditional better debt might turn into a bad situation for you just because it’s a mortgage, just because it’s a car loan doesn’t mean it’s necessarily good. And you just have to know your situation, manage it, make sure you’re not doing anything crazy, and some of these loans could actually help you in the future.
Ted: I agree. And it’s important also to realize that we can’t perfectly foresee the future. That even if people think mortgage rates are going to fall, I wouldn’t peg your whole strategy on that because what if they don’t? I mean, there are plenty of reasons and explanations for why rates may not behave as we think. And if you’re stretching to buy that house at six and a half percent and you think, well, rates are going to fall so I can just refinance later on, there’s a lot of variables to that. Maybe rates don’t behave as you expect. Maybe home values don’t move as you expect. Maybe sadly you lose your job and you can’t refinance, or you don’t have equity or you can’t pay the closing costs. There’s all these different things on homeownership. It’s maybe better to be a year late than a year early. It’s also hard to time the market. Everybody says that with stocks that we don’t know where the stock market’s going today or this week or this month or even this year. The same is true for some of these other things that you don’t exactly know how your lifestyle might change when it comes to homeownership and cars. And I know in my family’s case, we’ve been in the habit of leasing cars, which is not always the best financial advice, but it’s worked for us just in the sense that I feel like every time our car lease was up, our lifestyle had changed. We had one kid and then we needed a bigger car, and then later on we had a second kid and we needed an even bigger car. So that’s a little bit more of the rental school of thought of maybe give yourself time to figure it out and a lot of these milestones are getting pushed back. I mean, don’t feel the pressure that you need to do it by such and such age. A lot of people are waiting until they’re 40s to buy a first home. Maybe by then you have more of a down payment or you know more of what you want and you’re more stable. There’s something to be said for having the flexibility to move and try different things in your younger years.
Anna: I think it’s important also to remember even if you are earning a lot of money, if you’re a high earner and it seems like you should be doing all of these things right now, you should be able to. You have the income, so the debt might make sense. But if you take a look at some of those less financial elements of your life, where you want to be, what your family situation is, do you want to have kids? Are you thinking on moving somewhere with a partner or do you have older parents? There’s a lot of other elements that go into it besides just your income, just those financially based things. And it’s important to focus on things like credit that you can work on building that you do have somewhat of a control over so that when you are ready, you put yourself in the best position possible no matter the situation. That’s one of the things I personally like about credit and credit scores. No matter what’s going on in the world, there’s something you can control. There’s something you can use as a tool, and yes, the situation a couple years ago housing wise is far better than it is right now, but you can use that credit to give yourself the best possible outcome with the situation that you have.
Ted: That’s right, personal finance is very personal, so take a little bit of a step back on your credit score as well. It’s important to understand some of the fundamentals that go into that. It does come down largely to paying bills on time, keeping debts low, showing that you can successfully manage various types of credit over the long haul. One thing that’s not in there is your income. There are people with high incomes who have bad credit because they’re paying late or they have too much debt. On the flip side, there are people with much more modest incomes who live within their means, pay their bills on time, lather, rinse, repeat. Your income does not factor into your credit score, and that surprises a lot of people, but it’s what you do with your money, not how much money you have. Now of course your income is important for many other reasons, and it is often a factor in lending decisions just because they are looking at the monthly inflows and outflows. But speaking strictly about your credit score, it’s really about paying on time, keeping debts low, related factors like that. People should look at their credit report and score. You can get it at annualcreditreport.com for free. A lot of banks and credit card lenders will provide access to credit reports and scores. FICO and Experian are two additional resources. A lot of people have errors on their reports. One in five Americans have errors on their credit reports, according to the FTC. Get those fixed, know where you stand. You don’t need to be perfect. Even though the scale goes from 300 to 850, once you hit the mid seven hundreds, that’s good enough. They’re not going to split hairs between a 770 necessarily getting better terms than an 810 or a perfect 850. Aim for good enough, which is generally mid seven hundreds and above.
Anna: What are some of the real lifetime wealth impacts that come with moving from an average or a fair credit score into that mid sevens and above range? What’s the shift that people can maybe expect once they get their credit up to that point?
Ted: We’re talking about opening a lot of doors, whether that’s a mortgage or a car loan or a home equity line of credit or a lower interest credit card or one of those premium travel rewards credit cards. Those are great if you pay them off right away and you don’t owe interest. Every 20 points or so can make a big difference in credit scoring. I mean, somebody with a 680 credit score might get a very different mortgage rate from someone with a 700 or a 720. It might not feel like a lot. It might only be a quarter point different or a half a point different, but that can equate to a lot of money over the life of that loan. If you’re borrowing $400,000 for 30 years, we’re talking tens of thousands of dollars in difference and that’s significant. The monthly payment could change by a couple hundred bucks, but the total interest expense can be massive. Also being able to get a zero percent interest credit card promotion that you can use for two years to pay off your debt. That’s typically reserved for people with better credit scores. You’ll find a lot more opportunities if you have good credit.
Anna: And also one thing I want to point out that I feel like a lot of people forget when you’re looking at loans as big as a mortgage, yes, you’re getting a mortgage for 400, five, $100,000. But that tens of thousands of dollars, that’s still a big number. That’s still a sizable amount of money. And I think a lot of people it’s like, OK, you have 412 versus 435, the numbers look very similar but that difference can actually mean a lot for someone.
Ted: Yes, absolutely. And it’s important to understand what goes into it too. Just the importance of paying on time. If you have otherwise excellent credit, even a single 30 day late payment could trim 100 points off your score. That is significant. If you go from let’s say 800 to 700 just because you paid one bill late, it calls to mind the importance of organization. Auto payments can be a solution, not always a perfect one, because something like your credit card bill varies every month. You want to at least pay the minimum, pay it all if you can, that’s better from an interest standpoint, but at least making the minimum payment on credit cards and other financial obligations, you don’t get a free slip up. A single 30 day late payment can hurt your score. It’s something we’re seeing now with student loans where a lot of people are falling behind, sometimes it’s that they don’t have the money. Sometimes it’s that there’s confusion about there was that long payment pause and then there was the on ramp and wait, my servicer changed and who do I pay and how much? And it’s important to stay on top of these kind of things where that store card that you might use once a year. Don’t forget about that bill because one slip up can be significant.
Anna: Sort of shifting from more of a convenience and, yeah, that convenience, yeah, it’s convenient to have good credit. It’s convenient to be able to access these credit cards and to be able to access a decent mortgage rate so you don’t have to save up $1,000,000 up front. Going more into the net worth side of things, how does access to credit become more than just convenience and more of a net worth building tool? Where’s that shift happen?
Ted: For a lot of households, their mortgage ends up being a real wealth builder because homeownership is where a lot of households net worth is built. And you think about over the long haul, just the ability to put money aside every month and you know you’re paying for a place to live, but you’re also building equity and you’re contributing to the community. And it’s an asset that becomes a lot of the wealth building for a lot of American households. So that would be one key example is just getting access to housing, but in a way that can build wealth. Now you’re not buying a house just as an investment unless it’s an investment property, but that’s a second, third, fourth home kind of thing. But that’s not what most people are doing. Most people are looking for somewhere to live, but in a way that also insulates you from rent price increases. Your property taxes might go up, your insurance might go up, but at least with a fixed rate mortgage, that payment is not going to go up. That’s one of the best examples of wealth building. Cars are a depreciating asset. It’s important, but it’s going to lose value over time. Credit card debt we want to avoid because that minimum payment math is just silly. I mean the fact that the minimum payment is one percent of the balance plus interest every month, that can just trap you for a long time. If you have $6,000 in credit card debt and you make minimum payments at 20 percent, you’re in debt for 18 years and you pay $9,000 in interest. So that’s to be avoided. But things like mortgages, student loans, that can actually add to your net worth over time if you do it right. Homeownership and borrowing for college are not for everybody, but loans are tools that can help with wealth building for some.
Anna: You know, student loans are one of those trickier ones when it comes to trying to figure out is this worth it, how will this help me grow my income, grow my net worth in the future. What advice would you have to someone who’s trying to balance that all out, figure out should they take out a loan to continue?
Ted: Some of it depends on what the future earning path is. If you’re borrowing $150,000 for a field of study that may not pay off in the long run, that’s very different from somebody who maybe is taking on student debt but also has a higher expectation of future earnings and employment. So as much as I want to say follow your passion and do what you love, you do have to think about the business side of it as well. Not that I’m necessarily saying you need to avoid the passion project, but maybe you just don’t borrow a ton of money for it. I mean, maybe there’s more of a cheaper option. Maybe that’s staying in state, maybe that’s getting scholarships or grants or some people are doing two years at a community college and then finishing at a four year in state school. These are massive financial decisions that we’re asking teenagers to make basically, and I know that it’s hard to do that, but you do need to project a bit into the future of is the juice worth the squeeze and what is that long term future. I didn’t know what I wanted to major in when I was 17 or 18, so I do empathize with people in that situation now, but especially as these costs just get higher and higher and higher, you do need to think about this not just as a lifestyle or education issue, but it’s a financial issue. I mean, it’s almost like a mortgage for some of these people, like some of the student loans that people are taking out. It has long term effects on your financial life. So you just want to view this in a more empowering sense of doors opening with the additional skills and education and credentials and not doors closing because then you’re going to be stuck with this ball and chain of this hefty student loan payment that might actually limit your ability to live where you want, work where you want. There’s sort of a golden handcuffs to some of this. You want to sort of strike the right balance between borrowing and future earning power, realizing that all this is a bit of a moving target.
Anna: I think the point you made about the prices just going up especially when it comes to school and student loans is something that younger people who might be watching this just need to be aware of. It’s not something necessarily that high school counselors are able to cover. When you’re looking at scholarships and you’re looking at all these opportunities to try to make the cost as low as possible, I remember back when I was in the process of looking at OK, where do I want to do my undergrad? Where do I want to go to college? There was this school I adored. I wanted to go there. I was going to go there. I got a $25,000 scholarship per year to go there, but the school was $50,000. So even after my scholarship, that’s $100,000 still to go to school. A sizable amount of that would have had to have been student loans. So I think it’s important to keep that in mind that the costs are rising and being able to balance your options with what you want to do with the earning potential. There are ways to go about it, you just have to find them and it’s a little different than what it might have looked like 10, 20 years ago, especially when it comes to mitigating those loans so that you do find that perfect balance where you are reaping the benefits of them, but you’re also not locking yourself in a box.
Ted: And don’t be afraid to take a different path. Some people are doing a gap year between high school and college, maybe getting some work experience or traveling or saving a little bit of money if you can. Some people are starting at two year schools and transferring to four year schools later on. Some people are getting more on the job training. Not every career path requires a four year college degree. There is increasing interest in some of those paths that maybe it is more vocational or on the job kind of apprenticing. And where does your dollar stretch the furthest? Sometimes a graduate degree is beneficial. Other times maybe it’s not as necessary in your field and you just need to think about what you want to do but also sort of what the broader expectations are. There’s been an arms race with higher education costs and all these schools are raising prices. They’re building new dorms and dining halls, and it just seems like a race upwards. And it’s important to realize that these are decisions that have major effects on your future financial life. So you just don’t want to get hamstrung by borrowing so much money up front and then spending the next 10 or 20 years figuring out how to pay for it. You want to do this in such a way that it opens doors, doesn’t close them.
Anna: When it comes to, I know we’ve been talking a lot about these bigger picture loans and bigger picture pieces of credit. When it comes to some of the smaller ones, let’s say credit cards, and using the rewards and protections and being able to turn those into real gains that ultimately help you grow your net worth, they help you build your profile. How would you say people go about that? What’s the right way to approach it?
Ted: There’s an industry saying that credit cards are like power tools, as in useful or dangerous. It’s all about how you use them. It’s true. It’s about half and half people who pay their cards in full every month and those who don’t. Well, if you pay it off right away, you don’t owe interest. You’re getting rewards, whether it’s travel or cash back. You’re getting buyer protections, convenience. A lot of credit cards have travel insurance, they have extended warranty protection, they have purchase protection. It’s even more than the airline miles or the cash back. There’s a lot to like. There’s one big thing not to like, which is the high interest rate. The average is 20 percent. Many people are paying even more than that. It’s so important to use a credit card like a debit card, meaning that you pay it off right away and you don’t owe that interest fees, but you take advantage of other credit card protections. Some young people are afraid to get a credit card because they’re so worried about debt. That could be a mistake, too. It’s best to use a credit card but use it smartly. You build credit, you get all these other benefits. I would say start small. Maybe you don’t put all your expenses on the credit card right away. Maybe you open it and you put one or two small recurring charges on there every month. Well, that alone can be enough to build your credit. Probably not going to earn a ton of rewards that way, but you’re at least checking those boxes of paying on time, keeping debts low, demonstrating a long history, and then over time you can layer in more. Credit cards are not for everybody, but if you can get to the point that you’re putting all of your routine expenses on there and paying them off right away, it can be additive to your financial life. I know that my family earns about $3,000 a year in cash back credit card rewards. That’s for money we would have spent anyway, so it does add up. People travel for free based on credit cards. Rule number one though is pay it off, don’t owe the interest.
Anna: Yeah, I know someone who when they were planning their wedding they had the money saved up for the wedding, but they put the expenses on their credit card and they got a bunch of rewards from that because weddings, they had an expensive wedding and they were able to pay for a good chunk of their honeymoon with those rewards that they got. And that money that would have gone towards the honeymoon, they were able to put towards their down payment for their house. So you have these benefits that can stack up. When it comes to the points, the rewards, all of that, would you mind going into detail on some of those other lesser known bits that you mentioned? Because I know when people think, oh, credit card benefits, obviously points I get to travel for free. But some of those things you’ve mentioned, I don’t hear a lot of people talking about them, things like purchase protection and extended warranties.
Ted: They can be beneficial. A few years ago, my family saved it was about $300 on an Apple Watch repair because we had a credit card that paid for it. So there’s often a time limit maybe within 90 days of purchase or something like that. But yeah, my wife had bought an Apple Watch and then within a few weeks it fell and cracked. It was going to be, I think it was $300 to repair the screen. The credit card paid for it. You can get oftentimes a year, sometimes two, added to an extended warranty just by paying with the right credit card. That’s one of those why not kind of things. If the manufacturer gives you a two year warranty on your refrigerator, but it’s three if you use the right credit card, why not? That can help. I know people that have benefited from travel insurance on credit cards. A lot of times these providers will try to upsell you. So the home improvement store is going to try to sell you an extended warranty. You might already have one on your credit card. The travel insurance agent is trying to sell you on well, what if this goes wrong or that goes wrong? A lot of times we don’t need to buy travel insurance because we may already have it on our credit card or the airline or hotel has a policy that’s going to cover you. A lot of times you don’t need to pay for things like rental car insurance either because a credit card has that benefit so maybe they’re trying to upsell you at the counter for $20 a day in rental car insurance. Well, you can have peace of mind with a lot of credit cards. Around the holidays, you can use credit cards for things like Shoprunner memberships. I have a credit card that gives a free Shoprunner membership, free two day shipping and free returns at dozens of popular retailers. There are a lot of extras. Some cards give you money every month for food delivery or ride shares or streaming subscriptions. A lot of this comes back to just knowing and understanding what your card may offer. It’s probably more than it appears at first glance.
Anna: And I think also a lot of these things seem like they might be smaller, but if they’re regular things that happen in your life or if your fridge breaks a year after your warranty is up, that could be a lot of money trying to get a new one. So while it seems like it’s smaller or maybe sporadic little or big expenses, those all can add up and free up income for other things, which does ultimately help you.
Ted: Every little bit adds up. Even getting two percent back from every purchase with a no annual fee two percent cash back card, which sounds kind of straightforward and even dare I say boring, that adds up over the course of the year. I know there’s this allure of first class and the airport lounge, and there are a lot of benefits for that too. Travel’s more complicated, though. We find that most people prefer the simplicity and the universal appeal of cash back. So when I’m asked what’s the best credit card, yes, your mind might go to a fancy platinum card. People like Amex Platinum or Chase Sapphire Reserve, you get the lounge, you get the first class upgrades, you get all this fancy stuff. Those annual fees are significant though. A lot of people are paying seven or eight, even $900 a year for credit cards like that. If you use the benefits, it can be worth it, but I would actually say for most people, especially young people who are just starting out, get a two percent no annual fee cash back card, Citi Double Cash, Wells Fargo Active Cash, something like that just give two percent back on everything that can add up and there’s not as much fuss as some of these other cards where you know yes, it’s worth it if you do this that and the other thing or if you have the flexibility to travel on the optimal dates. But what if you don’t or it’s too complicated? Just getting two percent back on everything is an underrated credit card benefit.
Anna: Let’s say someone’s been listening to this episode and they want to start turning their credit into more of, not necessarily just a compounding advantage, but they want to start using their credit more to their advantage. What are some of the things that you would recommend to start that have higher leverage than maybe some other of the smaller things?
Ted: Sometimes you can get better terms. If you currently carry credit card debt, half of cardholders do, and you’re paying 20 percent on average. Well, if you have good credit, you can probably get a zero percent balance transfer credit card and avoid interest for up to 24 months. Even if that card doesn’t give rewards, that’s a huge benefit. You could pay less than $300 a month to knock out the average balance interest free in two years. That’s the kind of thing that can pay off. Or maybe the ability to refinance other debts if you have good credit and you can get a lower student loan rate involving some sort of consolidation or if you can get a lower mortgage rate. It comes back to using credit to your advantage and opening doors and figuring out how you can get ahead by doing the right kind of borrowing and the cheapest kind of borrowing.
Anna: Is there anything that along this sort of more positive side of credit that I haven’t touched on that you’d like to bring to the attention of our audience?
Ted: Let me think. You know, we are in a bit of a falling rate environment now. All of a sudden the Fed cut rates by a full point last year after pushing them higher by five and a quarter points to fight inflation and then this year on pause most of the year, but then in September, a quarter point cut, perhaps another half point of cuts by the end of the year. That cumulative effect starts to be significant when you think about a lot of debts costing maybe by the end of the year one and three quarter points less than they did in 2024. That’s where it can start to add up. Even if the individual cut is not a huge difference, we definitely see market differences between paying let’s say eight percent for a mortgage versus six. That’s the kind of refinancing that could save you money or getting a better credit card rate, getting a better home equity line of credit rate or auto loan. A lot of existing debts are fixed rate, but you can shop around and even things like insurance, your credit score is part of the insurance rate calculation. It’s important to shop around. It’s important to get the best rates we can on borrowing, but also on savings. If you’ve been stuck with your local checking account at .01 percent and you can get an online savings account with a four or four and a quarter percent rate, use that to your advantage. So earning more on savings, paying less on loans, these are all ways that people can use the current climate to their advantage.
Anna: Thank you so much for coming back to the Noyack Expert series to talk credit. I know when it comes to personal finance, personal wealth management, the advantages of credit don’t typically get talked as much as something like budgeting or the stock market, but it is equally as important to be able to have these things managed. So thank you so much for coming on.
Ted: No problem. Thank you for having me.
Anna: Yeah. Is there anywhere you’d like us to send viewers to take a look at your work or anything that you and Bankrate is doing?
Ted: We have more at bankrate.com about various forms of personal finance, whether it’s saving more, spending less, paying off debt, saving for retirement, investing, all these good financial goals. So bankrate.com. I’m also at Ted Rossman on social media.
Anna: Perfect. And to our viewers, if you enjoyed this conversation, please head on over to wearenoyack.com to subscribe to our newsletter, Noyack Wealth Weekly, where we go over different topics related to personal finance, credit, budgeting, stocks, think of a thing. And we have talked about it at least once or planned to talk about it in the future. And thank you for watching. And Ted, thank you so much for being here again.
Anna: Of course, thank you.
