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11 ways to reduce next year’s tax bill

If you claimed the right number of dependents and standard deductions on your 2017 federal income tax return and you still ended up owing the IRS, you’re probably looking to avoid a repeat performance next year. Luckily, there are several ways to increase your chance for a refund (or at least reduce the amount you’ll owe) and you don’t have to be a tax whiz or accountant to take advantage.

Here are 11 ways you can pay less in federal taxes for your income return next year.

1. Contribute to a 401K or IRA

Contributing to a retirement fund is an important way to ensure financial independence in your golden years, but it can also convey short-term tax benefits. In most cases, the contributions you make to your 401K and IRA plans are tax-deductible and are not included in your taxable income at the end of the year. (Note: If you didn’t contribute to an IRA in 2017, you still have time. You have until April 17 to contribute up to the maximum amount and shave off a good chunk of your tax bill. Filed your taxes already? That’s OK. You can file an amended return to reflect the contribution.)

2. Buy a Home

There’s a distinct tax benefit to home ownership. The interest you pay on your mortgage is tax-deductible, and the interest is front-loaded. For the first several years, most of your mortgage payment goes toward interest, which will drastically reduce your adjusted gross income at tax time. Want an extra boost for your taxes next year? Consider paying January 2019’s mortgage payment in December to get a tax benefit before the end of the year.

3. Donate to Charity or Volunteer

You probably know charitable donations can be itemized and deducted from your income, so you’ll want to save receipts anytime you donate cash or items to charity. You can even deduct miles you travel for volunteering or other charity work.

“Miles you travel on behalf of a charity are deductible at 14 cents per mile for 2018,” said Gail Rosen, CPA.

4. Start a Home Business

Starting a home business can provide you with a new source of income and allow you to take deductions off any income the business generates.

These deductions include business costs you incur throughout the year, a portion of your mortgage and utilities if you use a home office and the cost of goods needed to keep your business running. You can even deduct startup costs.

“Any expenses that are incurred before the first sale are ‘start-up costs,’” Rosen said. “These costs cannot be deducted until the first sale. Then they are deducted over 15 years and you can deduct the first $5,000 in the first year.”

5. Search for a New Job

If you hunt for a new job in your field this year, you can write off some qualifying expenses as you search. There are exceptions, but potential write-offs include things like clothes or travel.

“If you looked for a new job in 2018, you should be aware of the income tax deduction that may be available with respect to job-search costs,” Rosen said. “Qualifying expenses are deductible even if they do not result in a new job being offered or accepted.”

6. Open a Flexible Spending Plan

Many employers offer flexible spending plans that let you contribute toward yearly medical expenses pre-tax. These contributions typically don’t count toward your taxable income.

7. Deduct Medical or Dental Expenses

Many medical and dental expenses are tax-deductible. According to Rosen, the cost of getting to and from medical treatment is deductible at 17 cents per mile, plus the cost of tolls and parking, and dependent expenses are also deductible.

“If you cover the medical cost of dependents, these can be deducted. Additionally, if you are covering the costs of an individual who would qualify as your dependent except that they have too much gross income — for example, an elderly parent — you may be able to deduct these costs as well,” said Rosen.

8. Education-Related Expenses

Current and former students have many eligible deductions and credits related to their education expenses. Paid student loan interest and tuition and fees can be claimed as deductions. Eligible current students can also access the American Opportunity Credit, which can cover up to $2,500 annually for four years, and the Lifetime Learning Credit, which can cover up to $2,000 per tax return.

9. Install Solar Energy

Homeowners who install solar energy systems in their home can get back tax credits at up to 30% of the cost of installation. This credit will begin to decrease after 2019 so you may want to act soon if you’re planning on installing solar panels.

As an added bonus, solar energy can significantly reduce your energy bills.

10. Hunt Down Every Available Tax Credit

We’ve named several tax credits above, but there are more, including credits for adopting children, the cost of child care and low-income households. Tax credits are more valuable than deductions, as they reduce your taxable income on a dollar-for-dollar basis, so make sure you’re taking advantage of every option.

11. Get a Pro to Do Your Taxes

No matter how much research you do, a professional may be able to identify tax deductions and credits that hadn’t occurred to you. Paying a reputable professional you trust can help you stay organized and minimize your tax liability. Here’s a handy guide to finding the right tax professional for your needs.

6 tax mistakes procrastinators make and how to avoid them

We get it. Doing your taxes is no fun, especially if you know you’re going to owe money. But as with any project on which you procrastinate, leaving everything to the last minute can lead to errors, both large and small, and some of those errors could cost you serious money.

If you’ve gone and done it, though, and are still looking at that pile of tax forms over there in the corner, we’ve compiled a list of six quick-and-dirty tips that could keep you from making some obvious, and not-so-obvious, mistakes when you finally sit down and tackle the task. They could also help you maximize your tax refund.

1. You Forgot to Sign It

You might wonder how anyone could forget to sign their tax form, but this simple process is one of the most common tax mistakes, according to the IRS. Just like forgetting to sign a check or a contract, it means your return isn’t valid. Usually, there isn’t a penalty or interest associated with this error (since you’ve already included a check or electronic payment if you owed), so the IRS will just send a notice asking for a valid signature, but it will delay the processing of your return. If you’re getting a refund, that too will be delayed.

So check, double-check — heck, triple-check — that you signed or completed the e-signature process before filing your return. Also, check out these last-minute filing tips from the IRS.

2. You Miscarried the 9

Math errors are also a very common mistake made by folks in a hurry. Fortunately for most people, the IRS corrects any miscalculations, so there’s no need for filing an amended return. But these mistakes can mean the difference between you thinking you’re getting a refund and the reality that you actually owe taxes, so be sure to check your calculations carefully.

One way to help you avoid math errors is to file electronically so the calculations are done for you. Bye-bye, No. 2 pencil! So long, calculator!

3. You Didn’t Account for All Your Income

Did you have a side hustle early last year? A freelance design gig for a friend’s business? If so, you’re going to need to account for it, regardless of whether you received a W-2 or 1099 from whomever paid you. That’s because, while there’s an IRS threshold for filing these documents by employers, there’s no similar threshold for claiming the income. Income is income is income. If you made money and don’t report it — and the IRS catches it — it’s going to cost you penalties and interest at best, and open you to a possible audit at worst.

4. You Forgot Deductions or Tax Credit

It’s easy to forget these things when you’re in a hurry, but they can end up saving you some serious money and are well worth the extra time to figure out if you qualify. So if you’re just claiming the standard deductions because you’re under the gun, you might want to take a deep breath and check out TurboTax’s list of 10 commonly overlooked tax deductions that can keep you from overpaying the tax man.

5. You Filed for an Extension but Didn’t Understand the Rules

Filing for an extension is a great idea if you’re down to the wire and don’t really understand your tax situation. But remember that an extension gives you an extra six months to file your paperwork, but not an extra six months to pay any taxes due. So, if you’re confused, tax pros recommend doing a quick calculation of your taxes, filing for your extension and making any required payment of taxes you think you owe. This will help you avoid penalties and interest once you get your final calculations together.

6. You Didn’t Bother to Request an Extension

You gave up. You shoved, slammed and jammed your return through and now it’s full of mistakes that are going to cost you money by way of penalties or because you’ve left money on the table. It’s a much better idea to file the extension, then get the help you need from a tax professional to ensure you’re not overpaying your taxes.

Whatever you do, make sure you file your taxes. Unpaid taxes can have serious consequences on your personal finances, including your credit scores if they go unpaid long enough.

What is bitcoin? What you need to know about cryptocurrency

If you own bitcoin or other cryptocurrencies, it might be a bad day for you.

The price of bitcoin plunged by 15 percent Tuesday morning, dropping below $12,000 for the first time since Dec. 4. Other cryptocurrencies have also seen price declines, with Ethereum falling by 20 percent and Ripple falling by 33 percent. The plunging prices are a stark difference to the success bitcoin saw last month — hitting a record of nearly $20,000 on Dec. 16.

>> On DaytonDailyNews.com: Currency of the future? Some argue it’s bitcoin

As the digital currency bitcoin surges in popularity, curious investors and entrepreneurs alike are watching closely to see what happens with the fluctuating prices. Don’t understand the basics of bitcoin? Here’s what you need to know:

What is bitcoin?

Bitcoin is a cryptocurrency, or a digital token, that can be sent electronically and directly from peer to peer. There is no physical backing and it is a decentralized currency — meaning it is not controlled by any government or banking entity. Bitcoin is the first cryptocurrency ever created, and remains the most popular one to date.

“I tell people it’s a digital currency and it’s a program,” said Jad Mubaslat, Wright State University graduate student and founder of BitQuick.co, a bitcoin trading platform. “For the first time in history, it allows anyone anywhere in the world to send any amount of money instantly. Most importantly, it’s without a third party … like a bank or a government. Now, you can truly send your money without somebody telling you what you can or cannot do.”

>> On MyDaytonDailyNews.com: I bought bitcoin. Here’s what I learned

The record of all bitcoin exchanges and transactions are on what is called the blockchain, which is a network of decentralized computers.

How was bitcoin created?

Bitcoin was created by a programmer going by the name Satoshi Nakamoto in 2008. He communicated only through email and social messaging, and no one truly knows Nakamoto’s identity. He released the software globally in 2009, and now anyone can use and download it.

How do you buy bitcoin and other cryptocurrencies?

In the U.S., several websites have popped up where you can buy and sell bitcoin online. One of the most popular websites is Coinbase and others include Mubaslat’s BitQuick.coCoindesk.com and bitcoin.com. Investors can also meet with other bitcoin users in person and trade bitcoin via their virtual wallets on their phones. After meeting another bitcoin user through websites like Craigslist or LocalBitcoin.com, a user simply scans a QR code with another person’s wallet to transfer bitcoin.

Some people prefer to buy bitcoin in person or through a bitcoin ATM because the bitcoin transfer over faster than when they buy it online — it can take up to seven days, and sometimes longer, for bitcoin to show up in a virtual wallet after purchasing it online.

Why do some criminals use cryptocurrency for illegal transactions?

Some criminals use bitcoin because users can open a wallet to send and receive bitcoin without giving a name or identity. There is no bank or central authority, like a government, to control this information. Bitcoin also became a popular method for making ransom payments when a computer system is taken over by ransomware.

>> On DaytonDailyNews.com: How criminals use bitcoin illegally

However, bitcoin is not completely anonymous and transactions can be traced by police through bitcoin trading websites. Other untraceable cryptocurrencies, like Monero, are becoming popular for dark web uses including drug trafficking and human trafficking.

How is the worth of bitcoin decided?

The price — and ultimate worth — of bitcoin fluctuates, and experts are calling the cryptocurrency extremely volatile. The price is determined by open-market bidding on Bitcoin exchanges. The worth of bitcoin could be compared to the way that gold prices fluctuate — in the sense that gold has value because people believe it does.

What exactly is bitcoin mining?

Mining is the process that creates new bitcoins in the blockchain, or network of computers. The bitcoin miners race to process new transactions, and the fastest computers get a chunk of new bitcoin. A miner wins the race about every 10 minutes, which will happen until there are 21 million bitcoins in the world. No new bitcoins will be created after the blockchain has 21 million, which is expected to happen in 2140.

Anyone can set their computer up to mine bitcoin, but programmers with specialized hardware are usually the only ones to win bitcoin now.

Are there any other cryptocurrencies as popular as bitcoin?

Other cryptocurrencies also exist, but bitcoin is the most popular one right now. Other popular cryptocurrency includes Ethereum, Bitcoin Cash, Ripple, Litecoin and Monero. Digital cryptocurrencies are being created for all types of uses like the legal marijuana industry and adult entertainment and sex worker industries.

>> Read more trending news 

What are the legal uses of bitcoin?

Most transactions on the bitcoin network aren’t illegal — it’s typically people buying and selling bitcoin to each other. People in countries with high inflation or unstable governments are putting their money into bitcoin to avoid losing their savings. It’s also used to transfer large sums of money internationally. It is quicker to transfer bitcoin than it is to go through a bank transfer, which can take weeks.

Some businesses also accept bitcoin, including Overstock.com, Wikipedia, backpage.com and Square. For a short time, a franchise of Firehouse Subs in Cincinnati accepted bitcoin. The restaurant, in Clifton, shut down a few years ago. “Firehouse Subs didn’t do very many transactions in bitcoin, but it has generated buzz around the shop,” the Cincinnati Business Courier wrote.

Equifax breach: You can sue if your data was exposed; here's how

Two class-action lawsuits have been filed on behalf of customers affected by a massive breach at Equifax.

>> Watch the news report here

Officials with the Atlanta-based credit reporting and technology company said a “cyber security incident” may have exposed the personal information of 143 million U.S. consumers.

The data that might have been accessed includes names, Social Security numbers, birth dates and addresses.

>> Equifax reports massive data breach that could affect 143 million in U.S.

Former Georgia Gov. Roy Barnes has partnered with a Florida firm for a class-action lawsuit. 

"This is not a windfall thing. These are real damages and real fears that folks have," he said. "There's no telling, but I guarantee you most of this information was auctioned off in just a matter of hours."

>> Equifax data breach: What to know

Barnes said that if you've been compromised, you are automatically a part of the class-action suit unless you opt out.

"You don't have to do anything. We have class representatives and there will come a time when we'll contact folks," he said. 

>> Equifax cyberattack: How to get a free credit report, protect your identity

He said he is going after what it takes to make things right. 

"What the money should be is what is necessary to hire someone to straighten out your credit so that you don't disrupt your life forever," he said. "And some money for the fact that (Equifax) negligently, and in violation of several federal statutes, allowed for this information to get out."

>> Read more trending news

Barnes said among many demands is that Equifax have its security audited, tested and trained and that the company purges information it doesn't need. 

WSB-TV's Nicole Carr visited the Clark Howard Consumer Action Center, where volunteers have received nearly three times their normal call volume with concerns about Equifax.

Volunteers said more than 500 calls came in Wednesday and 99 percent of them were about Equifax.

"I've been here for 20 years. This is the busiest day we've had," said Consumer Action Center volunteer Lori Silverman. 

She said volunteers are working to ease fears about the data breach. 

"Because 140 million people are trying to freeze their credit, the sites are crashing and they're unable to thaw their credit. That's a difficult situation to be in," she said. "We're recommending (everyone) hang tight. Hopefully, all of the hysteria will slowly go away and within the next couple of weeks you'll be able to freeze your credit."

The Consumer Action Center recommends you freeze your credit through Credit Karma. Equifax has rescinded fine print that kept consumers from suing them if they signed up for their free credit file monitoring and identity theft protection. 

"Now they say they're backing off of that, but I would advise everybody: Do not interact with Equifax right now," Barnes said. 

Click here for Barnes' advice on what you should do.

How Much Should You Spend on a Wedding Gift?

wedding gift needs to serve multiple purposes: You want it to say “congratulations” and avoid giving the impression that your wallet has been to one too many other celebrations this season.

There’s no easy answer to the question of how much is the right amount to spend on a wedding gift, but if you’re looking for guidance, these tips can help.

If you say no

If you’re invited to a wedding and RSVP no, you’re technically not on the hook to buy a present, according to lifestyle and etiquette expert Elaine Swann. Having something from the registry sent to the couple is a nice gesture, but not mandatory.

If you say yes

If you say yes, you’ll be expected to provide a gift. The difficult part is deciding how much to spend on it.

If you’re the kind of person who likes to compare, consider what other guests spend. The national average cash gift amount is $160, according to the 2016 Wedding Season Report by cash-giving platform Tendr, although regional averages vary. In Arkansas, the average gift is $73, while it’s $245 in Vermont.

Gift expectations also depend on your relationship: The closer you are to the bride and groom, the higher your financial obligation. “I think if you’re very good friends or family members, you’re going to probably want to give a little more than if you’re not as close to the couple,” says Diane Forden, the editor-in-chief at Bridal Guide magazine.

Another consideration? If you’re flying solo at the wedding, a smaller gift can suffice. Couples usually give more than individuals, according to Forden.

If you have other obligations

As a general rule, the more that’s required of you as a guest, the less that’s required when it comes to the gift.

“With a destination wedding, in my opinion, your presence is a present,” Swann says. “So for those who go out of their way to pay for airfare and hotel and all of the festivities around a destination wedding, then that’s your gift to the couple.”

You can also cut back on the gift if you’re in the bridal party. Between the showers, the bachelorette party and the bridesmaid dress, the whole process can be “financially crushing,” Forden says. If you’re feeling the pinch, she suggests chipping in on a group gift with your fellow bridesmaids.

» MORE: 11 affordable wedding gift ideas

If you’re on a budget

Finances always trump etiquette. There’s nothing wrong with selecting an affordable present — even if it’s the least extravagant item on the registry, or it’s not on the registry at all.

“People should never be ashamed about being fiscally responsible,” Swann says. “So if you cannot afford to get an expensive gift, then don’t do it. Hold your head up high and say, ‘You know what, my budget allowed me to get this beautiful card, and that’s it.’”

Don’t overthink it. There’s no right or wrong amount to spend on a wedding gift, and weddings aren’t about the gifts, anyway.

“The focus shouldn’t really be on gifts,” Forden says. “It shouldn’t be a gift grab. It’s a celebration of a marriage, and I do think a lot of brides and grooms are aware of that.”

Courtney Jespersen is a staff writer at NerdWallet, a personal finance website. Email: courtney@nerdwallet.com. Twitter: @courtneynerd.

Does Your Spending Personality Match Your Credit Cards?

It’s easy to get caught up in credit card incentives, such as cash back, travel perks and sign-up bonuses. But if your credit cards don’t match your spending personality, you might not get the rewards you expect, or you might end up paying too much in fees.

One in five consumers carries a card that “has fees or rewards not aligned with their actual purchase habits,” according to J.D. Power’s 2016 U.S. Credit Card Satisfaction study.

And circumstances change. Even a credit card that was once compatible with your spending habits might no longer be the best fit. Identify your spending personality to determine whether the cards in your wallet are offering you the most value right now.

The jetsetter

If you travel in style often and want big rewards for your spending, a premium credit card will go further than a regular travel card. Some premium cards offer credits for airlines, hotels or airport security screening programs, as well as airport lounge access. They come with a large annual fee, but you likely spend enough to earn it back in the form of perks and a generous sign-up bonus.

The explorer

Travel is your hobby, but you’re not loyal to airline brands; you’re loyal to the best deals. General travel credit cards offer flexibility in reward redemption. Some charge annual fees, but you can often make up the cost in rewards, and the best cards don’t charge foreign transaction fees. However, travel rewards might lose value if you redeem them for anything other than travel.

The cash-back connoisseur

You like knowing the exact value of your rewards in cash, and you use plastic at every opportunity to earn more. Tiered and bonus-category cash-back credit cards offer higher rates on certain purchases and 1% on everything else. You could get more value by pairing one of these with a flat-rate cash-back card that pays 2% for all purchases. Minimalists should consider a single flat-rate cash-back card.

The balance carrier

Your paychecks aren’t always steady, so sometimes you lean on a credit card, and it’s not always possible for you to pay the balance in full every month. Still, you make sure you never miss a payment. Cash-back credit cards are tempting, but their high interest charges will outweigh your rewards. A low-interest credit card is more likely to save you money over time.

The self-starter

If you have bad credit or no credit, you probably have limited credit card options. Secured credit cards offer an opportunity for credit building. They require a security deposit that you get back after closing the account or upgrading to a regular, unsecured card. The credit limit is often relatively low, equal to the security deposit.

The survivor

You’re struggling to pay off debt, but if you have good or excellent credit, a balance transfer credit card can provide a way out. It allows you to transfer a balance from an existing credit card to take advantage of a lower interest rate. A card with a low balance transfer fee and a 0% annual percentage rate period can give you time to catch up on payments.

The optimizer

You’ll go to great lengths to get a good deal, including managing multiple credit card bills. Mixing and matching cards can be worth it as long as you save money. Just watch out for annual fees or interest.

If your credit card is no longer a match, it might be time to move on. But unless it charges an annual fee, don’t rush to close the account, because that could impact the length of your credit history — and your credit score.

Keep current cards active with the occasional, small purchase and use a new credit card to swipe your way toward your goals.

Melissa Lambarena is a staff writer at NerdWallet, a personal finance website. Email: mlambarena@nerdwallet.com. Twitter: @LissaLambarena.

Teachers: Here’s How to Ace Retirement Without Social Security

When it comes to saving for retirement, many teachers can’t use the standard lesson plan.

What’s different for them? Social Security coverage, or the lack thereof. About 40% of public school teachers aren’t covered by the Social Security system, according to the National Association of State Retirement Administrators.

That goes back to the initial draft of the Social Security Act in 1935, which left state employees out in the cold. Most states have since opted into Social Security for their public-sector employees, but 15 states haven’t. In those states, teachers and other state and local government workers are exempt from paying Social Security taxes and instead typically rely on a state-run pension plan.

+ Click to expand to see a list of the 15 states States where teachers are ineligible for Social Security AlaskaLouisiana CaliforniaMaine ColoradoMassachusetts ConnecticutMissouri Georgia (some areas)Nevada IllinoisOhio Kentucky (some areas)Rhode Island (some areas) Texas Why teachers aren’t covered by Social Security

The short answer: In part, it’s because they don’t pay into the Social Security system. But in some cases, even if they’ve paid in at some point in their career, Social Security benefits — including retirement, disability and survivors benefits — could be reduced if they also have a state pension.

The retirement and disability benefit reduction is due to a rule called the Windfall Elimination Provision, which is designed to block state and local public employees from collecting a pension alongside Social Security benefits. It does that by reducing Social Security retirement benefits. A separate rule, called the Government Pension Offset, can also cut into Social Security survivors benefits.

The Windfall Elimination Provision

You might wonder how Social Security can be reduced if you weren’t covered by the program in the first place. The answer is that it can’t. The Windfall Elimination Provision doesn’t directly affect you if you’ve never paid into the Social Security system; you simply won’t receive benefits.

But if you have contributed to the system — most likely because you paid Social Security taxes in a different job — and you now work for a state or local government in a role that doesn’t participate in Social Security, the Windfall Elimination Provision could reduce any Social Security retirement or disability benefit for which you’re eligible based on that past work.

Your Social Security statements likely won’t reflect that reduction, which is based on a special calculation. The maximum monthly reduction in 2017 is $442.50, limited to one-half of your monthly pension benefit. You will be subject to a smaller cut if you have 21 or more years of “substantial earnings” from a job in which you paid Social Security taxes. If you have 30 or more years of substantial earnings, your benefits won’t be reduced by the Windfall Elimination Provision.

How teachers can save for retirement

Teacher retirement options vary by state, but you’re generally offered either a pension or a defined contribution plan like a 403(b) or 457(b), or both.

Pensions have plenty of perks, most notably a guaranteed benefit in retirement that lasts as long as you live. But they’re also not without downsides. Many are underfunded or in debt, and they typically don’t travel well, requiring you to participate in the plan for a certain number of years before you’re vested (“vested” means promised the full pension benefit you’ve accumulated).

If you leave teaching or move to a different state before you meet the vesting requirement, you may forfeit any employer contributions. Contributions you’ve made — and often at least a portion of interest earned — are yours to keep. Generally, the longer you work, the larger your pension benefit.

All of this means it’s wise to supplement your pension. You can do that in a couple of ways:

1. A defined contribution plan

You may be eligible for a 403(b) or 457(b) plan alongside your pension. Both are similar to the private-sector 401(k) plan, in that they allow you to put aside money for retirement pretax. The annual contribution limit for 2017 is $18,000, with additional catch-up contributions in some cases. If you have both a 403(b) and a 457(b), those limits are separate. You may also earn employer matching contributions.

The money you contribute generally grows tax-deferred and will be taxed as income when you take distributions in retirement. Both plans may also offer a Roth individual retirement account option, which allows you to put away after-tax dollars and take retirement distributions tax-free.

One word of warning: 403(b) plans can be rife with fee pitfalls for participants, sometimes even more so than other employer-sponsored retirement plans. An analysis by human resources consultant Aon Hewitt found that those costs could add up to a cumulative leak of $10 billion annually. No matter where you invest, be sure to understand your fee costs by asking to see investment prospectuses or annuity contracts.

2. A Roth or traditional IRA

These are accounts you would open and fund on your own at an online broker. You can contribute up to $5,500 in 2017, with an extra $1,000 if you’re 50 or older.

With a traditional IRA, you make tax-deductible contributions, then pay taxes on distributions in retirement. With a Roth IRA, your contributions don’t get you an upfront tax break, but distributions in retirement are tax-free. Depending on your income, you may be able to combine IRA contributions with a 403(b) or 457(b), increasing how much you put away for retirement each year. Review the IRA contribution limits to find out, then learn how and where to open an IRA.

» IRA vs. 403(b) vs. 457(b): Get all the details in our retirement plan comparison

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.

Mortgage Rates Thursday, July 20: Rates Lower as Fed Looms

Mortgage rates for 30-year fixed-rate loans and 5/1 ARMs both fell by one basis point today, while 15-year fixed loans remained unchanged, according to a NerdWallet survey of daily mortgage rates published by national lenders Thursday morning.

Both fixed-rate products and 5/1 ARMs haven’t been this low in several weeks.

The Federal Reserve meets again next week, and going by the futures market, the general consensus is that the target range for the federal funds rate will be left as is, especially after Fed Chair Janet Yellen’s remarks last week that low inflation levels merited further observation.

MORTGAGE RATES TODAY, Thursday, JULY 20:

(Change from 7/19)30-year fixed: 4.07% APR (-0.01)15-year fixed: 3.47% APR (NC)5/1 ARM: 3.87% APR (-0.01)

Get personalized mortgage rates

NerdWallet daily mortgage rates are an average of the published annual percentage rate with the lowest points for each loan term offered by a sampling of major national lenders. APR quotes reflect an interest rate plus points, fees and other expenses, providing the most accurate view of the costs a borrower might pay.

Emily Starbuck Crone is a staff writer at NerdWallet, a personal finance website. Email: emily.crone@nerdwallet.com. 

Why Credit Cards Are Serving Big Restaurant Rewards

Finding a credit card that offered big rewards at restaurants used to feel like ordering vegetarian at a barbecue joint: There weren’t many options, and they often weren’t appetizing. But with consumers spending more on dining than ever before, that’s quickly changing.

In recent years, Chase, Citi, Capital One and PNC have all launched cards with an effective rewards rate of at least 3% on dining, a step above the 2% that was once the maximum dining reward on many cards. These are similar to the rewards on gas, groceries and travel that cardholders have enjoyed for years. And for many users, they’re just plain practical.

“Everyone has to eat. You end up with a lot of people who say, ‘Look, I may not go to New York every week, but I certainly go to restaurants every week,’” says Robert Hammer, CEO of R.K. Hammer, a bank card advisory firm.

Spending on dining out is rising

When deciding what credit card rewards to offer, issuers try to determine which perks will entice people to apply for a card — and then use it regularly. So they pay close attention to how potential customers are spending money.

“We’ve heard directly from [our customers] how important mealtime is,” Mark Mattern, vice president of U.S. cards at Capital One, said in an email. That’s how the issuer came up with the Capital One® Premier Dining Rewards Credit Card, introduced in March 2017, which offers unlimited 3% cash back on dining and 2% on groceries. “We know that these are categories that people are spending more in and are passionate about,” he added.

Consumer spending trends reflect that. In 2015, sales at restaurants and bars overtook spending at grocery stores for the first time ever, according to a Bloomberg report citing Commerce Department data. Consumer spending on food services has also been steadily increasing, reaching an all-time high in 2016, according to the most recent data available from the federal Bureau of Economic Analysis. To credit card issuers, these trends present a business opportunity.

“Chase, Capital One, [Bank of America] — they don’t push things that don’t make money. It just doesn’t happen,” Hammer says.

The young and the wealthy are eating out

Issuers don’t offer bonus rewards on dining simply because they want a piece of dining purchases; they also want to appeal to a specific type of consumer. The two groups currently most sought-after by financial institutions — high-income consumers and young adults — happen to be prolific diners.

Among households with incomes in the top 20% nationwide, 49% of food spending went to food away from home, which includes spending at restaurants and fast food joints and on takeout, according to 2015 data from the Bureau of Labor Statistics. That amounts to $6,040 per year, more than 4.5 times what those with incomes in the bottom 20% spent in that category.

Millennials tend to dine out more frequently than other age groups. A December 2016 Gallup poll found that 72% of 18- to 34-year-olds had eaten dinner at a restaurant once in the previous week, the highest rate of any age group surveyed.

These two groups mean big business to credit card companies. High-income shoppers, of course, have more money to spend. That can generate revenue for issuers in the form of transaction fees and interest charges.

Millennials, meanwhile, bring growth potential, a point underscored in Chase’s most recent annual report. “[Millennials’] wealth is expected to grow at the fastest rate of all generations over the next 15 years,” writes Gordon Smith, CEO of consumer and community banking at Chase. The majority of new cardholders with the Chase Sapphire Reserve℠, which features rich dining rewards among several other benefits, were millennials, according to the report.

Would you like rewards with that?

Credit cards with supersized dining rewards benefit issuers, certainly. But if you use yours responsibly and pay the balance in full every month, they can especially benefit you. If you’re deciding which credit card to use for restaurant excursions, and all of your options offer 3% back on dining, look for these features:

  • No annual fee: It generally doesn’t make sense to pay an annual fee just for dining rewards. Many cards these days offer 3% back on dining — and other perks — and don’t charge an annual fee.
  • Unlimited earnings: If you spend big bucks on dining, choose a card without a spending cap. The Capital One® Premier Dining Rewards Credit Card, launched in 2017, and the AARP® Credit Card from Chase, relaunched with dining rewards in 2013, are both good options.
  • Other rewards and benefits: Dining rewards might be your main objective, but many of these cards offer other perks. Choose one with the benefits that best fit your spending habits. If you’re a commuter, find a card that supplements your dining cash back with gas rewards. If you also frequent the supermarket, get your dining rewards with a side of grocery bonuses.

Getting more cash back, points or miles on dining purchases is great, but it doesn’t have to be the only useful benefit your card offers.

Claire Tsosie is a staff writer at NerdWallet, a personal finance website. Email: claire@nerdwallet.com. Twitter: @ideclaire7.

Does Your Spending Personality Match Your Credit Cards?

It’s easy to get caught up in credit card incentives, such as cash back, travel perks and sign-up bonuses. But if your credit cards don’t match your spending personality, you might not get the rewards you expect, or you might end up paying too much in fees.

One in five consumers carries a card that “has fees or rewards not aligned with their actual purchase habits,” according to J.D. Power’s 2016 U.S. Credit Card Satisfaction study.

And circumstances change. Even a credit card that was once compatible with your spending habits might no longer be the best fit. Identify your spending personality to determine whether the cards in your wallet are offering you the most value right now.

The jetsetter

If you travel in style often and want big rewards for your spending, a premium credit card will go further than a regular travel card. Some premium cards offer credits for airlines, hotels or airport security screening programs, as well as airport lounge access. They come with a large annual fee, but you likely spend enough to earn it back in the form of perks and a generous sign-up bonus.

The explorer

Travel is your hobby, but you’re not loyal to airline brands; you’re loyal to the best deals. General travel credit cards offer flexibility in reward redemption. Some charge annual fees, but you can often make up the cost in rewards, and the best cards don’t charge foreign transaction fees. However, travel rewards might lose value if you redeem them for anything other than travel.

The cash-back connoisseur

You like knowing the exact value of your rewards in cash, and you use plastic at every opportunity to earn more. Tiered and bonus-category cash-back credit cards offer higher rates on certain purchases and 1% on everything else. You could get more value by pairing one of these with a flat-rate cash-back card that pays 2% for all purchases. Minimalists should consider a single flat-rate cash-back card.

The balance carrier

Your paychecks aren’t always steady, so sometimes you lean on a credit card, and it’s not always possible for you to pay the balance in full every month. Still, you make sure you never miss a payment. Cash-back credit cards are tempting, but their high interest charges will outweigh your rewards. A low-interest credit card is more likely to save you money over time.

The self-starter

If you have bad credit or no credit, you probably have limited credit card options. Secured credit cards offer an opportunity for credit building. They require a security deposit that you get back after closing the account or upgrading to a regular, unsecured card. The credit limit is often relatively low, equal to the security deposit.

The survivor

You’re struggling to pay off debt, but if you have good or excellent credit, a balance transfer credit card can provide a way out. It allows you to transfer a balance from an existing credit card to take advantage of a lower interest rate. A card with a low balance transfer fee and a 0% annual percentage rate period can give you time to catch up on payments.

The optimizer

You’ll go to great lengths to get a good deal, including managing multiple credit card bills. Mixing and matching cards can be worth it as long as you save money. Just watch out for annual fees or interest.

If your credit card is no longer a match, it might be time to move on. But unless it charges an annual fee, don’t rush to close the account, because that could impact the length of your credit history — and your credit score.

Keep current cards active with the occasional, small purchase and use a new credit card to swipe your way toward your goals.

Melissa Lambarena is a staff writer at NerdWallet, a personal finance website. Email: mlambarena@nerdwallet.com. Twitter: @LissaLambarena.

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