How do you pay for everyday purchases?

In today’s world, it’s a rare person who doesn’t have a credit card. Credit card debt has surpassed $1.1 trillion in the latest quarter, according to the Federal Reserve Bank of New York (tinyurl.com/yyyazpkh). Ninety percent of U.S. consumers had at least one credit card listed on their credit report as of January 2021, according to Experian’s “The Ultimate Field Guide to Understanding and Improving Your Credit” (tinyurl.com/yy8wtmy4). Experian is one of three nationwide credit bureaus, along with TransUnion and Equifax.

When you think about it, credit underpins just about every financial decision, from personal habits such as how you pay for purchases (whether by cash, a bank transfer to the seller through a debit card or a virtual payment like Apple Pay) to whether you pay your bills on time or want to borrow. That’s just considering the small, everyday purchases. What about the big-deal transactions, such as buying a house, getting a mortgage, paying for college or, for a select few, buying a private jet or building a personal compound on a remote island in the Pacific?

Credit decisions affect just about everyone. The question is, are we all prepared to handle them?

There is more involved than meets the eye.

For example, a Consumer Financial Protection Bureau report released in February found that large banks are “offering worse credit card terms and interest rates than small banks and credit unions, regardless of credit risk” (tinyurl.com/2h6jupx2). The report went on to note that “the 25 largest credit card issuers charged customers interest rates of 8 to 10 points higher than small- and medium-sized banks and credit unions,” adding that the difference “can translate to $400 to $500 in additional annual interest for the average cardholder.”

Terms are just one aspect of using a credit card. There are many others –- and there are valuable tools to help you become knowledgeable about your choices.

Start with FINRA’s “How Your Credit Score Impacts Your Financial Future” (tinyurl.com/mr3sd56f) and “5 Steps to Take Control of Your Finances” (tinyurl.com/mr2tuj22). FINRA, the Financial Industry Regulatory Authority, oversees the U.S. broker-dealer industry.

These two resources will provide you with a good understanding of how credit can affect your finances in positive and negative ways.

The three credit bureaus also provide resources: “Experian Credit Course: A Complete Guide for Beginners,” at tinyurl.com/3wnmttss; TransUnion’s Credit Advice, at tinyurl.com/4hu9mwbp; and Equifax’s Knowledge Center, at tinyurl.com/4tn7c5w9.

To get an understanding of credit scores, go to Experian’s “Ultimate Field Guide.” Scoring helps lenders assess your “creditworthiness -- in other words, how likely you are to repay a loan. Think of it as an indicator of your financial reputation. The higher your credit score, the lower the predicted likelihood you’ll fail to pay your debts.” Five factors that determine your credit score: payment history, credit utilization, length of credit history, credit mix and recent applications.

The Experian guide also debunks certain myths, including “Carrying credit card balances each month helps improve your credit score.” The truth is that “Paying off your card balances in full as quickly as you can will save you money, and could benefit your credit score.”

If you want to look up your credit report, you can do that for free. The Federal Trade Commission provides details about AnnualCreditReport.com at tinyurl.com/yeyn8jnd.

Could your credit score be better? Help is on the way. The Consumer Financial Protection Bureau sets out important steps to take (tinyurl.com/mptnp3js): First, the obvious: “Pay your loans on time, every time.” And the not-so-obvious: “Experts advise keeping your use of credit at no more than 30% of your total credit limit.”

Credit cards are here to stay for the near future. Consumers can benefit from taking a little time to research and understand how to handle them as payment options continue to evolve.

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What investor doesn't like to test his or her knowledge? Here's a chance to do that with an online test put together by the U.S. Securities and Exchange Commission.

Called the "Investing Quiz," this is a monthly 10-question test found at Investor.gov, a website of the SEC (tinyurl.com/3adaud3f).

Some questions are harder to answer than others, but the best part is that after you take the test (you will see one question at a time until you have answered all 10), you'll receive a score, and -- more important -- all of the answers are explained. Let me offer three examples involving interest from this month's (February's) quiz, which also has questions on diversification and crypto assets:

"Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow? A) More than $102? B) Exactly $102 C) Less than $102"

The answer?

"According to the compound interest calculator on Investor.gov, you will have $110.41 in 5 years if you earn 2% per year. At the end of the first year, you would already have $102. In the following years, both the principal and any accumulated earned interest would continue to grow over time."

Here is another question, which is of added importance given today's economic numbers: "Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account? A) More than today. B) Exactly the same. C) Less than today."

The answer: "If the rate of inflation is higher than [the] interest rate you earn on your money, you won't have the same buying power. That's because inflation makes the cost of goods and services go up over time."

And finally, a question about loans and interest rates: "Suppose you owe $1,000 on a loan and the interest rate you are charged is 20% per year compounded annually. If you didn't pay anything off, at this interest rate, how many years would it take for the amount you owe to double? A) Less than 2 years. B) At least 2 years but less than 5 years. C) At least 5 years but less than 10 years. D) At least 10 years."

The answer provides more insight into the power of compound interest: "Compound interest can work for you when you save and invest, but it can also work against you if you have taken out a loan! The Rule of 72 can tell you approximately how long it will take for the principal of a loan to double in value (assuming no payments toward the loan are made). Simply divide the number 72 by the interest rate. The amount you owe on a loan with an interest rate of 20% will double about every 3.6 years (72 divided by 20 equals 3.6)."

Each of the 10 questions is worth one point. You'll see your score and the explanations for the correct answers once you have answered the questions. You'll also have the option to take the quiz again.

At the bottom of the answers, you will find a link to the previous month's quiz. Past monthly topics include bonds, diversification and compound interest (November 2023) and investor resilience, crypto assets and sustainable finance (October 2023).

The quiz is not only good for investors who are testing or refreshing their knowledge, it can also help young adults learn about key investing concepts. And, if they want to further explore the concepts of investing, they can click on the "Introduction to Investing" link on the Investor.gov website (tinyurl.com/3fkbnker).

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The 2023 tax filing season is now in full swing. The IRS recently released a few tips to make the filing season easier for the 146 million individuals who are expected to file returns(tinyurl.com/4acck2ja).

To avoid errors on your tax return, don't rush to file a return before you have all of your 2023 tax forms. You have until April 15, 2024. If you live in Maine or Massachusetts, you have until April 17 due to state holidays.

Among the key items are W-2 forms from employers; 1099 forms related to banks, dividends, pensions and retirement plan distributions; 1099-INT forms if you received interest payments; income statements related to any jobs in the gig economy (tinyurl.com/6ztjfcfs); and records of digital asset transactions (tinyurl.com/25skd7pj).

Don't forget to report all sources of income. Include "Goods created and sold on online platforms; investment income; part-time or seasonal work; self-employment or other business activities; services provided through mobile apps," according to the IRS (tinyurl.com/2tnyuap5).

If your 2023 earnings are $79,000 or less (individuals and families), you can use free tax software to file your return online: IRS Free File (tinyurl.com/4hsj7bnp). This software is available in English and Spanish.

For those with earnings over $79,000, there is a free service called IRS Free File Fillable Forms (the electronic version of IRS paper forms). See tinyurl.com/2ut38p5h.

If you decide to have your taxes done by a tax professional, the IRS offers a "Directory of Federal Tax Return Preparers with Credentials and Select Qualifications" (tinyurl.com/s4whsa42), where you can use a tool to search for tax preparers in your area. The IRS cautions that it "verifies attorney and CPA credentials before including them in the directory, but situations may exist where a credential subsequently becomes invalid after verification. Users should rely on the source of a credential (e.g. state board of accountancy or state bar) and not this directory for official current status. Additionally, the IRS does not endorse any preparer or credential over another."

The IRS provides general information on choosing a tax professional at tinyurl.com/yfhu8p9s.

The "Let us help you" page (tinyurl.com/29z2smzv) offers information for a number of categories, while the Interactive Tax Assistant tool (tinyurl.com/2xbfst8s) "provides answers to several tax law questions specific to your individual circumstances. Based on your input, it can determine if you have to file a tax return, your filing status, if you can claim a dependent, if the type of income you have is taxable, if you're eligible to claim a credit, or if you can deduct expenses."

Once you have filed your tax return, you can use the "Where's My Refund?" tool (tinyurl.com/2p8fh8sr) to check the status of a tax refund. You'll need your Social Security number (or individual taxpayer ID number), your filing status and the exact amount of your refund. Your refund status will appear "around 24 hours after you e-file a current year return."

If you need help, the IRS encourages you to use online resources instead of calling 800-829-1040. While local Taxpayer Assistance Centers (tinyurl.com/46w228kt) do not help prepare returns, they can offer "personal tax help when you believe your tax issue cannot be handled online or by phone, and you want face-to-face tax assistance." However, individuals and families who are eligible can get free help preparing their tax returns at Volunteer Income Tax Assistance or Tax Counseling for the Elderly locations (tinyurl.com/34jbmdxz). The AARP Foundation has free Tax-Aide sites at tinyurl.com/3jkp2t5z.

The IRS offers a video detailing its resources in both English (tinyurl.com/fsavctb9) and Spanish (tinyurl.com/bder7tc3).

If you are ready to file, here's one final thought: The IRS stresses that taxpayers should file electronically with direct deposit, as it "is still the fastest way to file and receive a refund." To steer clear of processing delays, "people should avoid filing paper returns whenever possible" (tinyurl.com/28wuwmpv).

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