By Jonathan Roisman, NextAdvisor.com
How much do young adults actually know about their credit score and saving money? The results of a recent study conducted by the Consumer Federation of America show that Millennials know less about their credit score than older adults, but that doesn't mean young Americans can't take steps to improve their credit score and save money.
You're probably wondering how your credit score and saving money relate. Well, it turns out saving money will help you pay for unexpected expenses, such as new tires for your car, that could otherwise put you in debt, which could potentially hurt your credit score. Having enough savings for big purchases can also help you pay less in interest when you get a future mortgage or car loan because you'll have more money to put down upfront. From credit cards to savings accounts, here are three ways to help you save money and eliminate your debt.
1. Get a high-interest savings account
The average APY rate for savings accounts nationwide is a paltry 0.06 percent. Luckily, there are a number of online savings accounts that offer APY rates of at least 0.75 percent. A high-yield savings account is a great way to earn above-average interest on your money while still having it available anytime you need it. Best yet, some accounts don't require a minimum to open them or a minimum balance to maintain in order to keep it open. While you shouldn't rely on a high-interest savings account to save for retirement, it's important to maintain an emergency fund that can support you for three to six months if you were to lose your income.
You might wonder, can't I get a rate around 0.75 percent if I put my money into a Certificate of Deposit (CD)? Although you may get a comparable rate with a CD, you won't be able to access the money until the term is up. This means you won't be able to dip into that money for months or even years. Your money should be available to you immediately, and a high-yield savings account lets you withdraw money when you need it, while still earning much higher rates of interest than a standard savings account.
2. Pay down your debts
It might seem obvious that paying down debt is important, but there are ways to cut down on those nasty interest charges, even if it takes you some time to pay off your debt.
The first and easiest way to pay down debt is to make regular payments. When you're making these payments, it's important that you always pay more than the minimum payment due because the additional money will help you pay off the balance in a shorter amount of time. This rule can be applied to all debt, including any loan you may have, and doesn't only apply to credit cards. For loans, it's important to also decide if you want the money to be applied to the principal, the amount borrowed, or interest. In most cases, you'll want to apply the additional amount to principal because it could help you pay less in interest in the long run, but that decision also depends on if the loan has fixed or variable interest.
If you're someone who regularly carries a balance on your credit card, you may also want to consider applying for a balance transfer credit card that offers an intro 0 percent APR on balance transfers so you can move your debt from a high APR to an account that you'll pay no interest on for an extended period of time. Cards with a 0 percent APR on balance transfers also usually offer an intro 0 percent APR on purchases, which means you won't have to pay interest on any purchases you make for an extended period of time in the event that you do need to use the card. It should be noted that you'll want to make sure the card also has no balance transfer fee so you won't have to pay a small fee to complete the transfer.
3. Know your credit score
Knowledge is power. This might not save you money directly, but it can help you in the long run when you're applying for an auto or home loan. The better your credit score is, the better the interest rates you'll get when applying for a loan or credit card. Lower interest rates can save you hundreds, even thousands of dollars, over the length of a costly loan.
Also, knowing your credit score can help you apply for credit cards that you're likely to get approved for and help mitigate the risk of getting declined. Your credit score takes a small hit each time you apply for a new loan or credit card, regardless if you're approved or not, so it's better to know where your credit score falls so the odds are in your favor when you apply.
Although you can get a free annual credit report from AnnualCreditReport.com, you'll have to pay to see your credit scores. Luckily, there are services that will provide you with your credit reports and scores immediately upon signup. And the best part is that most of these credit report monitoring services also monitor and alert you of any activity on your credit reports so you can make sure no fraudulent activity will hurt your credit score. It should be noted that although these services don't provide you with your FICO score, they are designed for educational purposes and can provide you with a close approximation of where your credit score falls.