If you have bad credit and have accrued a lot of debt, it may seem impossible to dig your way our. But what if automation – whether through apps or your standard bank account – could help you rehabilitate your finances? Though programs like Ready For Zero monitor your credit score, you’ll need more than that to adjust your spending habits. These programs can help put you on the right track automatically while you learn the ropes of money management.
Swap For Secured
When trying to eliminate your debt, the key is to continue using a credit card and debit card, but to do so with greater discretion while changing your habits. Start by applying for a secured card, which requires you put down a deposit on your credit use, so that you learn to be disciplined when using credit. It’s hard to rehabilitate your credit if you don’t continue to use credit cards.
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Bank Wisely With Bank Of America
In addition to applying for a secured card, take a look at where your banking for opportunities to save more effectively. One system that works for many people is Bank Of America’s Keep The Change program. Keep The Change works by rounding up your debit card spending and automatically depositing the difference into your savings account.
The thing about using Keep The Change is that how much use save varies widely. Sometimes it’s a negligible amount – think three cents on a purchase of $54.97, but it can really add up, especially on purchases with a small amount of change. If you spend $3.07 on coffee using debit, for example, 93 cents go into your savings. Now that’s a chunk of change.
The Acorns Approach: Saving For “Winter”
Another way that apps can help you learn how to save and invest is through ETFs – Exchange-Traded Funds. This is foundation for both the widely-advertised Acorns app and another program called Wealthfront.
Acorns forms something of a hybrid between BoA’s Keep The Change and Wealthfront; it invests your “spare change” by rounding up your purchases. It also allows you to make direct one-time investments. These small accounts are then put into a brokerage account, but you aren’t charged commissions. Another great thing about Acorns is that it lowers both the financial and psychological barriers to investing, something many people in debt see as beyond their reach.
Raising The Ante With Wealthfront
As noted, Wealthfront also uses ETFs, but you’ll have to dig yourself a little further out of debt before you’re ready to cross this threshold. That’s because with Wealthfront you need to make a minimum deposit of $500. That’s a lot for those carrying a debt load or even for young investors with minimal debt.
On the bright side Wealthfront will manage your Roth IRA, which is an ideal starting point for retirement savings for younger professionals. Since the annual investment maximum on a Roth is $5500, $500 looks paltry in comparison. The company also manages up to $10,000 at no charge.
No matter what strategy you choose to improve your savings approach, don’t let automated savings con you into spending too much. Just because you save when you spend, doesn’t mean just saving outright wouldn’t be better.