Family Finances Archives | Page 63 of 96

Feb

2023

What is a Minimalist Lifestyle? Minimalist Lifestyle Tips

Guide to a Minimalist Lifestyle

By Caroline Banton | Family Finances, Life & Career, relay | Comments Off

Many of us struggle to keep up with the demands of our daily lives, which can create stress and anxiety. That’s why some choose a minimalist lifestyle: Fewer possessions make for easier management. Minimalists strive to eliminate anything in their life that does not serve their purpose. This leads to more physical, emotional, and mental space.

There are gradations of minimalism because the mindset change from consumerism to minimalism is a drastic one best done gradually. If that change appeals to you, read on to better understand what a minimalist lifestyle is, its benefits, and how to start on the path to a simpler, more manageable lifestyle.

What Is a Minimalist Lifestyle?

Minimalist living is uncluttered by superfluous items like luxury cars, excessive clothing, and purely decorative furnishings. There can be many reasons someone chooses a minimalist lifestyle; they might want to simplify their life to reduce stress, improve their health, or reduce harm to the environment. They may also want to cut back on expenses and improve their budgeting and finances.

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Surprising Benefits of a Minimalist Lifestyle

When you have less stuff, it follows that you have less to worry about. A minimalist lifestyle allows you to carry less literal and metaphorical baggage around.

Another benefit is that minimalists buy fewer things, which saves money. From a holistic perspective, minimalism reduces consumerism, and that benefits the planet.

How to Live a Minimalist Lifestyle

Living a minimalist lifestyle can seem daunting for some, requiring a mindset shift. Here’s a window into a more minimalist mindset and lifestyle to give you a taste of what it involves.

Invest in Experiences

Rather than collecting things and possessions, a minimalist lifestyle emphasizes experiences. Minimalists spend, just in a more deliberate way. For example, minimalists may spend on vacations and concerts rather than on cars and jewelry.

Recommended: The Benefits of Living Below Your Means

Audit Your Life

Auditing your life involves deciding what is most important and eliminating anything superfluous. Deciding what is most important can be difficult, but some questions to ask yourself are: How am I doing mentally and physically? What’s important to me now that perhaps wasn’t before? The answer to these and similar questions can help you pinpoint your core values and priorities.

A free budget app can help you audit your spending and evaluate how much of it is really necessary.

Eliminate Needless Expenses

A meaningless expense to one person may be valuable to another. That’s why conducting a life audit is important to help you decide which expenses are not serving your purpose. For example, a person might discover that buying gas is often unnecessary if they can manage without a car most of the time. Or that mid-price brands and gently used items can be just as nice as luxury goods.

Set Limits and Delegate

A minimalist lifestyle is easier to control. Setting limits and delegating is one way to live a minimalist lifestyle because you have less to manage. For example, you might use an accountant to do your taxes, or hire someone to manage your website. You might have fewer screens or electronics or downsize to a smaller home.

Recommended: Does Net Worth Include Home Equity?

Honor Your Priorities

The goal of auditing your life is to establish priorities to eliminate what doesn’t align with them. Part of the journey to minimalism is learning to appreciate what you have and not constantly desire new things. Perhaps you and your partner decide to live on a single income while one of you cares for the family. You may also earn less and have to economize.

Minimalist Lifestyle Tips

How do you implement a minimalist lifestyle? Because the changes can be profound, try making small changes at first as you gradually adjust to a new mindset.

Recommended: What Is the 50-30-20 Budget?

1. Declutter Your Environment and Your Mind

A great place to start is to declutter your environment. Start with your home, your workspace, your car. Get rid of things you haven’t used in a while or that you are just hanging onto in case you need them. As the space around you becomes less messy, you might find your thinking becomes more clear.

2. Be a Purposeful Not Prolific Consumer

Minimalists still make purchases, but the emphasis is on quality rather than quantity. An example is choosing to use one credit card that serves many purposes rather than five because each one comes with different rewards. Yes, you may benefit from free miles and cash back, but you will also have to buy more to earn those points and rewards, which is consumerism, the antithesis of financial minimalism.

3. Digitize Movies and Books

Most of us have bookcases full of books that sit and gather dust. It’s fine to keep some treasured items and classic novels, but you can also download e-books or visit your local library. Declutter your home of old DVDs, CDs, and books you don’t need.

Recommended: Should I Sell My House Now or Wait?

4. Recycle and Reuse

Reusing shopping bags, refilling a water bottle instead of buying bottled water, or taking your own cup to Starbucks are ways to cut back on trash and single-use products. You’ll save money and help the environment.

5. Get Organized

As you declutter, you’ll find ways to be more organized. Find a space for things you want to keep, and use storage bins and organizers. When everything has a place, you’ll waste less time trying to locate things, and you’ll be more motivated to put things back when you’ve used them.

The Takeaway

A minimalist lifestyle is appealing, considering how busy and cluttered our lives can be. However, changing our mindset is difficult, and getting rid of things (both real and symbolic) we’ve held onto for years can be traumatic. Thankfully, you don’t have to embrace full-on minimalism immediately. You can take small steps to simplify your life gradually as you adapt to minimalist life.

Begin by establishing goals and priorities and by envisioning a less complex life. From there, move to decluttering your environment and organizing. You can also reduce your expenses and financial obligations and delegate tasks you don’t need to do yourself. As you progress, you may find that your mind clears, your life slows down, and you learn to appreciate what you have instead of yearning always to have more.

SoFi’s money tracker app simplifies and manages all of your finances in one place and at no cost. Get credit score monitoring, spending breakdowns, financial insights, and more.

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FAQ

How do you live a minimalist lifestyle?

Living a minimalist lifestyle requires prioritizing and eliminating things that do not align with your values. The process of elimination will be different for everyone, but it does not have to be quick or painful. Just removing one thing or downloading a budgeting and money tracking app can help you achieve a simple minimalist lifestyle.

What is an example of a minimalist?

An example of a minimalist is someone who lives with very little furniture, or none at all, or someone who moves to a smaller home. A less extreme version of a minimalist might be someone who simplifies things by clearing items from countertops, buys few clothes, or chooses a vegan diet.

What is the 90 rule for minimalism?

The hardest part of achieving a simpler minimalist lifestyle is decluttering. How do you decide what to get rid of? The 90 rule can help. Choose a possession, and ask yourself if you’ve used that item in the past 90 days. If not, then it’s a candidate for elimination from your life because it is not currently serving a useful purpose.

Photo credit: iStock/Pramote Naksomrit

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Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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Feb

2023

Does Getting Married Affect Your Credit Score?

By Sarah Li Cain | Credit, credit card, Family Finances | Comments Off

Marriage doesn’t directly affect your credit scores since you and your spouse will each still maintain separate credit histories. However, both of your credit histories can affect any shared accounts and future possibilities of taking out a loan together.

Or, if you live in a community property state and take out loans after getting married, both of you could be responsible for that debt. Let’s take a look at what happens to your credit when you get married.

What if Your Spouse Has a Bad Credit Score?

First off, your credit won’t directly be impacted once you get married, since your marital status doesn’t show up on your credit reports.

If either of you had loans before you got hitched, then they’ll simply remain on your respective credit reports. Same goes for any individual loans you take out after you’re married. One notable exception is if you were to apply for loans together, like a mortgage. In this case, the rates and terms you may qualify for could be less competitive because your spouse doesn’t have a good credit score.

Or, it could be that if you were to open a credit card with both your names on it (or an account where one person is the primary cardholder and the other is an authorized user on a credit card), both of your financial behaviors will affect your future credit score. Say your spouse has a history of late payments, which would have a major impact on their credit score. If they were to miss a payment on your joint account, then both your credit scores could be affected, since your name is also on the account.

If possible, it’s best to discuss the pros and cons of joint accounts and other financial matters with your spouse. This includes coming up with a plan to help them build their score before you apply for joint loans.

Tips for Building Your Credit Score With Aid from Your Spouse

If either you or your spouse wants to build credit, here are some best practices for doing so:

• Review your credit report: Checking your credit history reports from all three major credit bureaus (Experian, Equifax, and TransUnion) can give you some insight into what is affecting your score. That way, you can use those insights to change your financial behavior. Plus, if there are any errors that may affect your score, checking your credit report will help you spot and dispute them.

• Continue to make on-time payments: Paying your credit card bills on time is a major factor that affects your score. Doing so consistently signals to lenders you’re being responsible with credit.

• Hold off on opening new accounts: Each time you apply for a loan, a hard inquiry will occur, which could temporarily affect your score. Too many hard inquiries within a short period of time could signal to lenders that you’re stretched thin financially and need to rely on credit. As such, be mindful about when and how often you’re applying for new accounts.

• Request a credit limit increase on your credit cards: Credit utilization is another major factor affecting credit scores. It looks at the overall credit limit of your revolving accounts (like credit cards) compared to your overall balance. If you can increase your credit limit, it could lower your credit utilization, which is favorable for your credit score. Another option is to apply for a new credit card, like the SoFi cash-back rewards credit card, though only if you’re certain your credit can afford the slight dip from a hard inquiry.

Will Changing Your Name Affect Your Credit?

Changing your name to your spouse’s after you’re married won’t affect your credit. However, it will result in an update to your credit report. The major credit bureaus should update your credit report automatically once lenders start reporting your credit activity using your new name. When this happens, your old name will remain on your credit history but as an alias.

To ensure your new name gets reported on your credit report, you’ll need to notify your lenders. It’s also a good idea to update your name with the Social Security Administration and any other relevant official entities.

Recommended: What is the Average Credit Card Limit?

How Cosigning a Credit Card With a Spouse Can Impact Your Score

Becoming a cosigner means you’re legally agreeing to be responsible for the other party’s debt. In other words, acting as a cosigner can affect your score positively or negatively, depending on your spouse’s financial behavior.

For example, if your spouse consistently makes on-time payments and keeps their credit utilization low, then your credit score could be positively affected. However, if they make late payments or worse, the account gets sent to collections, your score and theirs could take a hit. Still, you might decide it’s worth the risk if you’re hoping to help your spouse establish credit.

Recommended: When Are Credit Card Payments Due?

Do You Share Debt When You Get Married?

Any debt that you or your spouse had before you got married will remain each of your own responsibilities. Once you’re married, however, any joint debts are shared. Whether debt that’s only taken out in one person’s name is considered shared debt will depend on what state you reside in.

If you live in any of the following community property states, both you and your spouse will be responsible for all debts acquired during the time you’re married — even if they’re not joint ones:

• Arizona

• California

• Idaho

• Louisiana

• Nevada

• New Mexico

• Texas

• Washington

• Wisconsin

• Alaska (residents can opt into community property laws)

If you’re unsure of what you and your spouses’ responsibilities are, or if you have any concerns related to marriage and credit scores, it’s best to seek the advice of a legal expert.

Should You Join Your Credit Accounts After Getting Married?

Merging your credit accounts is a decision that only you and your spouse can make, and it will require a discussion about your expectations and basic credit card rules. One of the main benefits of merging your accounts is the ability to simplify your finances. Doing so could make it easier to keep records and compile documentation for tax returns.

However, if you will both be responsible for debt, both of your credit scores could be affected if either one misses a payment, for example. You can consider keeping one credit account in each of your names in case of an emergency though, even if you do decide to merge your accounts. And whether you’re choosing a joint bank account or a joint credit card account, make sure to shop around and compare your options.

Discussing Credit With Your Spouse Before Marriage

Communication is key in your relationship, even before you’re married. It’s crucial that you have a detailed conversation with your partner about both of your financial situations. This includes any debt incurred, as well as any behavior that could negatively affect your finances. After all, it’s ‘til death do us part (and here’s a look at what happens to credit card debt when you die).

To help prepare for your financial future together, consider discussing plans you have that may involve the need to rely on your credit, such as buying a house. That way, if either of you doesn’t have an ideal credit score, you can come up with a plan to work on it together.

The Takeaway

One of the keys to a successful marriage is understanding how each other’s financial situation — including credit behavior — can affect the other person. Whether you open an individual or joint credit account, it keeps both of you in the loop so you’re working as a team.

If you’re looking for a new credit card to level up your financial situation, consider the SoFi credit card. With the SoFi credit card, you can earn cash-back rewards, apply them toward your balance, redeem points for stock in a SoFi Active Invest account, and more.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Do lenders look at both spouses’ credit scores?

Lenders will look at both spouses’ credit scores if they’re applying for a loan jointly. Otherwise, if you only want one name on the account, the lender will only look at that person’s credit.

Can credit be denied based on marital status?

Credit issuers and lenders are not allowed to deny credit based on your marital status. This is due to protections offered by the Equal Credit Opportunity Act against discrimination when applying for credit.

What happens if I marry someone with low credit?

You won’t be directly affected, as your individual credit report is still yours. However, it could impact your score if you apply for credit jointly and your spouse doesn’t handle the shared account responsibly. It could also impact you in terms of what joint loans you may be able to qualify for, as well as what terms you receive.

Does my spouse’s debt merge with mine?

Any debt that you and your spouse have before marriage will remain separate. You’ll share debts if you have joint loans. In some community property states, both spouses are considered responsible for all debts acquired during the marriage, even if only one name is on them.

Photo credit: iStock/LightFieldStudios

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¹See Rewards Details at SoFi.com/card/rewards.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

This article is not intended to be legal advice. Please consult an attorney for advice.

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Feb

2023

Does a Gas Credit Card Help Build Your Credit Score?

By Jackie Lam | Credit, credit card, Family Finances | Comments Off

If you’re attempting to build credit from scratch, a gas credit card can help. That’s because, similar to other types of credit cards, gas credit cards report your payments to the three major credit reporting bureaus. Further, gas cards are good for building credit because they tend to be easier to get approved for than other types of cards.

On top of that, a gas credit card can allow you to save on gas by earning discounts and fuel credits when you fill up your tank and use your card to pay for transactions. Here’s all you need to know about gas credit cards, including how to get a gas card to build credit.

Recommended: How to Avoid Interest On a Credit Card

Understanding Gas Credit Cards and How They Work

A gas credit card works similarly as other types of credit cards in that it offers access to a revolving line of credit. In other words, you have a credit limit that’s set ahead of time. You can borrow up to that limit, and then repay the debt over time through monthly payments. If you carry a balance from month to month, you’ll pay interest.

There are two main types of gas credit cards:

• Gas station co-branded credit cards: Also known as a single-purpose or closed-loop card, a gas station co-branded credit card is a card that you can only use to make purchases from a single company. In this case, you could only use the card when you pump gas from a particular gas or oil company, which the card will usually bear the logo of.

• General-purpose gas credit cards: A traditional gas credit card can be used when you fill up at any gas station, rather than only with one particular brand — marking the difference between gas cards vs. gas station credit cards.

As mentioned, gas credit cards can be a good way to build credit when you’re starting from scratch. Keep in mind that the best rates, terms, and rewards offerings generally are reserved for consumers with strong credit. That being said, some gas cards are easier to get approved for, especially those from a particular oil company or brand.

Another benefit of gas credit cards is that they can offer discounts per gallon or an introductory promotional period where you can receive additional discounts at the pump. For instance, a co-branded gas credit card might offer 30 cents back on each gallon for the first two months after you open an account, and then 10 cents back per gallon after that.

Some general-purpose gas credit cards might also feature rewards, like cash back on everyday purchases up to a certain amount per year.

Tips for Building Credit with a Gas Credit Card

Are you wondering, does a gas card build credit? The answer is yes. Because gas credit cards report your activity and payment history to the three major consumer credit bureaus — Equifax, Experian, and TransUnion — using one can be a good way to help you establish credit when you’re starting out on your credit journey.

For a gas card to build credit, however, you’ll need to stick to the following credit best practices.

Choose a Card Carefully

If you decide to open a gas credit card, carefully review the terms, rates, and fees. Gas credit cards typically have high interest rates compared to other types of cards, so if you anticipate carrying a balance, you could end up paying a pretty penny on interest charges.

While many gas credit cards don’t carry an annual fee, you might get hit with late fees, balance transfer fees, and returned payment fees. Make sure you’re aware of what fees a gas credit card may charge so you can avoid them.

Recommended: What is a Charge Card?

Pay the Full Balance Each Month

Your payment history makes up the bulk of your FICO credit score — 35%, to be exact. As such, it’s important to make your payments on time, each and every month.

And if possible, you might also aim to pay off your balance in full each month, which will allow you to avoid paying interest on your gas credit card. To do this, set a limit for how much you want to spend on your gas credit card each month and stick to it.

Recommended: When Are Credit Card Payments Due?

Don’t Spend Up to the Credit Limit

Another factor that influences your credit score is your credit utilization, which is how much of your overall credit limit you’re currently using. It’s generally suggested to keep this ratio at no more than 30% to avoid adverse effects to your credit score. If you were to spend up to your credit limit, that would likely drive up your credit utilization well about that recommended threshold.

Keep Track of Your Credit Score

Monitoring your credit score can help you pinpoint behaviors that can move your credit score up or down, as well as notice any red flags. By keeping an eye on your credit, you can better make adjustments to your habits and spending to ensure you’re making progress on building your credit score.

You can keep track of your credit score in a handful of ways, including by signing up for a free credit monitoring service or possibly through your credit card issuer. For instance, the cash-back rewards credit card that SoFi offers provides free credit score monitoring to cardholders.

Advantages of Building Credit With Gas Cards

Gas cards absolutely can be good for building credit, and here are the benefits of using one to do so:

• Savings on gas: A major perk — and the one that is most apparent — is that you can receive discounts at the pump by using a gas credit card.

• Potentially easier approval: A gas credit card can have easier approval requirements than other types of cards, such as rewards credit cards. This can make it easier to get credit, and therefore start building your credit.

• Rewards and sign-up bonuses: Gas credit cards might offer rewards, perhaps just on your spending at the pump or more generally across purchases, depending on the type of gas credit card. Some gas credit cards offer a sign-up bonus if you meet a minimum spending requirement within the first few months.

Drawbacks of Building Credit With Gas Cards

There are downsides to using gas cards to build credit as well, including:

• Potentially restricted use: If you get approved for a credit card that you can only use when you fill up at a gas station from a single gas or oil company, it might take you a bit more work and planning to use your card. That being said, there are some more general use gas cards available.

• Higher interest rates: If you’re building your credit from scratch and are approved for a card with less stringent financial or credit criteria, this can mean higher interest rates and less generous or attractive card perks.

• Limits on earnings and rewards programs: While some gas cards do offer rewards, they’re usually not as robust as they would be with other types of credit cards. Plus, many gas cards have a cap on how much you can earn in rewards in a given year.

Recommended: What is the Average Credit Card Limit?

The Takeaway

A gas credit card could be a strong option if you are looking for a credit card with easier approval requirements to take a step toward building credit. Before deciding, consider the advantages and drawbacks of getting a gas card to build credit.

Another option might be a general rewards card, like the SoFi credit card. This way, you won’t be restricted on where you can use your credit card. Plus, the SoFi credit card offers unlimited cash-back rewards on all eligible purchases, among other perks.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Are gas cards worth it?

Gas cards can be worth it if you are looking for a credit card with less stringent approval criteria and are trying to establish credit. Many don’t have annual fees, so if you’re able to pay the balance in full each month, it could be worth opening. Plus, you might be able to save at the pump.

Are gas cards good for building credit?

Gas cards can be good for building credit as they do report your activity and payment history to the credit bureaus. However, in order for them to help with your credit, you must maintain responsible credit habits, like making on-time payments and maintaining a reasonable credit utilization ratio.

Is it better to use a fuel card or a credit card?

It depends on what you typically use your credit card for, as well as what cards you’re able to get approved for. If you would like a card that you can use only for gas and would like to rack up gas savings, then a fuel could be a good fit. Another type of credit card, such as a cash-back or travel rewards credit card, could offer you different perks. However, they might be harder to get approved for.

Do gas cards save you money?

Gas credit cards can shave a few dollars at the gas pump in the way of discounts and promotions. Some cards offer cash-back rewards, usually up to a certain amount per year.

Photo credit: iStock/Talaj

Feb

2023

How to Pay Your Taxes With a Credit Card

Can You Pay Taxes With a Credit Card?

By Sarah Li Cain | Credit, Family Finances, money | Comments Off

Sadly, there’s no avoiding paying taxes to the IRS — whether that’s once a year or multiple times for those who are self-employed. However, what you do have agency over is how you pay. One of the few ways you can pay taxes is with a credit card.

Whether you want to pay the IRS with a credit card so that you can earn rewards or have a bit of financial breathing room, it’s important to be aware of the implications of using such a payment method. Read on to learn more about how to pay taxes with a credit card.

Can You Pay Federal Taxes With a Credit Card?

Yes, you can. More specifically, you can pay your federal taxes with a credit card (and in some cases, you may even be able to pay your state taxes with one as well). The IRS offers different third-party payment processors that accept credit card payments for taxes.

Keep in mind that if you pay the IRS with a credit card, this type of transaction isn’t free, given how credit cards work. Whichever third-party payment service provider you choose, you’ll be charged additional processing fees for the convenience of using your credit card to pay taxes. For example, all of the third-party options charge a percentage of the amount you’ll be paying in taxes, but there’s also a minimum flat fee you’ll owe.

In addition, there may be limitations on how many times you can use your credit card for IRS payments. For instance, if you wanted to pay your personal income taxes, you can only do so twice per year for the current tax year due. However, if you worked out a monthly payment plan with the IRS, you can pay with a credit card up to two times per month.

What to Know Before Paying Taxes With a Credit Card

Before pulling out your credit card to pay your taxes, it’s important to know what your goals are. Here are some common reasons taxpayers choose to pay their taxes with a credit card:

• You may earn rewards points, cash back, or miles. Many consumers love to earn perks offered by their credit card issuers and see it as a major benefit of what a credit card is. Even with the additional fees associated with paying taxes with a credit card, you may feel like the rewards offset what you’ll pay. In other words, if the value of the rewards is much higher than the service fees, it might be worth using your card. As an example, let’s say you’ll be able to earn 4,000 rewards points from your tax payment, which equates to $100 toward a flight or hotel room. If you owe $3,000 in federal taxes and the third-party payment service charges a 1.96% fee, you’re effectively paying $58.80 in fees to earn $100 in rewards. Whether that’s worth it is up to you.

• It’s possible to earn a major rewards bonus. If you signed up for a new rewards credit card and need to meet a minimum spending threshold to earn a huge bonus, it might be worth considering paying your taxes with that credit card. For instance, if you signed up for a credit card offering 50,000 bonus miles — an equivalent to $1,000 worth of travel — paying a $4,000 tax bill with a payment service charge of 1.96% equates to $78.40 in fees. Assuming that meets your minimum spending threshold, the value you receive is pretty high. Just make sure you can make more than your credit card minimum payment, and ideally your full balance, to avoid interest accruing.

• You’ll gain the ability to spread out your payment. Paying taxes with a credit card might be worth considering if you’re looking for a low-cost way to spread out your tax payments. If you have excellent credit, you may qualify for a credit card offering a 0% introductory annual percentage rate (APR), meaning you’ll have time until the offer runs out to pay off your taxes interest-free. Sure, you’re paying card processing service fees, but that could be worth it to spread out your payments. However, many credit card companies have terms and conditions that stipulate how you can remain in good standing for the introductory offer for the APR on a credit card — make sure you’re following them, or you could end up paying a high amount in interest.

What Is the Fee for Paying Taxes With a Credit Card?

As mentioned, the amount of the fee you’ll owe for paying taxes with a credit card will vary depending on which payment processor you use. Here’s a look at how much each processor’s fees run:

Payment Processor	Fee Rate	Minimum Fee
payUSAtax	1.85%	$2.69
Pay1040	1.87%	$2.50
ACI Payments, Inc.	1.98%	$2.50

Pros and Cons of Paying Taxes With a Credit Card

There are advantages and disadvantages to paying the IRS with a credit card. Here’s an overview of the pros and cons, which we’ll cover in more detail below:

Pros of Paying Taxes With a Credit Card	Cons of Paying Taxes With a Credit Card
Earn cash back and credit card rewards	Third-party payment processors charge fees
Meet spending thresholds for bonus rewards earnings	Rewards earnings may not offset fees paid
Use a convenient form of payment	Potentially pay high credit card interest rates if you carry a balance or the introductory APR period ends before your balance is paid off
Spread out payments interest-free if using a card with 0% introductory APR	IRS payment plan interest rates may be lower than what’s offered by credit cards

Pros of Paying Taxes With a Credit Card

There are the major upsides of paying the IRS with a credit card, including:

• You can earn cash back and credit card rewards. By putting the amount of your tax bill on your credit card, you might earn some credit card rewards. Just make sure your rewards earnings will offset any fees you’ll pay (though rest assured, taxable credit card rewards usually aren’t a thing, except in certain cases).

• It can help you meet spending thresholds to earn bonus rewards. Often, credit cards that offer bonuses require you to spend a certain amount within a specified period of time in order to earn them. If you’re struggling to reach that threshold, paying your taxes with your credit card could help, allowing you to snag those bonus rewards.

• It’s a convenient form of payment. Anyone who has paid with a credit card knows it’s easy. You don’t have to fill in various bank account numbers like you otherwise would if you opt to cover your tax bill with a credit card.

• You can spread out payments — and interest-free, if you have a 0% APR card. If you’re tight on cash or simply want to spread out your tax payment, a credit card can enable you to do so. Even better, if you have a card that offers 0% APR, you’ll avoid paying any interest while you space out your payments.

Cons of Paying Taxes With a Credit Card

It’s not all upsides when it comes to paying taxes with a credit card. Make sure to consider these drawbacks as well:

• You’ll pay third-party processing fees. Perhaps the biggest drawback of paying the IRS with a credit card is you’ll pay fees. The exact amount you pay in fees will vary depending on which third-party payment processor you use, but they can range from 1.85% up to 1.98%. If your tax bill is $1,000, for example, you could pay up to $19.80 in fees.

• The rewards you earn might not offset the fees. If your rewards rate is close to the amount in fees, those two will effectively cancel each other out. In other words, you’ll pretty much break even if you pay roughly the same amount in fees as you earn in credit card rewards, which might not make using a credit card worthwhile.

• You could end up paying interest at a steep rate. If you aren’t able to pay off your balance in full by the statement due date, or if for some reason you don’t pay off your full balance by the time your 0% APR intro offer ends, interest charges will start racking up. Plus, credit card interest rates tend to be pretty high compared to other types of loans.

• There might be lower interest rate payment plans available. If you’re hoping to spread out your payments, using a credit card might not be your most cost-efficient option. The IRS offers a payment plan for those who qualify, and the interest rate can be lower than the APR on a credit card.

Recommended: What is a Charge Card?

How Do You Pay Taxes With a Credit Card?

If you’ve decided you want to use your credit card for tax payments, here’s how you do it.

1. Decide Which Credit Card to Use

Consider your reasons for using a credit card — is it to earn rewards, meet a minimum spending threshold, or spread out your payments interest-free? Whatever it is, make sure to choose a card that meets your goals. If you want to open a credit card, then you’ll want to make sure you receive the card in time to pay the IRS before the tax filing deadline.

Recommended: When Are Credit Card Payments Due?

2. Determine the Amount You Want to Pay

Whatever the amount is, ensure it’s well within your credit card limit. You can spread your payments over multiple credit cards, but keep in mind the transaction limits that the IRS imposes for certain payments.

3. Choose a Third-Party Payment Processor

The IRS website currently lists three approved payment service providers that you can use. Compare which one offers the best features and lowest fees for your situation.

4. Make Your Payment

Once you’ve selected which payment service provider you want to go with, head to their website and follow the instructions. You may be asked to provide information such as the credit card expiration date and CVV number on a credit card. Double check that you’re making the right type of payment and that all the information you’ve entered is accurate before pressing submit.

Other Ways to Cover Your Tax Bill

If you’re not convinced the costs involved in credit card payment are worth it, there are other ways that you can pay your taxes.

Direct Pay With Bank Account

While this option won’t allow you to earn rewards or spread out your payments, you’ll also steer clear of paying any fees or potentially owing interest. To make a tax payment directly from your bank account, you’ll simply need to select this option and provide the requested banking information, such as your bank account and routing numbers.

Recommended: How to Avoid Interest On a Credit Card

IRS Payment Plan

If you’re hoping to be able to pay off your balance over time, you can apply for a payment plan with the IRS. You may qualify for a short-term payment plan if you owe less than $100,000 in combined tax, penalties or interest, or you could get a long-term payment plan if you owe $50,000 or less in combined tax, penalties, and interest and have filed all required returns.

Note that this option may involve fees and interest though. The costs involved will depend on which type of plan you’re approved for.

Looking for a New Credit Card?

Indeed, you can pay taxes with a credit card. Paying taxes using a rewards credit card is a great way to earn perks, helping you maximize your spending. However, there are downsides to consider as well, such as the third-party processing fees and the potential to run into high credit card interest if you don’t have a good APR for a credit card.

If you do want to pay taxes with a credit card, it’s important to find the right card to do so. With the SoFi Credit Card, for example, cardholders can earn generous cash-back rewards on all eligible purchases. You can then redeem rewards for cash, investments, or eligible SoFi loan payments, or as a statement credit.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

What does it cost to pay taxes with a credit card?

Third-party payment processors charge a service fee to pay your taxes with a credit card. In many cases, it’s typically a percentage of your payment amount, with a minimum flat fee charged.

Does paying taxes with your credit card earn you rewards?

Paying taxes can earn you rewards, depending on the type of credit card you use. Many rewards credit cards offer cash back, miles, or travel points on qualifying purchases. Before doing so, it might be helpful to determine whether the value of the rewards earned will outweigh the fees you’ll pay.

Is it better to pay taxes with a credit card or debit card?

Both methods of paying your taxes can be a great choice, depending on your financial situation. If you’re not interested in earning rewards or spreading out your payments and have the cash on hand, you can pay with a debit card. Some may prefer to pay with a credit card because they feel it’s a more secure way to make payments.

Are credit cards the cheapest way to pay your tax bill?

No. Paying your taxes with a credit card will add an additional fee onto your tax bill, plus you could end up paying interest if you don’t pay off your full statement balance by the due date. Other options, such as direct pay with your bank account don’t involve paying fees or interest.

Can you pay state taxes with a credit card?

It depends. Some states do facilitate tax payments with a credit card. To find out if yours does, check your state’s tax website for more information.

Can you pay property taxes with a credit card?

Once again, it depends which state you live in. Many counties and cities will allow you to pay property taxes with a credit card, though not all do. Reach out to your local tax collector’s office to see which payment options are accepted.

Photo credit: iStock/Moyo Studio

¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

¹See Rewards Details at SoFi.com/card/rewards.

SoFi cardholders earn 2% unlimited cash back rewards when redeemed to save, invest, a statement credit, or pay down eligible SoFi debt.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

New and existing Checking and Savings members who have not previously enrolled in direct deposit with SoFi are eligible to earn a cash bonus when they set up direct deposits of at least $1,000 over a consecutive 25-day period. Cash bonus will be based on the total amount of direct deposit. The Program will be available through 12/31/23. Full terms at sofi.com/banking. SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC.

SoFi members with direct deposit can earn up to 4.00% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 3/17/2023. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet

Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details, please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, Member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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Feb

2023

Opening a Brokerage Account for Your Child

By Rebecca Lake | Family Finances, invest, Investing | Comments Off

Brokerage accounts for kids are generally custodial, with the parent or guardian managing the assets until the child reaches adulthood. Only the parent or guardian can open the brokerage account, even when the account bears the child’s name. When the child reaches maturity — the legal age varies by state — they would take possession of the account.

Overall, the process for how to open a brokerage account for a child is fairly straightforward.

Why open a brokerage account?

A brokerage account is an investment account that operates through a brokerage firm. When you open a brokerage account, you deposit money into it, then use that money to buy securities. You can also sell securities that you’ve purchased. Depending on where you open a brokerage account, you might be able to trade:

• Stocks

• Mutual funds

• Exchange-traded funds (ETFs)

• Real estate investment trusts (REITs)

• Bonds

• Foreign currencies

• Options

• Futures

• Cryptocurrency

Some brokers may allow you to trade on margin, meaning you can borrow money to execute trades. (Trading on margin and investing in certain asset categories may not be available for custodial accounts, however.)

You may be charged commissions or other fees to execute trades, but there are no limits on how much you can invest. That’s roughly how a brokerage account works.

A brokerage account is not the same thing as a retirement account. When you sell assets at a profit in a brokerage account, you may have taxes due or other tax impacts. You can buy and sell investments at your own pace, withdrawing money as needed.

With an Individual Retirement Account (IRA), you can invest in many types of assets, but certain items (such as collectibles) are disallowed in most accounts. IRA holders must wait until age 59 ½ to withdraw funds without any tax penalty (some exceptions apply, such as disability). Early withdrawals from a traditional IRA are taxed at your ordinary income tax rate, plus you’ll generally incur a 10% additional penalty. When deciding on a taxable brokerage account vs. IRA, choose the one that furthers your financial goals.

Recommended: Popular Types of Retirement Plans

Can Children Have Brokerage Accounts?

They can, but they are not allowed access to the account’s money or assets. In almost all cases, such brokerage accounts are custodial, meaning the parent is responsible for managing the money until their child reaches adulthood.

Numerous discount brokers offer investment accounts for kids online. Some brokers have also introduced hybrid products for teens that allow them to save money, spend, and invest all in one place with the supervision of their parents.

If you’re looking for a hands-on way to teach kids about how markets work, a brokerage account could be a great idea. But if you want to teach them about money more gradually, a kids’ savings account might suffice for now.

Can a Child Have a Brokerage Account in Their Name?

A custodial account is technically in the child’s name, even though it’s controlled by the parent. So yes, a child can have a brokerage account in their name. Of course, they themselves can’t open the account without the help of a parent.

How to Open a Brokerage Account for a Child

Once you know how to open a brokerage account for your child, doing so isn’t too difficult.

The first step is choosing a brokerage that offers investment accounts for kids. Factors to consider in making your decision could include the range of investment options, how easy it is to access the account, and the fees.

The next step is deciding which type of account to open. There are three possibilities to choose from when opening a brokerage account for a child.

Opening a Guardian Account

A guardian account allows you to invest money on behalf of your child. All of the money in the account technically belongs to you, as does any tax liability associated with the sale of assets in the account. You (but not the child) can withdraw money from the account for any reason. Once the child turns 18, you can decide whether to hand the money in the account over to them.

Opening a Custodial Account

With a custodial account, the parent opens the account but the assets in it belong to the child. You can direct investment decisions while the child is a minor, and any tax liability is assessed at their rate. Withdrawals are allowed only for expenses benefitting the child. Once the child reaches adulthood, they automatically become the owner of the account.

Opening an IRA Account

If your child has earned income from a part-time or summer job (even babysitting or lawn mowing) for at least a year, you might consider opening a custodial IRA for them. With a custodial IRA, you direct the investments until the child turns 18 (or 21 in some states). At that point, the account becomes their property.

One key distinction: The IRA has annual contribution limits, but other types of custodial accounts do not. Each year the maximum contribution is the amount equal to the child’s total earnings; in 2023 the amount is capped at $6,500. (If a child earns no money in a given year, the maximum contribution is $0.)

The Roth IRA, which holds post-tax dollars, may be a better choice for a kid than a traditional one funded by pre-tax dollars. The benefits of the traditional IRA — such as lowering your taxable income during your earning years — won’t help a young person very much.

Types of Brokerage Accounts a Parent Can Open for a Child

When opening a custodial account for a child at a brokerage, you have two options: a Uniform Transfers to Minors Act (UTMA) account and a Uniform Gifts to Minors Act (UGMA) account. Most states recognize both account types. With either one, you control the account until the child reaches the age of termination, which in some places may be later than the age of majority.

UTMA Account

UTMA accounts allow minors to hold securities without the creation of a separate trust. This type of account permits you to hold many types of assets, including:

• Stocks

• Bonds

• Mutual funds

• Real estate

• Fine art

• Precious metals

• Patents

• Royalties

• Shares in a family limited partnership

The IRS taxes earnings in a UTMA at the child’s tax rate, up to a certain limit. For 2023, the limit is $2,500. Any gifts made to a UTMA on behalf of your child are irrevocable, meaning once you put the money in it becomes theirs; you can’t take it back out again. Any withdrawals must be used to pay expenses for the child, such as school tuition.

UGMA Account

A UGMA account is similar to a UTMA account in terms of tax treatment and who actually owns the assets in the account. The main difference between a UGMA and a UTMA account lies in what you can invest in. For a UGMA account, those are typically limited to stocks, bonds, and mutual funds. So if you’re choosing between a UTMA and a UGMA, it’s important to consider which types of assets you’d like to keep in the account.

Investing for Kids

A brokerage account can be a useful teaching tool for helping kids to grasp such concepts as:

• How investing works

• Compound interest and why compounding matters

• The importance and value of saving money

Kids who learn about money when they’re young are likely to have better financial habits as adults. Also, a study from Brigham Young University found that they have more satisfying interpersonal relationships in early adulthood because they’re less likely to stress over money.

Tips for Choosing the Right Broker

If you’re navigating how to open a brokerage account for your child for the first time, you may not be sure what an investment broker does or how to decide where to keep the account. When you’re seeking out the right broker, here are a few key questions you could ask as you narrow down the options:

• Does this brokerage firm offer investment accounts for kids?

• What types of brokerage accounts for kids are available?

• Is there a minimum initial deposit to open the account?

• What are the fees?

• Which investments will I be able to trade in the account?

If you have an existing brokerage account for your child, consider whether moving it to a different broker makes sense. For example, you may want to move if you believe your current brokerage is charging too much in fees. If you do decide to switch, it’s easy to request a brokerage account transfer online.

The Takeaway

A brokerage account for your child would probably take the form of a guardian account or a custodial UGMA or UTMA account. Knowing what types of assets you intend to deposit may help you determine what kind of account works best for you. For kids earning wages, a custodial IRA may be a good fit, allowing 2023 contributions of up to $6,500.

Hybrid save-and-spend accounts designed for teens can help them learn about investing while under adult supervision. In all of these cases, the parent oversees the accounts until the child reaches adulthood.

If you’re looking to open an online brokerage account for yourself, SoFi offers easy all-in-one investing. You can open an investment account with SoFi and start trading stocks, ETFs, or IPOs, if you’re 18 or older. SoFi does not offer custodial accounts. SoFi doesn’t charge management fees, and SoFi members have access to complimentary advice from professionals.

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Can I open a brokerage account in my child’s name?

Yes, you can open a custodial brokerage account for your child in their name. Transfers to a custodial account are irrevocable, but you’ll have control of the account and make the investment decisions until the child reaches adulthood. In the meantime, the assets in the account will belong to the child.

Can I open a brokerage account for a family member?

Generally, you can open a brokerage account for a family member only if that person is your minor child. You are allowed to establish a 529 college savings plan on behalf of other family members, including siblings, nieces, nephews, or cousins.

Can I buy stocks for my child?

Yes, you can purchase stocks for your child. You can make the purchases through a custodial account. There are also financial apps that allow you to purchase full or fractional shares of stock for your child.

Photo credit: iStock/Morsa Images

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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