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A Brief History of Credit Cards
Even though many of us cannot live without them, credit cards were not always part of our lives. There was a time, just two generations ago, when consumers had to carry cash everywhere, or rely upon store credit. It took several decades for credit cards to become the integral part of our lives that they are for so many of us today. The story of how Americans fell in love with plastic is an interesting one.
During the 19th century, some department stores and hotels issued what were known as “credit coins.” These were nothing more than metal tokens issued to persons with credit accounts.1 The credit coin enabled a clerk to identify people who had credit.
The coins were replaced by metal cards called charga-plates in the 1920s. Charga-plates were the first credit cards in the United States, but they could only be used at a specific business such as a gas station or a department store.
A charga-plate was a metal card with the customer’s name, address and account number stamped on it. A clerk took an impression of the card when a purchase was made to keep a record. The purchase was put on a bill sent to the customer each month. Customers had to pay the bill in order to keep card.
The first bank credit card was created by John Biggins of the Flatbush National Bank in Brooklyn, New York, in 1946. Biggins created a system in which customers used a card he called Charge-It to make purchases at businesses. The bank paid the business and billed the customer monthly.
Charge-It was only available to local businesses in Brooklyn, but it was the first card that worked at more than establishment. It was also the first card issued by a bank rather than a business. Merchants were willing to take Charge-It because it meant the bank would handle all the paperwork involved in issuing credit.
The next step was the creation of credit-card companies, businesses that specialized in issuing cards. Two men; Frank X. McNamara and Alfred S. Bloomingdale, came up with the idea of a card that would pay for restaurant meals. McNamara started the Diner’s Club in New York City in 1950, and Bloomingdale organized Dine and Sign in Los Angeles the same year. The two soon met and merged their businesses into the first national credit card: the Diner’s Club Card.
The Diner’s Club proved popular. It had 20,000 members by 1951, just a year after launching. Diner’s Club was the first national card to charge interest, 7% plus an annual fee of $3, to make a profit.
The Diner’s Club Cards were made of cardboard, but they were so successful that companies like Hilton Hotels and American Express took notice. Hilton issued its own card that became the Carte Blanche in 1958. In 1959 American Express brought out the first plastic card and created a national icon, the Amex card. American Express also created the first worldwide credit card network. Although they were made of plastic, these instruments were not credit cards in the modern sense. They were charge cards that operated on a closed loop. That meant consumers could only use them at a few businesses, often just restaurants. Since they were charge cards, users had to pay the balance off in full at the end of the month. That meant the cards were mostly used by the rich and people who travelled a lot.
The first true American credit card was the BankAmericard, issued by Bank of America in Fresno, California. Unlike the American Express or Diners Club, BankAmericard came with a revolving balance. That meant a cardholder only had to pay part of the balance each month. This made the cards useful to working and middle class families who might not be able to pay the whole balance.
Merchants were willing to take the card because they would get paid right away by Bank of America rather than having to bill customers and wait. BankAmericard was so successful that it was licensed to banks throughout the United States. The success of BankAmericard prompted Citibank to launch the Everything Card in 1967, and a competing group of California banks to start Master Charge in 1966. Master Charge and the Everything Card merged in 1969 and eventually became Master Card. BankAmericard is now known as Visa.
The basis of a nationwide credit network was laid in 1978 when the U.S. Supreme ruled that nationally-chartered banks could charge the same interest rate in every state. Before that, banks had to follow a complicated set of limits on interest rates created by state legislatures. This made it profitable for organizations like Visa and Citibank to issue credit cards nationwide. It also enabled banks to charge higher interest rates, which in turn enabled them to issue cards to middle and working class people. Advances in computer technology enabled companies to process transactions instantly with a swipe of a magnetic strip. This made it convenient to use credit cards at restaurants, supermarkets and other businesses.
Today there are almost 200 million credit card holders in the United States. To put that in perspective, there are just over 100 million families in the country. In other words, the vast majority of American adults are credit card holders and credit and debit cards have completely eclipsed cash in terms of ubiquity. While we may be on the cusp of a new trend toward phone-based payments, such as those currently offered by Apple and Google, one thing is clear - payment by credit is here to stay.
A Brief History of Credit Cards
8 Reasons Why Credit Cards are Better than Cash
The benefits of credit card use go far beyond convenience and emergency finance. Credit card companies make a lot of money from merchants when you use your card, and more and more card issuers are willing to give their customers a small piece of the action in one form or another for doing so. Shrewd card users can save money, protect their assets and even put extra cash in their pockets if they choose their plastic wisely. To help you get started, here’s a rundown of some commonly provided credit card extras.
Cash is king. Many cashback programs offer different amounts back for different categories. For example, they may offer 2% at gas stations and 1% at grocery stores. Some categories even go as high as 5 or 6% for some cards. Cards can also differ in how they give you the cash back. Some will give it to you as soon as you charge something to the card. Others wait until you’ve paid off your charges. Many card issuers require you to login to their site to manually redeem your cashback rewards. It’s also a common practice to only issue cash back rewards over a certain amount, such as $25 or $50, and often only in certain increments.
Before just about every credit card company was giving their customers cashback for purchases, they were giving away airline miles. Originally, airline miles could only be used on airfare, but today they can be often used on a wide variety of travel related expenses such as hotels, rental cars and the ever popular first-class upgrade. If you travel frequently, you may be able to get more value out of an airline miles card than a cashback card, but keep in mind you're locking yourself into a pretty narrow range of things you can buy and specific airlines.
Airlines and credit card issuers have been working together for some time now. In addition to cards offering airline miles, more and more airlines are offering perks such as priority boarding, a free drink or waived bag fees to cardholders.
Rental car insurance isn’t just limited to travel credit cards. In fact, it’s one of the most common perks. Usually the way it works is you pay for the car entirely with your credit card, decline the insurance that the rental car company will try really hard to convince you to buy, and you should be covered. Definitely read the fine print in your cardholder agreement before using this one though - it’s not one you want to get wrong. Carefully consider the insurance limits and what is and isn’t covered.
This one is arguably more a feature than a benefit, but we’ll include it here anyway. If you’re drowning in credit card debt on a high interest card, the credit card issuer is likely making some good money off the interest you’re stuck with. Not too surprisingly, other credit card issuers may want to get their hands on some of that interest. They may offer you a better rate and a balance transfer, so you can pay off your high interest credit card and roll your debt over to a lower interest one. Of course, you’ll still be paying quite a bit in interest. It’s not a substitute for just paying off your debt if you can. Do pay attention to both the introductory rate and the eventual rate that it’ll kick over to after the introductory period. You’d hate to be stuck in an even worse deal after 6 or 12 months.
This is yet another way credit card companies are paying customers to use their card. For people with good credit, it’s not uncommon to be offered a several hundred dollar sign up bonus. It usually comes with the contingency that you spend a certain amount on the card within some predetermined amount of time. The banks hope that the card makes its way into your wallet and daily life so that you continue use the card well after you’ve hit that limit. Usually cards with high sign-up bonuses don’t offer a ton of cash back, if any at all, and vice-versa.
Many credit cards also give you extended warranties or return policies on certain items purchased with the card. This is part of the agreement that merchants have to sign before they can accept a particular card. Sometimes it’s double the original warranty. Sometimes it’s a fixed amount of time. Usually there are limits too, so be sure to read your cardholder agreement when trying to decide which card to use for a major purchase.
If you have cash that’s lost or stolen, good luck getting any of it back. With credit cards, however, it’s a different story. Under federal law, your liability is limited to $50 if your card is stolen, provided you report the theft to the issuer within a reasonable amount of time after discovering it. If the card itself is not stolen, just the credit card number, and it’s used to make an unauthorized purchase, you cannot be held liable. For most credit card issuers, it’s more valuable to be able to advertise $0 liability than to very occasionally be able to collect $50. They generally waive the $50, remove all unauthorized charges and just replace the card for you.
It’s hard to believe there was a time when everybody carried cash for daily transactions. In today’s society, there’s really no reason to. Almost every business in the country that accepts payments directly from customers accepts some credit cards. It’s not just a matter of personal preference anymore. If you don’t use credit cards for your purchases, you’re losing out.
8 Reasons Why Credit Cards are Better than Cash
Is Marriage Good for Taxes?
When most people are deciding whether or not to tie the knot, taxes usually aren’t the first thing on their mind. They should be though. In fact, taxes are one of the few tangible benefits of marriage, or costs, depending on the situation.
Tax laws were written to raise money for the government in such a way that the burden would be spread ‘fairly’ among everyone. What exactly constitutes fairness has been, and will continue to be for the foreseeable future, a topic for debate. What most people can agree on is that those that have more disposable income can, and should, pay more in taxes. When two people get married, their incomes are combined, and so are their expenses. Married couples are taxed jointly on their combined earnings.
In a traditional family with one primary breadwinner, marriage is great for taxes. A significant income is combined with the other person’s little or no income to get roughly the original income. However, the tax brackets are much higher for 2 people. In fact, at the lower and mid range level, they’re actually doubled. For instance, a single filer pays 25% of taxable income over $37,650 (in 2016) to Uncle Sam. A married couple doesn’t hit the 25% threshold until $75,300 ($37,650 x 2).
In addition to the tax bracket benefits, couples can also combine their deductions. For instance, the standard deduction in 2016, a deduction that anyone can take in lieu of itemizing their deductions, is $6,300 for individuals and $12,600 for couples.
If two people earn the same low or moderate incomes and they marry, they’ll end up paying roughly the same in taxes. Their taxable income doubled, their deductions were combined, their tax brackets doubled and they’re back to right where they started.
Many people believe marriage can only benefit you come tax time, but that’s simply not true. Why is this the case? Because at higher brackets, the cut-offs don’t actually double. Uncle Sam knows that as a couple, your expenses don’t truly double (you probably both live in the same house, sleep in one bed, etc.), and he wants as much from you as he can get. The next bracket after 25%, which is 28%, starts at $91,150 for individuals and $151,900 (which is much less than $91,150 x 2 = $182,300) for married couples. That means if 2 people, each making $80,000 per year, marry, they’d be moving from a marginal tax rate 25%, to one of 28%. Of course, the 28% is a marginal rate and as such only applies to the amount above $151,900, so they’d end up paying an extra 3% on $8,100, or $243. The more both people earn, the higher the marriage ‘penalty’
It’s a common misconception that married filing separately is the same as being single. It’s not. Filing jointly is almost always the best option for married couples. Reasons for filing separately include wanting to protect yourself legally from a spouse that’s cheating on taxes, protecting your refund from back taxes or child support owed solely by your spouse, etc.
There are two federal taxes that marital status will not affect: Social Security and Medicare. Everybody has to pay a 6.2% tax on the first $113,700 they make regardless of marital status and a 1.45% Medicare tax (2.9% on self-employment income).
Here’s one of the biggest financial benefits of marriage. When your spouse (of 10 years or more) dies, you’re generally eligible for a survivor social security benefit. That means you can keep receiving up to their entire social security benefit, subject to certain restrictions. Calculating the actual amount of the survivor benefit can get a little tricky. It depends on many factors, such as the widow/widower’s age when he or she began receiving benefits, how much that person is receiving already from their own social security, etc. Divorced couples that have been married for more than 10 years may also be eligible for survivor benefits. Check out the Social Security Administration’s website (ssa.gov) for specific information.
Lastly, there’s no estate tax when assets pass between two married people. No matter how wealthy and individual is, he or she can leave 100% of his or her possessions to a spouse, and it’s all safe from Uncle Sam, at least until the spouse dies too.
Marriage is about a lot more than just taxes and financial benefits, but it’s only responsible to consider all the costs and benefits before deciding to make your relationship official. For some, having a marriage certificate may not be worth paying hundreds of thousands of dollars over their lifetimes in additional taxes. For most though, getting married sooner is financially better than later.
Is Marriage Good for Taxes?