Transferring high interest debt to a 0% credit card can save a ton of interest. In this guide, we walk through how to do a discover card balance transfer.
There are a number of great reasons to transfer a balance. Perhaps you have a new or existing credit card that is offering you 0% interest for a certain number of months on balance transfers. Maybe you are paying a very high interest rate on a loan or credit card balance, but have the option to transfer it to a lower-rate card account. Either way, you can save yourself a pretty penny in interest — and even pay off the debt faster — with a transfer.
Balance transfers are pretty straightforward with many credit card companies. Luckily, Discover is no exception. Completing a balance transfer request is incredibly easy. It took me less than five minutes (which included finding my wallet to locate my other card’s account number!).
Here’s a step-by-step guide to transferring a balance with Discover to help make the process even easier for you.
1. Log in Online
Whether your Discover account is brand new or years old, you should have an online account set up. If not, go ahead and set up your username and password now. Then, log in to the portal.
On the far right, you’ll see available balance transfer options… Discover doesn’t make you search the website to find what you need! They tell you exactly how much credit you have available for a transfer, from the jump.
Go ahead and click on that Transfer Balances button.
2. Choose Your Offer
Discover is great about giving its cardholders options. They gave me two different balance transfer offers to choose from: One was a 0% interest rate for 12 months (the cheaper option) or a 3.99% option for 18 months (if I needed more time).
You’ll notice that there is a 2% transfer fee for the 0% interest offer, but no transfer fee for the 3.99% interest offer. You’ll need to look at how much you’re transferring and how long it’ll take to pay off the debt before deciding which will be the best option.
While 3.99% isn’t nearly as enticing off the bat as 0% interest, it is still considerably less than a typical credit card rate and it would give you a bit more time to pay off your balance in full. Plus, if you have a high balance to transfer over or plan to pay off the debt over a longer period of time, it may actually save you money over a 0% offer.
So, choose which option is better for you. I went with the first offer, without any interest rate.
3. Review Your Offer
Before you move forward, Discover will give you the opportunity to review the offer you’ve chosen and the fees/interest rates involved. Be sure to double-check this for accuracy!
If you made the wrong choice, go back and try again. If there’s an error in what you see listed or if you have a question, give Discover customer service a call and discuss it with them.
4. Enter the Info for Your Incoming Balance
Now’s the time to enter your incoming account information and the total balance that you want to transfer. If you’re transferring a credit card balance, you can simply enter the account number from the front of your card.
You may also notice that Discover gives you the option to transfer these funds into a checking account. This can then be used to pay off other debts and acts almost like a cash advance (but with a much lower interest rate and fees).
Avoid using it for this purpose if you can avoid it, though. Cash advances are easy ways to dig yourself into greater debt. If you use your “balance transfer” offer as a sort of cash deposit, you may wind up paying even more in interest over time, if you don’t pay it back immediately.
Lastly, you’ll want to be sure that the amounts shown at the bottom match before you submit your request. Ensure that you’re transferring the correct amount, that the quoted transfer fee is showing, and that the right remaining credit balance is displayed. If you have any questions or concerns, give Discover a call.
5. Confirm the Details
Now it’s time to see what you’re actually signing up for with this balance transfer request.
Discover will give you the opportunity to read through their terms and conditions, view/save them in PDF form, and even print them. It would be wise to at least read them thoroughly to ensure that you understand the balance transfer process, if not print them for your records.
Here, you’ll also be given one more opportunity to review the actual terms of the offer. You’ll see the date by which you must complete your transfer in order for the promotion to be valid. You’ll also get a rundown of the fees involved, the interest schedule, and when you’ll start getting charged for it.
6. Click Away
If you’re good to go and agree with everything shown, go ahead and click the Submit Request button. This is also your last opportunity to back out and cancel the request, or make changes to the transfer.
Once your request is received and processed, you’ll receive notification via email, to the address that Discover has on file for you. You’ll also receive an email when the transfer has been successfully completed.
6. Be Responsible
Balance transfers are a wonderful way to pay off debt for less, get out of debt sooner, or just consolidate your accounts. But if not handled properly, they can also get you in hot water.
It important to calculate how much you’ll need to pay down the debt each month. That way you can pay it off it before the promotional period ends. In my case, I chose the 12-month, 0% interest offer.
This means that I have 12 months to completely pay off the entire transferred balance. If I don’t pay it off in time, my interest rate will jump up to 12.99%. Depending on the account you pulled that balance from, this may be more or less than you were already paying. Either way, it’s a lot more than the promotional interest!
Be sure to budget accordingly, pay on time, and avoid that interest when it shoots up at the end of the balance transfer period.
Also make sure that you make your balance transfer payments on time each month. If you are late, Discover reserves the right to revoke your offer, and your interest would jump up to the penalty rate.
Topics: Credit CardsThe post How to Do a Balance Transfer with Discover appeared first on The Dough Roller.
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When I say “Student Loan Forgiveness Program,” too many people hear “Get out of debt free card.” In all the political and media discussion of student loans, it can be tough to cut through the noise to understand exactly what these programs are. What is the best approach to paying off student loans?
A growing trend among millennials is the assumption that student loan forgiveness is the best way to take care of student loans. For too many, this has just become part of their financial plan.
The truth is for the clear majority of you there is a MUCH better strategy you can employ for getting rid of your student loans. I have nothing against these programs existing, but for your sake I don’t want them to be your goal in paying off your loans.
In this post, I hope to help you understand more of the ins and outs of these programs using two of the most popular ones as examples, and to convince you that they don’t need to be your plan A.
What Are Student Loan Forgiveness Programs and How Do They Work?
A student loan forgiveness program is simply a government program that, under certain conditions and with the right qualifications, will forgive or cancel the remaining balance of a borrower’s student loans. Sounds great, right? Well, keep reading…
For this discussion, we’ll focus on the Teacher Loan Forgiveness (TLF) and the Public Service Loan Forgiveness (PSLF) programs.
Teacher Loan Forgiveness Program (TLF)
The Teacher Loan Forgiveness program is available to teachers serving low income families in one of a few qualifying environments. These include schools in districts that qualify for Title 1 services, schools with at least 30% of the student body receiving Title 1 services, other schools selected as qualified due to low income situations, or schools on Indian reservations.
The basics of it are that if you work as a teacher in one of these environments for 5 consecutive, complete years, you are eligible to have up to $17,500 of your Direct or Stafford Loans forgiven. The TLF does not forgive any PLUS loans you have received. There is a Teacher Cancellation Program for Perkins Loans, but it too requires 5 years with similar stipulations.
Think About It
There are several things to me that are troubling IF you’re a teacher counting on using this program to get you out of student loan debt.
First off, we’re talking about signing yourself up to be in debt for 5 years! That’s a long time, and a lot can happen during that time! What happens if you’re just plugging along, making your minimum loan payments when suddenly you’re informed that your position has been cut? Or what if you are fired? It happens to young teachers all the time. Then you potentially lose your string of consecutive years built in the TLF program.
What if better job opportunities come to you during that 5 years, or you decide to take a different career path? Will you take that leap knowing that you’ve already invested time into qualifying for the TLF program?
Also, notice that the maximum amount you can be forgiven is $17,500. For those with student loans in America today, the average balance is $49,000. Sure, $17,500 is a nice chunk of that, but are you willing to let the loan hang around for 5 years just so you can be forgiven of a portion of it rather than the whole?
If you’re going to be making payments the entire 5 years to potentially not even get the reward of your entire remaining balance being forgiven, wouldn’t you rather go ahead and get the loans knocked out sooner? More on this later…
Public Service Loan Forgiveness Program (PSLF)
The Public Service Loan Forgiveness Program (PSLF) exists for those who work for the government, a 501(c)(3) non-profit organization, or a non-profit that provides certain public services. Anyone working for these employers who makes 120 “qualified payments” on their Direct Loans can have their remaining loan balance forgiven. Note that this program only applies to Direct Loans, not Federal Family Education Loans (FFEL) or Perkins Loans.
The 120 qualified payments do not have to happen consecutively, but must happen while employed at one of the specified types of employers in order to count. Also, if a payment is made more than 15 days past the due date, it doesn’t count.
Think About It:
As I’m sure most of you already figured out, 120 qualified payments take 10 YEARS of time. Just think about that for a second. 10 years of having this stinking loan follow you around wherever you go and tapping on your shoulder every pay period. Doesn’t sound fun.
Since this program only applies to Direct Loans, you’ll have to consolidate your FFEL and Perkins Loans into a Direct Consolidation Loan to get them under the forgiveness umbrella. Even then, none of the payments you’ve previously made on them count toward your 120 qualified payments. You’re right back at square 1 after consolidating.
One of the biggest misconceptions people have about this program is that you are automatically qualified for it by working at a qualified employer and making payments that meet the guidelines. You must first submit an Employment Certification form to certify that your employment fits the PSLF standards. All payments made on loans before this form’s submission and approval don’t count toward your 120 qualified payments. Sadly, lots of people have figured this out several years into repayment.
Lastly, and perhaps most important of all, to utilize this program you must be in government work or the non-profit sector for ten years. In many fields, you would have much higher income potential in the private sector. However, many are staying in the public service world and shunning these opportunities for fear of not having their loans forgiven. That’s like turning down a pay raise so you don’t enter a higher income tax bracket! It makes no sense!
OK. Are your eyes rolling back into your head yet? Anyone else’s blood pressure starting to rise just thinking about all of this? The fact is that these programs aren’t a strategy at all. They’re a safety net for people in extreme situations, but for most of you, I think you can be debt free in much less than 5 or 10 years!
Why There’s A Better Way
Again, I’m not against anyone using the loan forgiveness programs if they find themselves in a situation where it’s needed. What I’m adamantly against is you making it your whole plan from the start. Here’s why I think you can do better and should do better:
Morally, You SHOULD Pay It All Back
I promise I’m not some old man pointing his finger at you calling you a lazy entitled brat. I’m you. I’ve been through the process of paying off student loans. The fact is, when you borrowed the money, you entered a binding agreement and gave your word that you would pay it back.
It’s not about someone oppressing you or some system trying to get money from you. It’s a simple agreement. Your word is your integrity. If you gave your word that you would pay a loan back, the right thing to do is to pay it back in full.
Speed of Payoff
I understand that some of you have way more student loans than others. However, I think the vast majority of you could pay off them off in 2 to 5 years rather than the 5 or 10 year time span of forgiveness programs IF you made it the singular focus of your money management. All it takes is a clear goal, a clear plan, and a whole lot of passion.
Career Path
The attitude that many planning on utilizing student loan forgiveness programs take is one that they’re stuck in their field. “Well I HAVE to keep doing this job, otherwise my loans won’t be forgiven.” This is a victim mentality that I want you to break!
YOU are in control of your life. You should feel free to advance your career in whatever direction you see holding the most potential for you!
If you’re planning to wait around for a decade to use one of these forgiveness programs, you could be losing a ton of money in lost potential earnings. I understand that some people feel a very noble calling to work in the government or non-profit worlds, and I’m not advocating that you’re wrong for staying there. But for a lot of you the truth is that you could probably make better money in a private sector job.
Deciding to pursue loan forgiveness will cause you to give up this potential advancement in your career in order to achieve your loan forgiveness. Why not pursue a career path of increasing income and paying them off faster yourself? Why hold yourself back for 10 years when you could’ve been climbing the ranks all that time?
Who SHOULD Use Loan Forgiveness?
When it comes down to it, the answer to this question is simply this: Hardly anybody.
As I said earlier, student loan forgiveness programs are a safety net for unusual situations, but a very poor Plan A.
Maybe you or a loved one are in a chronic medical situation that will require a lot of care and money for a long time. That will obviously strain your finances for years, so you need to be aware of how to participate in these programs. Any situation where you know that your family will be under financial strain and unable to pay more than loan minimums like this puts you in position to use these programs as needed.
Also, those of you I mentioned earlier who feel a particular calling or connection to your job may need to consider these programs as options IF there is little potential for income increases.
I won’t argue with you over what your career should be, but if it’s in something with an extremely low income potential, you need to know what you’re signing up for and avoid adding anymore loans to the mix (aka graduate degrees).
Many of you may respond to this with thoughts like “But you don’t get it! I can’t afford any more than the monthly minimum payments on my loans!” To you, I invite you to keep reading and to try what I recommend before painting yourself into that corner for good. I bet there’s a lifestyle you can cut or a practice you can start, like budgeting, that can change your situation.
A Better Plan
So what’s the better plan?
Most people don’t realize how much money they’re wasting simply by not being intentional with it. For most of you, following these straight forward steps, in order, with the clear focus of paying off your debt will get you debt free in 2-5 years or less.
Budget Every Single Dollar
A written (or typed) plan for your money before it’s paid to you could be the most stress reducing activity you can do. Budgeting is just another word for “planning,” and doing it will help you make all your dollars work for your goal. This applies to people with regular pay and inconsistent incomes.
Save for Minor Emergencies
Inevitably, while you’re drastically cutting your lifestyle to get your debt paid off, you’ll have some unexpected mishaps come up with the car, the house, or someone going to the doctor. Therefore, I recommend saving $1,000 before beginning to pay extra on your debt so that you don’t have to rely on a credit card when surprises come up. You can come back and beef this emergency fund up to 3-6 months’ worth of expenses once the debt is gone.
It’s so nice to have some cash between you and a bad day!
Cut Your Lifestyle and Put Every Extra Dollar Toward Debt
Now it’s time to flat out get it in gear. You’ve saved some cash, you’re budgeting your money, and all that’s left to do is put everything you can into your loans until they’re paid off. You don’t need repayment plans, forgiveness, or cancellations. You just need a couple years of working on nothing else so you can be set up for a lifetime of freedom.
Take the step to identify that the debt is yours to pay. Then, get motivated by wanting to be free! Don’t settle for your money getting sent away hundreds of dollars at a time to Navient or ACS or whoever else for the next 10 years! You can be done quicker, and get on with your life!
Bottom Line
The bottom line is simple. Don’t plan your life around loan forgiveness. Student loan forgiveness programs are an ok safety net for a few situations, not a hammock for the masses. Pursue higher income, greater opportunities, and better control of your behavior. Pay off debt, save, and invest. You won’t be a millionaire one day looking back and giving all the credit to having your student loans forgiven.
How much student loan debt have you paid off or are you planning to pay off?
Author Bio: Right Hand Money Man is a millennial who, along with his wife, devoted the first two years of their marriage to getting out of debt and on a strong financial footing. His education is in finance, but his heart is for people. He devotes a ton of energy to helping people have clear vision for their finances and develop manageable steps to achieve it!
The post A Student Loan Forgiveness Program Isn’t A Good Strategy appeared first on Making Sense Of Cents.
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Season 7, Episode 17
This week on Freakonomics Radio: the biggest problem with humanity is humans themselves. Too often, we make choices — what we eat, how we spend our money and time — that undermine our well-being.
Stephen J. Dubner asks, “How can we stop?” And this radio hour has two answers: think small, and make behavior change stick.
To find out more, check out the podcasts from which this hour was drawn: “Big Returns from Thinking Small” and “Could Solving This One Problem Solve All the Others?”
You can subscribe to the Freakonomics Radio podcast at Apple Podcasts or elsewhere, or get the RSS feed.
The post Could Solving This One Problem Solve All the Others? (Rebroadcast) appeared first on Freakonomics.
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According to The Knot, the average American wedding costs $31,213. Wedding photography and videography account for 10% to 12% of that total, on average: $3,121 to $3,746, give or take. To be sure, millions of couples shell out less for quality wedding media. My own wedding wasn’t bare-bones by any stretch, but we spent less than…
20 Ways to Get Cheap Professional Wedding Photographers & Videographers is a post from Money Crashers.
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In the 2008 book, “The Big Sort,” journalist Bill Bishop and sociologist Robert Cushing explore the reasons behind the United States’ deepening political, economic, and cultural divisions along racial, class, and geographic lines. Despite vast improvements in communication technology and the explosive growth of available content and information, explain Bishop and Cushing, like-minded people continue…
How to Emigrate and Move to Another Country – Costs & Procedure is a post from Money Crashers.
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Did you know there are many different types of mortgages? We list 16 of the most common mortgage options, along with the pros and cons of each.
When it comes to buying a home, you may think that your only option is a 30-year, fixed rate mortgage. But there are plenty of options out there.
Here’s a basic overview of 16 types of mortgages, some common and some less so.
Fixed Rate Mortgage
Fixed rate mortgages are the most popular option. A set interest rates mean predictable monthly payments. These payments are spread over the length of a term, which ranges from 15 to 30 years, typically. Currently, shorter loan terms are becoming more popular. Back in 2011, USA Today noted that 34 percent of refinancers shortened from a 30-year to a 20-year or 15-year loan.
Generally, the shorter your loan’s term, the lower the interest rate. Lenders take on less risk with a shorter loan term. This means you’ll pay much less interest over the life of a 15-year mortgage versus a 30-year mortgage.
- 30-Year Mortgage: Freddie Mac notes that about 90 percent of home buyers in 2016 chose the typical 30-year, fixed-rate mortgage. The longer term makes payments much more affordable, which can help home buyers get into a more comfortable payment or a more expensive home.
- 20-Year Mortgage: Like the 30-year mortgage, this fixed-rate option offers consistent payments. You just pay off your house sooner. Some consumers like to split the difference between the longer and shorter terms. The 20-year mortgage will typically have a slightly lower interest rate than a 30-year mortgage.
- 15-Year Mortgage: You’d think that payments for a 15-year mortgage would be twice as high as payments for a 30-year. But because 15-year mortgages generally have lower interest rates, this isn’t the case. That’s one reason these shorter-term mortgages are becoming more popular.
Resource – Start comparing mortgage rates with Lenda.
Adjustable Rate (ARM) Mortgage
As you might guess, the interest rate on an adjustable rate mortgage fluctuates. Exactly how the interest rate changes depends largely on the type of loan you get.
In many areas of the world, including Britain and Australia, adjustable rate mortgages are the norm, though they’re much less common in the U.S. If interest rates are going down, ARMs let homeowners take advantage of that without refinancing. If interest rates rise, however, ARMs can result in surprisingly sky-high payments.
- Variable Rate Mortgage: This is just another name for an ARM, but a true variable rate mortgage will have adjusting rates throughout the loan term. Rates normally change to reflect a third party’s index rate, plus the lender’s margin. Mortgage rates will adjust on a set schedule, whether every six months, every year, or on a longer term, and many cap the maximum interest you’ll pay.
- Hybrid ARMs: These adjustable rate mortgages come with an initial fixed rate for a particular period of time. Common hybrids are 3/1, or three years of fixed interest followed by floating interest rates, and 5/1, the same but with a five-year introductory period.
- Option ARM: This type of ARM offers the borrower four monthly payment options to begin with: a set minimum payment, an interest-only payment, a 15-year amortizing payment, or a 30-year amortizing payment. Often, an Option ARM is used to get a borrower a larger loan than he would otherwise qualify for.
Resource: Get a free online mortgage quote from Lenda
Balloon Mortgage
Balloon mortgages typically have a short term, often around 10 years. For most of the mortgage term, a balloon mortgage has a very low payment, sometimes interest only. But at the end of the term, the full balance is due immediately. This can be a risky proposition for most borrowers.
Interest-Only Mortgage
Interest-only mortgages give borrowers an option to pay a much lower monthly payment for a certain time, after which they’ll need to begin paying principal. Balloon mortgages are technically a type of interest-only mortgage. But most interest-only options don’t require a lump sum payment of principal.
Instead, these payments will allow the borrower to pay only interest for a set amount of time. After that, the borrower will need to make up for lost time by paying more principal than they would have had they begun with a traditional fixed rate mortgage. In the long term, interest-only mortgages are more expensive. But they can be a decent option for first-time home buyers or individuals who are starting businesses or careers with only a little money at first.
Reverse Mortgage
This type of mortgage is for seniors only. A reverse mortgage gives homeowners access to their home’s equity in a loan that can be withdrawn in a lump sum, with set monthly payments, or as a revolving line of credit. Homeowners don’t have to make payments, but the lender will have a lien on the home for the amount owed upon the death of the borrower(s).
With a reverse mortgage, you’re find until you have to move out of the house. If you move out, even if it’s before your death, you’ll need to repay the mortgage out of the proceeds of the loan. This can drain the equity many seniors depend on to fund long-term care expenses. In some situations, a reverse mortgage can be a reasonable choice. Just be sure you know what you’re getting into.
Combination Mortgage
Combination mortgages are helpful for avoiding Private Mortgage Insurance (PMI) if you can’t put 20 percent down on a home. Usually, you take out one loan for 80 percent of the home’s value and another for 20 percent of the home’s value. This is an 80/20 combination loan. Usually the first loan has a lower, fixed interest rate. The second loan has a higher rate and/or a variable rate.
This can sometimes be more expensive interest-wise. But do the math. PMI can be expensive, as well. If you can pay off the higher-rate 20 percent equity loan quickly, you may come out better off with a combination mortgage.
Government-Backed Mortgage
In an effort to encourage home-ownership, the federal government offers some loans that are backed by government entities. This means that if a borrower defaults on the loan, the government will cover the lender’s losses. Because of this guarantee, government-backed loans are often an ideal solution for first-time and low-income home buyers.
- FHA Loans: These loans are backed by the Federal Housing Administration and are great for first-time home buyers or those with bad credit. FHA loans can be used for single-family homes, cooperative housing projects, some multifamily homes, and condominiums. The specialized FHA 203(k) loan can also be used to fix up a home in need of significant repairs.
- USDA Loans: The United States Department of Agriculture encourages rural home ownership with specialized, low down payment loans for certain families buying homes in rural areas.
- VA Loans: The Department of Veterans Affairs backs these zero down loans for active duty, reserve, national guard, and veteran members of any branch of the armed forces.
- Indian Home Loan Guarantee: These HUD loans are available to lower-income Native Americans, as well as Native Alaskans and Hawaiians.
- State and Local Programs: If you’re struggling to come up with a down payment or adequate credit score for a home loan, check out state and local government programs. Many programs are geared toward revitalizing areas where many homes are abandoned or in need of repair.
Second Mortgage
If you have a home and have some equity built up in it, you can take out a home equity loan, also known as a second mortgage. This is just another loan secured by the equity in your home. Another option is a home equity line of credit. This is a revolving loan based on the equity in your home.
These loans will typically have a higher interest rate than your first mortgage. But they can be a good option for funding home renovations or other necessary expenses, especially in such a low interest rate environment.
Final Thoughts
The type of mortgage is an important consideration. The good news is you have far more options than many realize. In all cases, focus on the interest rate and fees while you compare rates.
Topics: MortgagesThe post 16 Types of Mortgages Explained appeared first on The Dough Roller.
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Posted by: John S Kiernan
A secured credit card is a type of credit card for people with limited or damaged credit that requires the user to place a refundable security deposit, which the card’s issuer holds as collateral until the account is closed. This deposit makes it less risky for banks and credit unions to issue credit cards to inexperienced applicants and people with a history of payment problems. If something goes wrong, the issuer can just keep the money. As a result, secured credit cards offer the highest approval odds of any type of credit card. And they don’t need to charge the same high fees as unsecured credit cards for bad credit.
See 2018’s Best Secured Credit CardsA secured credit card can help you build or rebuild your credit, just like a “normal credit card.” In fact, secured credit cards are indistinguishable from unsecured cards on credit reports. All major secured cards report account information to the major credit bureaus on a monthly basis. And if that information reflects on-time payments, your credit standing should improve, assuming you manage the rest of your finances responsibly.
The one thing a secured credit card generally won’t give you is the ability to actually borrow money. Most secured credit cards are fully secured, which means your spending limit will equal your deposit amount. It is very rare to find a partially secured credit card, which gives you a line of credit in excess of the amount that you put down. So a secured card is not where you should turn for emergency financing.
But you should definitely get a secured credit card if lost-cost credit improvement is your top priority. And if you’re not sure how your credit is doing, you can check your latest credit score for free on WalletHub, the only site with free daily updates. You’ll also receive personalized credit-improvement advice to help you qualify for a good unsecured card in no time.
Below, you can learn more about what secured credit cards are, how they work and how to find the right offer for your needs.
How Secured Credit Cards WorkThe only thing that’s unique about a secured credit card is the security deposit that you have to place to get one. This deposit generally doubles as your spending limit, preventing you from charging more than you can afford to repay. So you’re not really borrowing anything with a secured credit card, which is why such cards are easy for even people with bad credit to get.
The deposit requirement also helps explain why secured credit cards are so much cheaper than unsecured credit cards for people with bad credit. Repayment for balances racked up with an unsecured card isn’t guaranteed, so issuers charge non-refundable fees to compensate.
The combination of high approval odds and low fees make secured cards the best tool available for building or rebuilding your credit. But they’re still fairly unfamiliar to most people. So we’ll give you a step-by-step overview of what to expect when you get one.
Here’s how a secured credit card works:
- You place a refundable security deposit using a bank transfer. A debit card or check could be an option, too, depending on the card. Some secured cards require you to place a deposit when you apply, others after you’re approved. The minimum deposit for most secured cards is $200 or $300.
- The amount of your deposit becomes your spending limit. This prevents you from spending more than you can afford to repay, which benefits both you and the card issuer in the long run. For what it’s worth, you can usually add to your deposit over time for more spending power.
- The credit card company holds your deposit as collateral. The funds are usually kept in a custodial account that does not bear interest.
- Purchases and payments are the same as with any other credit card. You can spend up to your credit limit. You’ll have to pay your bill by the due date each month. And any balance you carry from month to month will accrue interest.
- You get the deposit back when you close your account. You’ll have to bring your account balance to zero first. But after you do (or the issuer subtracts what you owe), you’ll get a check or bank transfer returning your deposit money.
After using a secured credit card responsibly for at least 12 months, you should be able to graduate to an unsecured credit card. Your secured card’s issuer might even offer to convert your account to unsecured by giving back your security deposit. If your card doesn’t charge an annual fee, you should definitely consider keeping it open. This would help make your credit history appear longer, benefitting your credit score. But you should still shop around to see if you qualify for a better card to use on an everyday basis.
You can track your progress for free on WalletHub, the only site with free credit scores and reports that are updated on a daily basis. You’ll also receive personalized credit-improvement advice to help you graduate to an unsecured card sooner.
Get Your Personalized Credit Advice – 100% Free Best Secured Credit Card ExamplesYou won’t truly understand secured credit cards until you get into the nitty-gritty with some actual offers. So WalletHub’s editors compared dozens of secured cards and picked some of the best, most popular offers for you to consider. Each of their selections, which you can check out below, is a great example of what you should look for in a secured credit card.
Here are some of the best secured credit cards:
 SponsoredCapital One® Secured Mastercard® |
 SponsoredOpenSky® Secured Visa® Credit Card |
 SponsoredDiscover it® Secured Card - No Annual Fee |
 First National Bank of Omaha Secured Visa® Card |
 SponsoredCiti® Secured Mastercard® |
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|---|---|---|---|---|---|
| Annual Fee | $0 | $35 | $0 | $0 | $0 |
| Rewards Bonus | N/A | N/A | N/A | N/A | N/A |
| Rewards Rate | N/A | N/A | 1 - 2% Cash Back | N/A | N/A |
| Purchase Intro APR | Not Offered | Not Offered | Not Offered | Not Offered | Not Offered |
| Transfer Intro APR | Not Offered | Not Offered | 10.99% for 6 monthsTransfer Fee: 3% | Not Offered | Not Offered |
| Regular APR | 24.99% (V) | 18.39% (V) | 23.99% (V) | 18.99% (V) | 23.74%* (V) |
| Editors’ Rating | 5.0 / 5 | 4.0 / 5 | 5.0 / 5 | N/A | 4.6 / 5 |
| Details, Rates & Fees | Learn More | Learn More | Learn MoreRates & Fees | Learn More | Learn More |
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Secured credit cards with no annual fee aren’t always available. But if you can find one, getting it and paying your bill in full and on time every month will leave you with a better credit score and more money.
Secured Credit Card AlternativesIf you have bad credit and don’t need a small emergency loan, there’s no need to even consider other options. A secured credit card is definitely your best bet. It’s just a matter of finding the best one for your needs. And we generally recommend starting with any no annual fee offers that are available and then using rewards as a tiebreaker. You shouldn’t worry about interest rates because you shouldn’t carry a balance from month to month with a security card. You have to pay the security deposit, so you’d basically be lending money to yourself and charging a high rate of interest on the balance.
If you have damaged credit and need a line of credit to pay for emergency expenses, you’ll have to make do with an unsecured credit card for bad credit. Such cards are known for charging extremely high rates and fees for very little added spending power. So they should be avoided whenever possible.
If you have limited or no credit, secured credit cards may have some competition. For example, some starter credit cards don’t charge annual fees or require a security deposit. And even better, student credit cards add lucrative rewards to the mix.
Finally, it’s worth noting that prepaid cards won’t be of much help in terms of either credit building or short-term financing. Prepaid cards don’t affect credit scores because they’re not included in our major credit reports. And they don’t provide any sort of loan or line of credit. They’re more like debit cards without the checking account.
If you still have questions about secured credit cards, you can probably find the answer on WalletHub’s Secured Card FAQ page.
Image: Lawkeeper / Shutterstock
from Wallet HubWallet Hub
via Finance Xpress
Posted by: John S Kiernan
Rating: 3.6 / 5
The Verdict: TD Bank, the country’s 14th largest credit card company by outstanding balances, offers a handful of different credit cards. But this review will focus on the flagship card bearing TD Bank’s name: the TD Bank Cash Visa.
After all, the TD Bank Cash Credit Card has the broadest appeal among the family of TD Bank cards. That’s thanks to Cash Visa’s easily attainable $150 initial bonus, straightforward cash-back rewards and lack of an annual fee. With that package in hand, the average person’s $28,523 in annual expenses that can be paid for with a credit card would accrue $929 in rewards over the first two years of use. That’s solid but not elite.
One of the notable downsides to the deal is its lack of financial appeal. The card’s regular rate can be as high as 23.49%, and its offer of 0% interest on balance transfers for the first 12 months is marred by a 4% transfer fee. As a result, the TD Bank Cash Visa is best for people who always pay their credit card bills in full.
The other major drawback is the fact that you need “excellent” credit to get approved. That’s important because the card’s terms would represent an excellent deal for people with good credit but only a pretty good option for people with excellent credit. As a result, we recommend taking a pass on the TD Bank Cash Visa and paying special attention to the Competition section below.
The Highlights- $150 Initial Bonus: This certainly isn’t the largest initial bonus on the market, but it is among the most efficiently rewarding. Rather than spending $3,000 during the first three months your account is open to earn $400 in travel rewards, for example, you merely need to spend $500 within the first 90 days to qualify for the TD Bank Cash Visa’s $150 prize. In other words, TD Bank gives you $0.30 in bonuses, or 20% back, for every $1 of the first $500 you spend. By comparison, a card offering $400 in rewards for $3,000 in purchases only gives you $0.13 per $1 spent.
So if you want to get the most bang for your buck or don’t typically spend enough to qualify for a bigger bonus, TD Bank’s Cash Visa Card is a great fit.
- 2% Back On Dining: You’ll get 1% cash back for most purchases you make with this card, which isn’t all that exciting considering that the average cash back credit card offers 1.02%, according to our latest Credit Card Landscape Report. Fortunately, that base earning rate is supplemented by 2% cash back on dining, which includes everything from fast food and coffee shops to five-star restaurants.
That means the TD Bank Cash Card is particularly well suited to people who eat out often.
- No Annual Fee: The lack of an annual fee makes the TD Bank Cash Visa $16.78 cheaper per year to maintain than the average credit card. That means you can keep your account open without feeling pressured to make purchases on a regular basis in order to earn enough just to break even.
- 4% Balance-Transfer Fee: The average household with credit card debt owes just a bit less than $8,500. Four percent of that is $340. That’s a lot of money to spend, considering you don’t have to. Literally hundreds of credit cards offer 0% introductory financing on balance transfers for at least as long as the TD Bank Cash Card (12 months) and have lower fees, according to our database of offers. In fact, three cards — most notably Slate from Chase — make it possible to avoid paying any fee at all.
So this fee turns what would be construed as a positive — the Cash Card’s 0% intro offer — into a reason to look elsewhere if you’re looking to lower the cost of existing debt.
- Likelihood Of An Above-Average APR: Let’s start with a bit of context. The average APR assessed by credit cards that require excellent credit for approval is 13.16%, according to our latest market snapshot. And though the TD Bank Cash Card requires excellent credit for approval, the lowest rate you can get is 13.49%. The highest rate you can get, on the other hand, is 23.49%, which is even higher than the regular APR (20.16%) for someone with fair credit.
That means you’re guaranteed to pay an above-average rate for your credit standing, and you might even wind up paying a rate that would be bad even for someone with limited/fair credit if your credit is just barely excellent.
- No Foreign-Transaction Fee: This card will be a benefit, not a hindrance, when it comes to spending money abroad. Whether you’re physically traveling outside the country or simply buying goods from internationally based merchants, you won’t get hit with a foreign-transaction fee. Most credit cards charge such fees, and the average is 1.97%.
Not having to worry about such a fee could therefore save you bigtime. And by freeing you up to make the majority of your international purchases with plastic, you’ll also be able to save even more on currency conversion. Automatically converting currency with a no-foreign-fee credit card costs up to 11% less than popular options for converting hard currency.
- Points Don’t Expire With Time: With some credit cards, you have to use your rewards relatively quickly or risk losing them due to nothing more than the simple passage of time. That’s not a concern with the TD Bank Cash Card. As long as your account is open and in good standing, your rewards are safe.
Nevertheless, we always recommend redeeming credit card rewards on a regular basis to limit the amount that could be lost if something goes wrong.
- No Penalty APR: Your rates won’t get jacked up just because you miss a payment or two, or for any reason, for that matter. And that’s good because the TD Bank Cash Card’s rates are already high enough. But you should still try to avoid ever missing your due date or generally misbehaving because, while TD Bank won’t make you pay for the types of mistakes that would ordinarily lead to a penalty APR, the credit score damage that could result would cost you plenty.
- $35 Late Fee: On-time monthly payments are essential not only to maintaining your excellent credit score, but also to saving money. TD Bank will assess a fee equal to $25 or your missed minimum payment, whichever is less, the first time you fail to pay on time. If you slip up again within the next six months, you’ll be hit with a fee equal to the lesser of $35 or the minimum payment due.
- Excellent Credit Required: More than 60% of consumers do not have excellent credit, according to WalletHub data, which means this requirement classes out a significant portion of the credit card-seeking population. It also casts the TD Bank Cash Visa in an unfavorable light.
In short, its terms are a fine fit for the good-credit category, but they can’t hang with the market’s elite, many of which offer initial bonuses in excess of $400, 2%+ back across all purchases and/or 0% introductory terms as long as 21 months. And elite is what you should be in the market for if you have excellent credit.
If you’re not sure where your credit currently stands, you can check your latest credit score for free on WalletHub. WalletHub is the only site that offers free credit scores updated on a daily basis. That will help you track your score over time and determine when the time is right to apply for a better card. And WalletHub’s personalized recommendations will tell you which card offers the most savings for your situation.
To make things easier for you, we took the liberty of comparing TD Bank’s centerpiece offers to some of their best competitors. You can check out the results below.
 TD Bank Cash Credit Card |
 TD First Class Visa Signature® Credit Card |
 SponsoredBarclaycard Arrival Plus® World Elite Mastercard® |
 SponsoredCiti® Double Cash Card – 18 month BT offer |
|
|---|---|---|---|---|
| Annual Fee | $0 | None 1st yr, $89 after | None 1st yr, $89 after | $0 |
| Rewards Bonus | 20,000 points | 25,000 miles | 40,000 miles | N/A |
| Rewards Rate | 1 - 2 points / $1 | 1 - 3 miles / $1 | 2 miles / $1 | 1% + 1% Cash Back |
| Purchase Intro APR | Not Offered | Not Offered | Not Offered | Not Offered |
| Transfer Intro APR | 0% for 12 monthsTransfer Fee: 3% (min $5) | 0% for 12 monthsTransfer Fee: 3% (min $5) | 0% for 12 monthsTransfer Fee: 3% (min $5) | 0% for 18 monthsTransfer Fee: 3% (min $5) |
| Regular APR | 13.99% - 23.99% (V) | 14.24% (V) | 16.99% - 23.99% (V) | 14.74% - 24.74%* (V) |
| Editors’ Rating | N/A | N/A | 5.0 / 5 | 5.0 / 5 |
| Details, Rates & Fees | Learn More | Learn More | Learn MoreRates & Fees | Learn More |
| Winners |
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from Wallet HubWallet Hub
via Finance Xpress
Posted by: John S Kiernan
First PREMIER® Bank Mastercard Credit Card EDITOR’S RATINGfrom Wallet HubWallet Hub
via Finance Xpress
Social trust is a powerful predictor of national growth rates. (Photo: klndonnelly/flickr)
Our latest Freakonomics Radio episode is called “Trust Me (Rebroadcast).” (You can subscribe to the podcast at Apple Podcasts or elsewhere, get the RSS feed, or listen via the media player above.)
Societies where people trust one another are healthier and wealthier. In the U.S. (and the U.K. and elsewhere), social trust has been falling for decades — in part because our populations are more diverse. What can we do to fix it?
Below is a transcript of the episode, modified for your reading pleasure. For more information on the people and ideas in the episode, see the links at the bottom of this post.
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Hey there, it’s Stephen Dubner. Welcome to our final episode of the year! It’s called “Trust Me” and it’s about how to build more social trust. We first put this out just after last year’s rather dramatic presidential election. 2017 has been an amazing year at Freakonomics Radio, and we’d like to thank you for that. You are the reason we make this show, and you are also an important reason we’re able to make this show. Financial support from listeners provides a decent bit of the money that makes Freakonomics Radio possible. We’ve been fortunate to grow into one of the biggest podcasts in the world. But with that size comes … higher bandwidth costs, for instance. So every person who gives just a little bit to help cover production costs makes a difference. You can help us bring you more Freakonomics Radio in the new year. When you do it by December 31st, you’ll set yourself up for a nice little charitable deduction on your next tax return. But time is running out! It’s going to be the 31st in no time. Please support Freakonomics Radio. Become a member today with your donation. Get your 2017 tax deduction before it’s too late. Just click here or text the word “Freak” to 701-01. Thanks so much!
* * *
I think you’d agree that the 2016 U.S. Presidential election was pretty wonderful. According to statisticians, it set all-time highs in civil discourse and social unity. How are we so fortunate? Because America — as we all know, and appreciate — is a place where people really trust one another.
FEMALE VOICE: No, I don’t think most people can be trusted because think everybody’s looking for an angle.
MALE VOICE: Generally speaking, I don’t think most people can be trusted.
FEMALE VOICE: Society seems to have been changing and separating and many, many people more than before, I think, are out just for themselves.
Oh. Apparently I was wrong. Apparently we don’t trust one another so much. … What’s that? Oh – and apparently we didn’t set all-time highs in social unity during this election? Sorry, my mistake. I guess I was thinking of Australia?
David HALPERN: Australia looks like it’s bucking the trend and moving towards higher social trust in the last 20-30 years.
Or maybe I was thinking of the Netherlands?
HALPERN: They are now close to 70 percent in levels in those who think others can be trusted.
In America, meanwhile — if we’re being honest — we’re not much on trust these days. Just think of the 2016 presidential election. We mistrusted the candidates and their parties. We mistrusted the police and the FBI. We mistrusted the polls and some people even mistrusted the election result. But wait, maybe there’s a bright side. Maybe it’s healthy for a society to be untrusting, to be skeptical; maybe it keeps us on our toes, always looking for ways to improve. What’s that? Oh. I’m wrong about that too, Professor?
Robert PUTNAM: We would be much better off if we were living in a much more trustworthy society. Trustworthiness, in short, is a really big deal.
All right, then. Today on Freakonomics Radio, a simple mission: to determine why social trust is such a big deal – and how to get more of it. Wouldn’t you like to know how to do that?
FEMALE VOICE: Ummm, I think that might be a trick question.
* * *
“Social trust” is … what, exactly?
HALPERN: It’s just one of those things. It’s sort of like the dark matter of the economy and society, it matters very greatly and yet we don’t seem to focus on it very much.
That is one of my favorite academic-slash-policy wonks in the world, David Halpern.
HALPERN: I’m the head of the U.K.’s Behavioral Insights Team, often known as the Nudge Unit.
The Nudge Unit applies the findings of behavioral science to do things like increase tax payments, decrease medical errors, and conserve energy. It also looks into broader ideas — like social trust. As Halpern was saying-
HALPERN: Social trust is an extraordinarily interesting variable and it doesn’t get anywhere near the attention it deserves. But the basic idea is trying to understand what is the kind of fabric of society that makes economies and, indeed, just people get along in general. It’s clearly so critical for a whole range of outcomes.
Outcomes like economic growth:
HALPERN: This is a more powerful predictor of future national growth rates than, for example, levels of human capital or skills in the population.
Outcomes like individual health:
HALPERN: Basically, having someone or feeling that other people can be trusted or people you can rely on in your life is worth a great deal. It’s roughly the same positive effect in a series of studies as giving up smoking. And smoking is really, really bad for you so, social isolation, essentially, is incredibly bad for your health.
So can people like Halpern reliably measure the level of social trust in a given place?
HALPERN: Yes, you can do it in a number of ways. You can ask people how many names have they got in their Fil-o-Faxes or in their phones, which will give you some sense of their social networks. You can also measure more subtly with asking a question around social trust: “Do you think other people can be trusted?” essentially. That’s the question we’ve been asking, in fact, for decades.
And … ?
HALPERN: There’s very big national differences in this. Countries range from, you know, many countries like Brazil where less than 10 percent of people would say that most others could be trusted to countries like Norway where more than 70 percent of people would say most others can be trusted. Countries like the U.S. and the U.K. are sort of halfway in between, typically in the range 30-40 percent of people say others can be trusted
Places with a lot of social trust also have a lot of what’s known as social capital.
DUBNER: So most people are familiar with physical capital and financial capital, of course. Can you compare social capital to those in any meaningful way?
HALPERN: The answer is, yeah, in fact, you can can have a go at doing it. So you can literally work out how much more do people tend to earn if they have more names in their networks, they know more people, or they trust more people in general. You can ask both at the individual level and you can also ask it really importantly at the community, or even national level. So to what extent is it an advantage in terms of your economic growth or your health outcomes to live in a country or a place where people say most others can be trusted. And the answer is it turns out some really quite large numbers indeed.
If social trust and social capital are so important, why don’t we talk about it all the time – or at least during political campaigns?
HALPERN: It’s an issue that’s got long roots, but it doesn’t mean that governments had done very much about it until very recently. I should explain that I myself wrote a book a number of years ago on social capital, specifically. Working at the time, with Bob Putnam at Harvard
PUTNAM: Sure, um, my name is Bob Putnam. I teach public policy at Harvard University.
Putnam is also the author of the landmark book Bowling Alone, which was published in 2000. But he started thinking about social capital decades earlier. It began with a question about Italian politics.
PUTNAM: Some parts of Italy are way more efficient than any state in America, and other parts of Italy are way more corrupt than any place in America. And the question is why? Why are some places better governed than others?
The answer, Putnam concluded, didn’t have to do with economic development, or education level, or politics.
PUTNAM: It was the degree to which there was a dense, civic network in a community. If there was a dense, civic network, so that people in those places behaved with respect to one another in a trustworthy way, their governments worked better. And I dubbed that concept “social capital.”
Meaning?
PUTNAM: The core idea of social capital is so simple, that I’m almost embarrassed to say it. It is that social networks have value. Social networks have value first of all to the people who are in the networks. For example, there’s a huge amount of work on how social networks help us find jobs.
Social networks also exert other, more indirect leverage.
PUTNAM: They have effects on bystanders and not just effects on the people in them. Communities that have high levels of social capital benefit in many ways. Their kids do better in school. They have lower crime rates. They have, other things being equal, higher economic growth rates. Many, many benefits both personally and collectively.
Having made these observations about the power of social capital in Italy, Putnam returned to the U.S.
PUTNAM: And I was worried, just as a citizen, not as a scholar, I was worried that ever since I personally began to vote, which was way back in the 1960s, America seemed to be going to hell in a handbasket. And I said to myself, I wonder whether social capital might have something to do with this collapse of American civilization?
So he began looking for measures of connectivity in American civic life. Membership in parent-teacher organizations, for instance.
PUTNAM: That is, what fraction of all parents in any given year belong to the PTA? And I discovered to my shock, that actually PTA membership had been declining a lot.
He looked at membership numbers among Rotary clubs; among scout troops; among bowling leagues. Participation was falling in all these groups.
PUTNAM: We were becoming more and more isolated. Or as a friend suggested to me once, “You mean we’re bowling alone?”
HALPERN: So it’s a really enormous effect.
David Halpern again, from the British Government’s Behavioral Insights Team. As obvious as the benefits of social capital might seem …
HALPERN: … We almost seem to hardly notice that it’s there. So it’s incredibly consequential and we see it in lots of areas of policy that we touch on.
DUBNER: So you write this about low trust: “Low trust implies a society where you have to keep an eye over your shoulder, where deals need lawyers instead of handshakes, where you don’t see the point of paying your tax or recycling your rubbish since you doubt your neighbor will do so and where employ your cousin or your brother-in-law to work for you rather than a stranger who’d probably be much better at the job.” So that has all kinds of business and ultimately economic implications. However, when you talk about high trust being good for us on a personal level, whether it’s health or individual income, do the two necessarily go in hand? In other words, can we have a society that has a business climate where there isn’t a lot of trust and, therefore, you do need all those lawyers instead of the handshakes, but where you have good social trust among neighbors, family and friends, communities and so on, or are they really the same thing that you’re talking about?
HALPERN: Well, there is a key distinction and Bob Putnam has often made this too, between what’s sometimes called bonding social capital and bridging social capital.
PUTNAM: Social capital is about social networks. But not all social networks are identical and one important distinction is between ties that link us to other people like us, that’s called bonding social capital.
HALPERN: Bonding social capital often refers to your closeness to your friends, your relatives, those that are immediately around you, it’s particularly important, it turns out for, things such as health outcomes.
PUTNAM: Because, empirically, if you get sick, the people who are likely to bring you chicken soup are likely to represent your bonding social capital.
So, bonding social capital is plainly important, but it’s primarily about our ties to people we’re close with. When it comes to how our broader society gets along. That’s where bridging social capital comes in.
HALPERN: Do you trust, not just your immediate neighbor, but those people in your community more generally or, indeed, even relative strangers who you meet in everyday life in your country or your society?
PUTNAM: So my ties, my friendships to people of a different religion or a different race or a different economic class or a different occupation or a different age, that’s bridging social capital.
HALPERN: That tends to be …
PUTNAM: … Really important – especially in a modern, diverse democracy like ours. And therefore, what worries me most about trends in America is the decline in bridging social capital.
It’s something we saw plenty of during the presidential election. So much distrust among so many separate constituencies — a constant splintering and re-splintering instead of the drawing-together that America likes to be known for. So, coming up on Freakonomics Radio, we look at an experiment designed to measure trust along racial and ethnic lines. The news is not good.
Ed GLAESER: A lot of the cheating was across racial and ethnic lines.
But there is some good news. For instance:
HALPERN: People that go to university end up trusting much more than those that don’t.
And when we went out to the streets of New York and asked people the standard survey question, “Generally speaking, would you say most people can be trusted?” We got plenty of affirmatives.
FEMALE VOICE: I think so, generally. There’s more good people in the world than there are bad people, so that leads me to believe that you can trust people.
MALE VOICE: Yeah, I would say they could. I that that’s maybe a naive assumption on my part — to believe there’s good in everyone.
FEMALE VOICE: I’ve had great experiences with strangers. I think in the majority of cases people are good. I trust people. Yeah.
That’s coming up. But first, a quick reminder that you can do something amazing that will deliver good stuff for many other people, right now. This is the time of the year when we remind you that Freakonomics Radio is made possible in no small part by the dollars given by our listeners. That means you. You can help us bring you more Freakonomics Radio in the new year. When you do it by December 31st, it’ll deliver a charitable deduction on your next tax return. Become a member today with your donation. Get your 2017 tax deduction before it’s too late. Just click here or text the word “Freak” to 701-01, and you can give in just a few seconds. Thanks so much!
* * *
So, what have we learned thus far? We’ve learned that social trust seems to be quite powerful, and desirable. But how do you get more of it? You can’t just magically turn up the social trust in a given place. You can’t force everyone to join the PTA or a church group or whatever. So rather than solving for x, where x is “how to increase social trust,” let’s first solve for y, where y is, “When social trust and social capital are low, why are they low?”
PUTNAM: The short version is that in the short run, increases in diversity seem to be correlated with decreases in social capital.
That’s Bob Putnam again. He and others have observed over and over that diversity – racial, ethnic, religious, and so on – make trust more elusive. Consider some research done by the Harvard economist Ed Glaeser:
GLAESER: Trust is everywhere in economic transactions. So we wanted to contribute to this literature. And one of the things that seemed very important to us was measuring trust, was measuring social capital.
Rather than relying solely on survey data, Glaeser and his colleagues set up an experiment. Not that experiments are perfect, either.
GLAESER: So we took a bunch of Harvard undergraduates, ‘cause what could possibly be more representative than that?
They tried to measure trust in a variety of ways, including a game where students were paired with each other, with one sending money to the other without being sure whether they’d get the money back.
GLAESER: It’s basically meant to mimic the idea of an investor giving money to a firm, and then the firm chooses whether or not to cheat the investor or not.
Some students treated their partners fairly; others, however, essentially cheated, keeping most or all of the money for themselves. When did that happen? It happened when the two players didn’t look alike.
GLAESER: A lot of the cheating was across racial and ethnic lines. And this was primarily white on Asian, meaning the whites were cheating the Asians. And I think there are lots of cases in the world in which we’ve seen racial fractionalization be related to less-than-perfectly functioning social relations.
DUBNER: Do you think that more ethnically homogenous societies — you know, one argument behind Scandinavian economic and social successes is that they tend to produce better social outcomes, and do you think there’s evidence for that?
GLAESER: I do. It is true for example, that welfare states are both more generous in ethnically homogenous places, and it’s almost assuredly true that they’re also more functional. They, they function better in more ethnically homogenous places. It’s just easier in lots of ways. There are downsides to that. I happen to love Stockholm, it’s, it’s a great city, but certainly one can argue that small, homogenous places are not necessarily as creative as they might be.
HALPERN So I think there are lots of benefits for being in an ethnically and culturally mixed society.
David Halpern again.
HALPERN: Look, I’m speaking to you today from London, one of the most diverse cities in the world and it has a deep vibrancy that follows from that. The real challenge for us is can we have our cake and eat it? What is it that drives and enables diverse and interesting, sort of, varied populations, cities, countries, to be able to live together well. That’s the real challenge.
PUTNAM: Every place in the world, including us, and Canada, are all going to be more ethnically diverse 25 years from now.
That’s Bob Putnam.
PUTNAM: Diversity, in the long-run, is a big advantage.
But, he warns:
PUTNAM: It’s not easy to do diversity. Diversity brings out the turtle in us. That, that in a more diverse setting, everybody kind of pulls in and disconnects from their neighbors.
But look, if the world is becoming more diverse, and if diversity tends to lower social trust, and if social trust is so important, shouldn’t we be looking at ways to handle this problem?
HALPERN: I think so, although, let’s face it, there isn’t that much work really doing intervention studies to figure it out.
PUTNAM: What strategies I would want to emphasize for moving in a positive direction would be more contexts in which people connect with one another across lines of race or economics or gender or age.
Some classic examples of that: sports teams, the military, and university.
HALPERN: People that go to university end up trusting much more than those that don’t, particularly when they go away residentially. It doesn’t look like it’s explained by income alone, so there’s something about the experience of going off as a young person in an environment where you have lots of other young people from different backgrounds and so on, hopefully, and different ethnicities, you learn the habits of trust because you’re in an environment where you can trust other people; they are trustworthy. And you internalize these habits and you take them with you the rest of your life.
So we tend to not think of going away to university as being the reason why you’re doing it is to build social capital and social trust, we think about learning skills and so on, but it may well be that it has as much, or even more value in terms of culturing social trust going forward. The question is: do you have to do that in university, can you do it another way?
So in the U.K., following partly an American lead, the government has championed a national citizen service, and what this means is for every young person, essentially a 17-year-old, more and more every single year, goes and does voluntary experience, community service. This deliberately includes a couple of weeks which are residential and deliberately includes mixing with people from all different walks of life.
Look, it’s only limited data, but in terms of before-and-after data, we see significant impacts in terms of higher levels of trust between groups and individuals, as well as instantly higher levels of life satisfaction and well-being too. So it looks like we can do something about it.
It’s also helpful, David Halpern says, simply to look at the countries where social trust has been rising, and see what they’re up to. The Netherlands, for instance.
HALPERN: In the most recent data, it looks like it’s one of the biggest risers. So the Netherlands had pretty similar levels of social trust in the 1980s to America and the U.K., but whereas we have now drifted down towards sort of 30-odd percent, they are close to 70 percent in levels in those who think others can be trusted.
DUBNER: What would you say it’s caused by?
HALPERN: Well, I mean, one of the characteristics of the Netherlands, and you have to be a bit careful when you pick off one country, is it has wrestled quite hard with the issues of, not just inequality, but social differences. They’ve really tried to do a lot in relation to making people essentially build cohesion.
Particularly Amsterdam, is a very famous area for — it’s long been an extremely multicultural city. It’s had issues over that over time, but they’ve really in a sort of succession of governments have tried to quite actively make groups get along with each other in quite an active way. So that may itself, of course, root in the Netherlands, it’s quite a deep culture of strong sense of the law, being trustworthy and that contracts will be honored and so on. It’s what helped to power its economic success in previous centuries, so it does have that tradition also to draw on.
And what role does technology play in social capital, especially the “bridging social capital” that people like Halpern and Putnam say is so important? In his book Bowling Alone, Putnam found that social capital was relatively low in the U.S. in the early 1900s and rose fairly steadily through the 1960s. But that’s when the decline began.
PUTNAM: I looked hard to find explanations and television, I argued, is really bad for social connectivity for many reasons.
“More television watching,” Putnam wrote, “means less of virtually every form of civic participation and social involvement.”
HALPERN: As Bob sometimes put it, I think, rather elegantly, when we were looking forward in terms of technology or the Internet and pre-Facebook and so on, would it be, in his words, a “fancy television”? In other words, it will isolate us more and more. Or would it be a “fancy telephone” and connect us more and more? Because technology has both those capabilities.
So when I played video games when I was a kid, you basically did them by yourself or with a friend. When I look at my teenage kids playing videos, they’re actually talking to each other all the time. To some extent it looks like, to me, that we get the technology that we want, and even this is true at a societal level.
So one of the arguments you can make, in my view is true anyway, by explaining some of these differences in the trajectories across countries is, in Anglo-Saxon countries, we’ve often used our wealth to buy technology and other experiences that mean we don’t have to deal with other people: the inconveniences of having to go to a concert where I have to listen to music I really like, I can just stay at home and just watch what I want and so on and choose it.
Even in the level of if I think about my kids versus me growing up, when I was growing up we had one TV and there were five kids in the household, I mean, we had to really negotiate pretty hard about what we were going to watch. My kids don’t have to do that and probably not yours either. There are more screens in the house than there are people. They can all go off and do their own thing. To some extent, that is us using our wealth to escape from having to negotiate with other people, but that isn’t necessarily the case.
Some people and some countries seem to use their wealth more to find ways of connecting more to other people. And the technology has both these capabilities and we can’t just blame it. It’s the choices we’re making and how we use it and the technology which we’re, kind of, asking and bringing forth.
DUBNER: It reminds me a bit of — we once looked into the, kind of, global decline of hitchhiking, for instance. One of the central reasons being that people no longer trusted strangers to not kill each other, really, is what it boiled down to, even though there was apparently very little killing involved, but just the fear of one. And yet now, Uber is a 60-some billion-dollar company that’s basically all about using technology to lure a complete stranger into your car, which, I guess, argues, if nothing else, the fact that technology can be harnessed very much in either direction.
HALPERN: Indeed, so, as you say, there’s actually two points here, and there’s a really important behavioral one, which I think we’ve only figured out in recent years to bring together these different literatures, how does it relate to behavioral scientists versus those people studying social capital. We look like we have certain systematic biases about how we estimate whether we think other people can be trusted.
In essence, we overestimate quite systematically the prevalence of bad behavior. We overestimate the number of people who are cheating on their taxes or take a sickie off work or do other kinds of bad things. This doesn’t seem to be just the media, although that may reinforce it, it seems to be a bit how we’re wired as human beings. So why is that relevant and why does this have to do with technology? Technology can help you solve some of those issues. So when you’re buying something on eBay or you’re trying to decide where to go using, you know a Tripadvisor, you’re actually getting some much better information from the experiences of other people as opposed to your guesstimate, which is often systematically biased.
So it turns out it’s a way we can sometimes use technology to solve some of these trust issues. Not just in relation to specific products and “Shall I buy this thing from this person?” but, potentially, more generally in relation to how do we trust other people because, ultimately, this social trust question must rest on something. It must be a measure of actual trustworthiness.
The United States, for all the factionalism and bitterness we’ve seen during and since the 2016 elections, and – let’s be honest – for years and years preceding, is actually well-positioned to regenerate social trust, even as the country becomes more diverse. Why? Because, as Bob Putnam argues, we’ve done it before. A lot.
PUTNAM: If we were talking in America in the 1920s or 1930s, the difference between Irish people and Italian people would have been enormous. I have some friends who got married in the 1960s, he was from an Italian background, she was from an Irish background, and when they got married everybody called it a “mixed” marriage. Parents on both sides, said mixed marriages never work. And now that seems like a joke because what’s happened in the ensuing years is that the line, the sharp line, between the Italians and Irish has just disappeared in America. It’s not that they don’t know that they’re from Irish or Italian backgrounds, but it no longer has that same salience. We’ve done this repeatedly over our own history. This is not, this current wave of immigration, is not the first time that we have had a big wave of immigration that causes turbulence and then when you come out the other side we’re all better off. I mean, look it happens that my ancestors came to this country in 1640, so we’ve been here forever. And, and we were doing just fine. And, then the Dutch arrived. Now don’t get me started with the Dutch. It was really hard for us to get along with the Dutch, but then eventually we got along with the Dutch, and then we forgot they were Dutch. And then they were just us. And then the Germans arrived, and they were really difficult, and we had a lot of trouble assimilating the Germans. And then after awhile, we got adjusted to them, and we sort of didn’t even notice that the Germans were Germans, and then we invented, at that point, a term called Anglo-Saxon, to refer to the Dutch and the Germans and us. And then we had a lot of trouble when the Irish arrived- I hope you see that there’s a smile on my face. We’ve done this a lot!
Coming up next time: research shows that being grateful is really good for you:
Shai DAVIDAI: It’s just amazing how many positive correlates there are to gratitude.
Research also shows that most of us aren’t very grateful:
Tom GILOVICH: It’s so easy for people to feel put-upon, to feel resentful, to feel that life has made things harder for them than it has for other people.
Why the headwinds of life feel so much stronger than the tailwinds — and what to do about it. That’s next time on Freakonomics Radio
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FREAKONOMICS RADIO is produced by W-N-Y-C Studios and Dubner Productions. This episode was produced by Greg Rosalsky. Our staff also includes Alison Hockenberry, Merritt Jacob, Stephanie Tam, Harry Huggins, and Brian Gutierrez. You can subscribe to this podcast on iTunes, or wherever you get your podcasts; and come visit Freakonomics.com, where you’ll find our entire podcast archive, as well as a complete transcript of every episode ever made, along with music credits and lots more. Thanks for listening.
Here’s where you can learn more about the people and ideas in this episode:
SOURCES
- Robert Putnam, Professor of Public Policy at Harvard University
- David Halpern, Chief Executive of The Behavioural Insights Team
- Ed Glaeser, Professor of Economics at Harvard University
RESOURCES
- Bowling Alone, by Robert Putnam, 2001
- Social Capital, by David Halpern, 2004
- Making Democracy Work: Civic Traditions in Modern Italy, by Robert Putnam, Robert Leonardi, and Raffaella Nanetti, 1994
- E Pluribus Unum: Diversity and Community in the Twenty-first Century, Scandinavian Political Studies, 6/15/2007
- Our Kids: The American Dream in Crisis, by Robert Putnam, 2015
- “Social trust is one of the most important measures that most people have never heard of – and it’s moving,” by David Halpern, The Behavioural Insights Team, 11/12/15
- “Measuring Social Trust,” by Edward L. Glaeser, David I. Laibson, Jose A. Scheinkman, and Christine L. Soutter, The Quarterly Journal of Economics, August 2000
ETC.
- “Where Have All The Hitchhikers Gone?” Freakonomics Radio, October 11, 2011
- “Love Thy Neighbor? Ethnoracial Diversity and Trust Reexamined,” Maria Abascal and Delia Baldassarri, American Journal of Sociology, November 2015
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