At MYRA , it’s our goal to help our clients become more financially literate and independent. That’s why we prepared 5 financial tips to kick off your fall. They can all have a big impact on your wallet!
Hack #1. Increase your auto insurance deductible to $1K or $2K to save on premiums
If you have a car, you know that car insurance can be expensive. In some areas, it can be as high as $3K per year. But did you know there’s a tried and true way to decrease your insurance premium? It’s possible that you have selected a deductible that is too low for your needs and by raising it, you may save a bunch! E.g. Raising your deductible from $500 to $2K lowers your premium by 16% on average and in some areas, it can reduce your premium by much more. In South Dakota, you can save as much as 28%. In North Carolina, the impact will be smaller - a decrease of only 6% on average.
So what is my deductible and how do I choose the right amount?
The deductible refers to the amount of money you have to pay in a claim before your insurance coverage kicks in.
The average deductible is $500 - $1K.
For instance, you might have comprehensive and collision insurance coverage for your personal car with a $1K deductible. Collision insurance covers damages on your vehicle when you are involved in a car crash while comprehensive insurance covers damages not caused by an accident such as hailstorm damage or a falling tree. If you are involved in a car accident resulting in a $3K damage to your car, your collision coverage would kick in and you’d have to pay $1K and the insurance company will cover $2K.
Take note that there is no deductible for liability coverage. The deductible only applies to comprehensive and collision insurance.
When choosing a deductible, you should consider these things:
your personal savings
the value of your vehicle
level of perceived risk of an accident or damage
amount of savings you can receive from changing your deductible
The standard amount of a deductible is between $500 and $1K but you can select a higher or lower deductible depending on your situation.
The maximum amount of a deductible can be as high as $2.5K. But if you took out a loan to buy your car, your lender might impose a maximum deductible restriction. Many lenders require borrowers to keep a low deductible.
When deciding on your insurance deductible, you’ll have to do your own personal risk assessment of the likelihood of damage to your car, the likelihood of an accident, etc. Increasing the deductible only works if you have sufficient cash to cover the amount of the deductible.
If you have an emergency fund which could cover your higher deductible, this might work for you. If you can’t afford a hefty out-of-pocket expense when you have to file an insurance claim, it would be better to stick to your current insurance plan with a lower deductible.
Should I increase the collision deductible, comprehensive deductible, or both?
If you are planning to increase your auto insurance deductible, it will be better to raise the deductible on your collision coverage.
Damages from disasters and theft are harder to control than driving accidents (although driving accidents can be hard to control as well). So, it would be better to increase the deductible on your collision coverage. Changing your driving habits can minimize your chances of having an accident and you may have some ability to control this risk.
How can I figure out how much I can save by raising my deductible?
Your auto insurance broker should be able to quickly tell you the savings you’ll get from increasing your deductible. If your insurance company has an online widget, you may be able to model out changes to your existing policy without speaking to anyone. And if you’re shopping around for a new policy, you can ask the insurance broker or use the new company’s website to provide you with different quotes with different deductible amounts.
If you have an older car, you might want to skip collision and comprehensive insurance all together.
Some people even go without collision or comprehensive if they have an older car in which case there is no deductible because the insurance company wouldn't cover any damage to your car.
When your car is worth $2K, for instance, and your insurance costs $1K per year with a $1K deductible, it’s probably a good idea to forego collision and comprehensive coverage.
As a rule, it’s more cost effective to drop your auto insurance if your annual premium is more than 10% of your potential payout. You can get your potential payout by deducting the deductible from the value of your vehicle.
This can be a good option for people with older cars that aren't worth much. It can save you a lot on collision and comprehensive premiums every year.
Hack #2. Do a 0% APR balance transfer of your credit card debt and pay off the balance within the interest-free period
If you are carrying a credit card balance from month to month and paying interest, you probably know that credit card interest is high! Most credit card companies charge between 15 to 25% APR on your total balance.
You may have seen promotional offers for credit cards that offer “balance transfers” or “0% APR rates.” The promotional interest-free period for transferred balances is usually from 12 to 21 months. If you feel confident that you can pay off the entire debt in that promotional period, it may be a good idea for you to transfer your debt over. The only catch is that you usually have to pay a transfer fee which is usually between 2 to 5% of your credit card balance. In addition, if you are unable to pay off the debt in the promotional period, the interest rates may be even higher than they were on your original card.
If you have an excellent credit rating and a plan on how to pay off the entire balance within the interest-free period, a 0% APR transfer may work for you. But if you are doubtful of your ability to pay everything off, you may just want to focus on paying off the debt on your current card as quickly as possible.
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Hack #3. Open a high-interest yield checking (or online savings) account
Have you checked the interest on your checking or savings account recently? It’s probably pretty meager! If you want unrestricted access to cash but find that your savings account is offering a pitiful 0.1% interest rate, you should consider opening a high interest checking account. Putting your emergency funds in a high-yield checking account helps you offset the effect of inflation without putting your money into riskier assets such as stocks.
The average high-interest yield checking account offers an annual percentage yield of 1.65%. Smaller regional banks and credit union sometimes offer between 2 to 5% APY to depositors who meet all their conditions. Usually, these banks and credit unions impose a cap for the high yield interest. For instance, your 3% interest might apply only on the first $5K.
High yield checking accounts often have strings attached. You’ll need to meet conditions which can include a minimum balance, going paperless, setting up direct deposits, paying a recurring bill, or making a certain number of debit card transactions every month.
Some companies that offer high-interest yield checking include:
Pure Point Financial offers a 2.35% annual percentage yield for a minimum deposit of $10K
PNC also offers 2.35% APY and there is no minimum deposit to open an account
CIBC Bank offers 2.39% APY for a minimum deposit of $1K and a maximum deposit of $250K
If your interest income is more than $10, you should receive Form 1098-INT from your bank. You have to report interest income on your tax return. This interest income will be subject to ordinary income tax rates depending on your income bracket.
Take note that you can only make six withdrawals per month on your savings account. Your bank may charge a fee if you go beyond this limit.
Checking accounts, on the other hand, are not subject to this limit. So, it would also be useful to keep a checking account attached to your savings account or open one in a separate bank.
Hack #4. Use your extra cash to open new bank accounts frequently for checking account bonuses
Have you ever seen a bank advertising a $200 or $500 promotion to get you to open an account? It’s not a scam! Several banks offer bonuses for new customers who open new accounts. To qualify for a bonus, you almost always need to meet certain conditions such as maintaining a certain balance on that account. For instance, the bonus may require you to maintain a $1,500 balance for 90 days.
You can earn thousands of dollars from bank bonuses per year! If you have the time and the cash to open and maintain several accounts, it can be a lucrative and fun hobby. Sign up bonuses vary from bank to bank. Here are some offers from major banks:
HSBC allows you to earn as much as $750 for opening a new account
Chase offers a $200 bonus for opening a new checking account
Citibank offers a $600 bonus for certain new accounts
Caution: Opening New Bank Accounts May Temporarily Affect Your Credit Score
Before you start opening accounts, check whether the bank does a hard pull or a soft pull. A hard pull refers to a credit inquiry that appears on your credit report - this inquiry could temporarily affect your credit score. A soft pull is much safer since it won’t appear on your credit report.
A hard pull is a credit check usually made by potential lenders when you apply for a credit card, an auto loan or a mortgage. These inquiries can appear on your credit report for up to two years. Meanwhile, soft pulls are credit inquiries that credit bureaus do not include in their report. Soft pulls happen when you check your own credit report or when a credit card company checks your credit before sending a pre-approved offer.
Most banks will do a soft pull although it is still better to confirm this especially if you are trying to maintain or improve your credit score.
Other Factors To Consider
Bank bonuses are taxable. Your bank will send you Form 1099-MISC detailing any bonus you earned for opening an account and you should report this income on Form 1040 when you file your taxes
You have to stay organized. When you are maintaining several bank accounts, you should use a spreadsheet to track where your money is, opening and closing dates, and anticipated bonuses
It can be annoying to change your direct deposit all the time in order to meet the requirements for the new accounts. It works best if your employer has "self-service" direct deposit changes where you can change the accounts on an online portal. Some employers even let you direct deposit into multiple accounts per paycheck
Hack #5. Consider refinancing your student loan debt to save on interest!
If you have a long way to go on your student loans and you have a stable source of income, it may be time to consider refinancing.
Refinancing your student loan involves borrowing money from a private lender to pay off your existing student loans and then paying the refinancing company every month instead. People usually refinance to get a lower interest rate although sometimes it is to get a shorter or longer loan term and a lower payment amount.
Some companies that offer student loan refinancing include:
When done correctly, refinancing typically decreases your overall interest paid and can help you pay off your student loan earlier. However, it’s not for everyone.
Related Article | Can I Deduct Student Loan Interest If My Loan Was From A Non-US Bank?
You may not be a good candidate for refinancing in any of the following cases:
You are a federal student loan recipient who is applying for Public Service Loan Forgiveness or Teacher Loan Forgiveness or someone who is considering income-driven repayment plans
Your student loan interest rate is already low
You have almost paid off your student loan debt
To make refinancing even more effective, consider paying your student loans every two weeks instead of making one monthly payment. Most student loans require you to make monthly payments, but you don’t necessarily have to make a one-time payment. Making bi-weekly payments will result in one extra payment being applied to your loans every year.
This will decrease your repayment time and overall interest paid. Be sure to ask that your extra and early payment is allocated immediately to outstanding principal and interest and not “held” for a future payment. This calculator can help you determine the benefit of a bi-weekly repayment schedule for your loan.
Pay your mortgage bi-weekly to save on interest! Making bi-weekly payments is not just applicable to your student loans, you can do the same strategy to save on interest on your mortgage.
If you took out a $200K mortgage at 4% with a 20-year loan term, you can pay off the entire loan in 17 years and 9 months if you make bi-weekly payments. You can also save about $11.9K in interest charges.
Paying your loan every two weeks will also help you save on interest charges for all types of loans. Once again, this calculator may prove useful.
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