Should I Use My Emergency Fund to Pay Off High Interest Debt? – Money Q&A

Transcript:

On this episode of money Q and a, should I use my emergency fund to pay off high interest debt? We're going to dive into it today.

What's up everybody. And welcome to the personal finance podcast. I'm your host, Andrew founder of master money. co and today on the personal finance podcast, we're going to be diving into a money Q and a. And we're gonna have five different questions that we're gonna be diving into today. So if you guys have any questions, make sure to hit us up on Instagram, Tik TOK, Twitter at master money co and follow us on Spotify, Apple podcasts, or whatever podcast player you love listening to this podcast on.

And if you want to help out the show, consider leaving a five star rating and review on Apple podcast, Spotify. Or your favorite podcast player. Now, one thing I want to remind you guys of is to make sure that you do hit that follow button when you're listening to the podcast, because we have a bunch of really cool content coming out and a bunch of really cool stuff that we're going to be giving away to you guys as well.

So make sure on your favorite podcast player to hit that follow button. We truly, truly appreciate that overall. Now today I'm going to be diving into five different questions that I want you guys to follow along and where this is a jam packed episode. So I'm really excited for this one. The first question is the best way to invest a new salary.

So we have someone who started a brand new job with a new salary and they have a bunch of different benefits. And I'm going to actually walk through exactly what I would do with that salary and those benefits. The second question is what happens when you switch Mutual funds or index funds in your 401k or your retirement accounts.

What happens when you switch to those funds? And what are the best options when you want to make a switch? The third one is should I use my emergency fund to pay off high interest debt? Huge, huge question here. And we get this a lot. So I want to make sure that we answer this. And the most complete way possible question for is how to pay for travel expenses for free.

So this is going to be talking through things like food and transportation. How do you actually pay for those for free? Like sure, credit card points can pay for flights. It can pay for hotels, but how do you pay for some of those other expenses for free? We're going to talk through that. And the last one is what is the difference between a credit freeze?

And a credit lock. And we'll dive into that as well. And why you may want to do one or the other to protect your information online. So these are the five questions we're going to be diving into today. It is an action packed money Q and a, so if that's something you're into, let's get into it. All right.

So the first question is actually two part, and this is a fantastic question that we'll dive into. I am currently a senior mechanical engineer that is about to graduate and start my very first job. I will be starting with a salary in the 80, range, as well as a 12, 000 sign on bonus, 5 percent AIP with a max of 6 percent 401k match if I invest 9%.

With all of this in mind, I would like to know what the best way to start investing my money. Should I first Instantly max out my 401k, build my emergency saving plan, contribute into my Roth IRA, continue my investments in crypto or by life essentials, like a car, new clothes, et cetera, I would like to know what to invest in first and the rankings in which I should invest next and when to max out my investments in a specific category.

So that's the first part of this question. And there is a lot to unpack there, but I will kind of dive in and give you a quick synopsis. Now, one big thing for a lot of people who are trying to figure out, you know, what order do I allocate my dollars towards, you know, I have this money coming in, I have extra money left over.

I don't know what to do next with that money. Well, we have something called the stairway to wealth. If you've never heard of it, you can download it at master money. co slash resources. And the stairway to wealth kind of gives you phases of life and what you need to be doing with your dollar. So make sure that you check that out because that's kind of what I'm going to be going through here as well.

And typically that's where a lot of things will point back to when it comes to some of this stuff. So first of all, congratulations on your brand new salary, starting off at an 80, 90, 000 salary is going to be fantastic for you. And I'm really excited for that piece. So. With this in mind, you have a great option here with a 6 percent match of a 401k match as long as you contribute 9 percent to that 401k match.

The first thing I would do is contribute that 9 percent to that 401k. Barring that you like a lot of those investment options, I think still getting that free money is really, really important. So I would be contributing 9 percent of my salary to the 401k so that I can get that 6 percent match because investing 15 percent of your income is what that would allow you to do and you get a free.

6 percent of that is free money that you get to allocate towards that. I think that's really, really important to start off. You can build a ton of wealth with a 6 percent 401k match. In fact, it is over at your salary range. It will be over a million dollars over the course of your lifetime if you work for 30 years.

So this is something definitely make sure you take advantage of that first. So step one overall is making sure you take advantage of that 401k match. Then what I would be looking for is to build out your emergency fund. Now, this is really, really important is to building that emergency fund to six months of living expenses.

So taking cash, funneling into an emergency fund for six months of living expenses is the final goal. Now, if you want to get to the point in time where you get to three months and you're really aggressively saving up to that three months, boom, you get to that three month range, and then you can split off into half investing, half emergency fund.

That's how I would think about that allocation overall, so that you can start to. Continuously build up that emergency fund, but also invest your dollars. Because as we know, these dollars really, really early on are super important to get started investing. So I'd get to that three month range, then boom, split it off with the goal of building that emergency fund up to six months.

Now, if you have a 12. 5 sign on bonus. That I would instantly put towards that emergency fund to set up that baseline for you. So I would set that up to where that is going towards my emergency funds so that when life happens and life is going to happen to you, as you see, when you go into the real world, things are going to happen to you in life.

All of a sudden, all these surprises. We'll pop up left and they'll pop up, right. And you have no idea when they're coming. I have surprises every single month. In fact, I have multiple surprises every single month. Now that I'm in my thirties with young kids and a family stuff's happening left and right to me where I have to utilize my emergency fund a lot.

And so this is something where you really want to beat that up early on. And that's how I would think about that. Next, I would look at contributing to a Roth IRA and or, uh, looking to invest those dollars into something like a Roth IRA or an HSA. You know, an HSA means you have to have a high deductible health plan.

It depends on your health insurance and what you have available there. But a Roth IRA is a fantastic option where you can max that out with 7, 000 per year and be able to allocate those dollars towards that. Ben? I would go back to either your 401k and finish out maxing that out after that, then you can start to think through, well, what do I want to do next?

What are some of the things that I want to do in my life? Uh, that would allow me to do some of these additional cool things. So you can look at things like you talked about crypto there. Well, crypto, in my opinion, needs to be 5 percent or less of your total portfolio. It should not be more than 5 percent of your portfolio.

This is speculative investing, meaning that this is investing where it is only worth what somebody else thinks it's worth. At the time of recording this Bitcoin, for example, is worth over 60, 000. Just a couple of months ago, Bitcoin was worth 25, 000. This is a highly volatile product that overall you cannot base your retirement on.

This is something that, yeah, you could put a very small percentage of your portfolio in if you want to go that route. But for me, I'm more of a proponent of, you know, investing a large portion of your income into things like index funds or ETFs or all those different things. Now, this is not investment advice.

This is exactly what I do personally. And so this is something where I think you need to really, really think through that. And if you're investing in crypto, just make sure that you're thinking through that piece of it as well. Now, essentials, obviously your rent, your car, uh, All those different things.

If you need a car to get from point a to point B and you don't have a vehicle yet, then what I would do is find a cheap car to start off with. And I would buy it in cash if you can, and try to make sure that it is a very reliable vehicle. Honda Toyota, the two most reliable vehicles out there are Hondas and Toyotas.

And if you ever see our lists on. TOK or whatever else we do these car buying lists. And the reason why I do these is because I want you to find a car that lasts as long as you possibly can. So we talk about the least reliable vehicles and we talk about the most reliable vehicles. That's the reason why we do that.

If you can find a car that you can drive for at least 10 years or longer, that will save you so much money in the long run, because a car is a depreciating asset and people who spend too much money on cars early on. Typically live paycheck to paycheck for a very long period of time. So the last thing you want to do is find a low reliable car and it's a depreciating asset.

That is a double whammy of just completely throwing money in the trash or lighting money on fire. So finding cars that are three, four years old are a great option because they take that depreciation hit, but they still have that long term reliability. And there's a lot of them out there that will help you look through that.

And right now at the time recording this, a lot of folks were buying those 2020s, for example, during the middle of COVID, they weren't driving as much as they do now, so you can find lower mileage cars, uh, just by looking at some of those 2020 2021 models, uh, and looking through some of those as well. So that is part one of your question.

Now you have a second part. of your question here as well that says, what is the best way to divvy up my net monthly income into nine necessary payments? So for example, you have 25 to 30 percent of my monthly income for rent and how should I divvy up the rest? This is something I've been struggling with to find elsewhere.

Okay. So this is a great, great question. And here's kind of how we want to think about this is we want to think about this in a number of different categories. A how much do you want to spend on essentials or the things that you absolutely need to have going on? So really this is going to be essentials plus debt payments.

So if you have student loan debt payments, this is going to factor into there. If you go out and buy a car and you have a car loan, this is going to factor into there as well, your mortgage and housing, all that stuff, food, all these different things are going to fall into here. So this usually. Is a range.

So I want this to be somewhere in the 50 to 60 percent range of where you're going to be spending these dollars. Okay. So 50 to 60 percent will be all your debt payments and all the essentials, all the things that you absolutely need to make sure that you were paying month in. And month out. So 50 to 60 percent is going to be the range next we're going to be looking at.

Well, how much do I want to be spending on wealth building activities? And so when it comes to wealth building activities, I want you to have 20 to 30 percent going towards those wealth building activities. That means things like your emergency fund. That means things like your retirement accounts, your 401k match also is included in that your 401k for everyone out there who doesn't know this, your 401k contributions.

Are part of your savings rate. That is part of your overall savings rate of your income, because that is income that you were taking and putting towards your future. So that goes towards that as well. And then in addition, any other dollars that you are putting towards wealth building activities, 20 to 30 percent is the range that I love to look at.

And then 20 to 30 percent goes towards discretionary spending or spending for fun, things that you love to do, things that you want to do out there that also is going to fall in that 20 to 30%. And so that is how I kind of think about this. And you could put it on a spreadsheet. We're actually gonna work on a tool to make this easier for you guys so that you can look at this and have that available to you.

Because I think it is really, really important to think through this and what is the most important to you and the Earlier, you can get more dollars into these investment accounts, especially when you're first starting out, the faster you can get financially stable. And the sooner you're financially stable, then you don't have to work so hard.

So in your thirties, you can kind of take your foot off the gas a little bit in your forties, you don't really have to just grind it out like people who started a little bit later than you did. And so really this is a fantastic baseline that you can really see. Set up for yourself to really change your life forever.

If you do this, right. So thank you so much for sitting in this question. This is absolutely amazing that you are starting off on the right foot. And like I said, if you didn't hear that the previous episode, where I talked about the financial baseline and how to set up that financial foundation, there's a lot of little Tidbits that I threw in there that I want you to make sure that you're listening to, because if you take these two episodes and combine them together, these two money Q and A's, you will be absolutely amazing with money in the long run.

And so I'm so excited that you're starting to think about this right now. All right. Question number two is the TSP podcast was very helpful since I am a government employee, and I've always had contributions in a target date life cycle fund, but you inspired me to research moving investments around to other funds like the S fund or the C fund.

To have less bonds and have a little more risk on hand for my risk tolerance. I am confused on one thing if you can help. When changing my investments, do I want to change my current balance, or should I just change my future balance? Also, along the same lines, for my children's 529 plans, I have them in Vanguard in a Target Enrollment Mutual Fund, and I want to change investment options.

Should I change these assets? To move existing or future contributions. Great question. And this is something we haven't really covered a ton here on this podcast. So I want to explain this upfront for everybody else listening as well. Right now, when you go in and you hear a podcast episode, for example, and you're saying to yourself, well, this episode made me think through and want to research more into things like index funds and.

You are in a 401k plan that maybe they just threw you into the first fund that was available in that plan. Cause a lot of times they will automatically invest your money in a 401k plan in whatever investment allocation that that company agreed to with the investment company. And so they have this agreement and then they invest you into whatever fund is in there.

A lot of times it's a target date retirement fund. Sometimes it is a higher fee fund, which is a little scammy in my opinion, but that's a whole nother topic. And so what they do. Is they'll automatically invest you in something. And so maybe you go in and you're finally getting financially literate and you say, Oh, I don't want to be in this investment anymore.

Maybe I need to redo my allocation. So the first thing I want you to do is when you do this, you got to think through, well, what asset allocation do I want to have? That just means what percentage of stocks and what percentage of. Bonds and what percentage of funds do I want to have within this investment account?

So for a lot of people, there are things like a three fund portfolio. For example, this means that you have something like 60 percent in us based stocks, 20 percent in international stocks, and 20 percent in bonds. So that's just a, one of many different ways that you can do a three fund portfolio, and it usually just has three different funds.

One is us based stocks, one is international, and then one is bond funds. And so when you think about this. If you're going to change your entire investment plan, and if you're going to change your asset allocation, then when you go into your 401k, then you want to go in there and you want to change your current balance and your future balances.

That's if you're changing your entire asset allocation. And so that's where you're going to think through, okay, I need to change all of this so that my asset allocation lines up with what my risk tolerance is or what my priorities are overall. And so that is where you're going to do both when you go through that.

Now, if you've never heard of changing future contributions or reallocating current balances, the difference is very, very simple. So changing your future contributions means that every time you get paid going Forward, your contributions are going to go towards this new asset allocation. So maybe you have a target date retirement fund, and then you want to change your future contributions to an S and P 500 index fund.

I'm just throwing stuff out for examples here. So all your future contributions will actually go towards the S and P 500 index fund, but your previous contributions and all the money you had invested previously will stay in that target date retirement fund. Whereas if you reallocate current balances, meaning if you change your current balances, you can actually reallocate from that target day retirement fund, the old idea that you had to the S and P 500 index fund, and you can allocate your future contributions towards that index fund as well.

So if that makes sense, that's how you would think through this and how you would think through that option. So if you change your mind. And your asset allocation changes. And this goes for everything for a 529 plan. It goes for a Roth IRA. It goes for every other investment account that's out there. If you want to change those things, if you want to change all your future contributions and you want to redo your entire asset allocation, you want all of your old money as well to change, then you would.

A reallocate current balances, then B you would change your future contributions. But if you wanted to keep the old money in that target date retirement fund or whatever else you're invested in already, but you wanted the new money to go to a new asset allocation, then you would only change your future contributions.

That's how I would think about this. And that's how it kind of go through this. So it really depends on your plan and your asset mix and what you want to do. If you like the stuff you were investing in before, and now you want to go a different route and have those future contributions change, and that's in your asset allocation plan, you have a plan for this.

You got to make sure you have a plan for this. And so if you have that plan, then I would just keep the old money in where it is. And then I would change the future contributions. But if you're going to change your entire asset allocation, then what you would do is you would change both your current balances to the new asset allocation, and then you would also change your future contributions to the new asset allocation.

So that's how I would think about that. And typically if you're changing your asset allocation, you're going to change everything over, uh, and make that move. Now, is there any fees or anything else along those lines when you do that? No, unless you have a really bad 401k, there should not be fees for moving those dollars over and readjusting your asset allocation.

If there are fees, then that's something that you definitely want to check on. And you can check with your HR department to see if there are any fees, but usually. If they charge you fees, that's not the best 401k plan typically. So you want to make sure that you're trying to avoid that as much as you possibly can.

Hope that answers your question. And I hope that's helpful. If you guys have any further questions on that, make sure to reach out to me. All right. So the next question is hello, Andrew. I love the show and appreciate your insights that you bring to the table. And thank you so much for that. I have roughly 80, 000 in loans with about half having an interest rate above 7 percent and half below 6%.

I have saved about 33, 000 with about 70 percent of that in a high yield savings account or money market account and the rest in index funds and mutual funds. Would it be most beneficial to liquidate my brokerage account and pay most of these loans down or try to pay them off over time, allowing compound interest to keep building?

Additionally, what are your thoughts on contributing to a Roth IRA during this? And should I continue to save for retirement before the loans are paid off or put all my effort into paying these loans off? I'm going to be getting married soon and I'll be making 61, 000 a year after we get married, but she will not have an income until January of next year.

So this is a fantastic question and one that really, really depends on specific situations. So I'm going to talk about situational differences here when it comes to some of this stuff so that you can think through this on how it applies to your situation. So you have about half with an interest rate above a 7%.

Now it depends on what type of loan that is. If this is something like a mortgage, for example, then I'm not really interested in paying off that mortgage as fast as I possibly can. The mortgage is probably the only loan with a high interest debt that I'm not looking to pay down as fast as I possibly can.

And the reason for that is because you have the optionality of being able to refinance that loan down the line. And so that's one thing, but if it is anything else besides a mortgage, then what I would do is the half that is above that 7 percent interest rate. That is the half that I would focus on and I would get aggressive with that.

So you're saying you have 80, 000 in loans. Let's just use the number 40, 000. If it's about half is above that 7 percent interest rate. That's what I would get aggressive on. So you really have 40 grand that has high interest debt. And so what I would do is I would look at taking either some of that cash that you have on hand or some of that brokerage, and I would make sure I have enough for that cash buffer.

And then I would aggressively start paying down that high interest debt. So the cash buffer is usually around five grand, somewhere around there that you need to have available. And that would aggressively pay down the high interest at anything above that 7%. That is going to absolutely kill you in the long run.

So you got to make sure it doesn't compound against you. So that needs to go first. If it is credit card debt, for example, which is very common in this, or if it's a personal loan, that is where I would get rid of that debt as fast as you possibly can, that debt is out. Absolutely killer. And if it's much, much higher than even what we're talking about here, if you're in the 12, 15, 20 percent range, then that is a pants on fire emergency.

And I want you to get rid of that. Then as we see this other half, that's about 6%, that's where we can start to build back up again. So we can either start to build up that emergency fund and, or I want to kind of see you start investing. Once you get that high interest debt down, I want to see you kind of splitting off and investing and putting money into emergency fund.

And so that's kind of how I would think about that as you go through this. Okay. And so I would look at that and say, Hey, if it's 35, it's 40 grand, whatever it is, aggressively pay down that high interest debt. That's your number one sole focus right now. Then after that, then you can come back and then you can pay off the loans slower on the lower interest debt.

And you can start to invest those dollars and less. It's a mortgage, like I said, so that's a situational difference. If it is a mortgage, then you can eventually refinance that mortgage. Bring that rate back down. Now, when are rates going to drop? We have no idea. So there is a risk there to doing that. But typically, if it's that amount, I'm typically not thinking that it's going to be a mortgage.

That's that high interest debt. It's probably something else. And so looking at that 40 grand, I would aggressively pay down that 40 grand. Then I would come back and make sure that you have that available. Now, what should you be investing in as you start to continue to pay down the rest of the other half of the loans?

What I would think through is just the order of the stairway to wealth. I would think through things like. The Roth IRA and the HSA, then I go to the 401k, then back, you know, to your tax and brokerage account and go in that order. If you're interested in real estate, those types of things, we can add those in as well.

But that is where I would look at this to pay that off. And also congratulations on doing this and you're actually in a decent situation here where you can really get that paid off. And congratulations on getting married soon as well. That is really, really exciting. And I'm glad you guys are gonna be starting off right on the right foot here.

And you're thinking through the right stuff, uh, as you go through this. And then I would try to look to see how much can I invest over that timeframe? Uh, so that we can get our marriage started off on the right foot and we can start building wealth together as a family. So that's really, really exciting.

Congratulations. And I can't wait to see you pay that part off. Let me know when you pay off that high interest debt and we have to have a little celebration there. Cause that is really, really exciting that you're working on that. Uh, and like I said, you're in a great situation. I think you'll be able to do this pretty quickly.

And I think this is going to be something that's going to be really, really rewarding in the long run. So thank you so much for the question. The next question is I had a question about travel hacking. I understand how to use points and things of that nature to book airfare, hotels, and even cars. I have done this in the past.

However, whenever you talk about travel hacking, you always say taking trips completely free. Does this include other aspects of the trips, such as activities, food, or shopping? If not, do you have any recommendations for getting these things for free or at least at a reduced price? I absolutely do. This is a future video.

Fantastic question. And one that you can pair different types of cards together. Now, caveat, whenever I talk about travel hacking, before I even start getting into travel hacking again, if you have ever had any issues on cards, or if you carry a balance on cards, month to month, travel hacking is not for you.

Just throw it, the idea out the window. It is not even remotely worth it for you to try to get rewards or points. I don't even want you considering it. If you have had problems with credit card debt in the past and or if you have credit card debt now, there is no way shape or form a reason that you should be travel hacking.

I just want to get that out in front as we talk through this. But if you are financially responsible, when it comes to credit cards, if you're in, you're someone who pays off balances in full every single month, then travel hacking is a great option for you. And if you've never heard of travel hacking, what we talk about here a lot in this podcast is that you can go out and just put all your normal bills on a.

Credit card. And usually it's a travel rewards, credit card, and then you pay those bills off in full 100 percent in full every single month. I actually pay my off weekly because I like to just really stay on top of it, but you can pay them off in full every single month. The entire balance needs to be paid off.

And what happens here is the credit card company will give you. Points that you can utilize for cash back or rewards or airfare, free hotels, all those types of things. So my wife and I have done a number of different trips over the course of the last 10 years that we've been married. Uh, we've gone all over the world from Greece to Italy, all over the world.

So we've been a bunch of different places. So this is something where we went completely for free and she's right. I say completely free. And so the way that you want to think through this is that you can actually utilize things like cashback cards if you want to have some extra spending money as well.

Now this is going to take accumulation of more points and so that means more time because we don't want to spend more money to get points that would make zero sense whatsoever. Instead, we just want to put our bills on these cards and pay them off every month. And so I'll go through some of my favorite cashback cards.

But what you can do is you can utilize cashback cards, which will actually have the benefit where you can redeem different purchases for cash. So you can go out and say, for example, you go and get a cashback card and you get a bonus on that cashback card of 300 cashback, then you can use that 300. To use for shopping or for dining out on your vacation or whatever else.

And so I'm going to go through all of these here and some of my favorites. We're going to link these up down below the links in the show. Notes are actually affiliate links. So they just help support the show. If you're interested in using those, feel free to use those down below. Uh, but I'll talk through some of my favorites.

So the chase freedom unlimited is the one that is in my wallet. And the chase free minimum limited, um, you can earn additional 1. 5 percent cash back on everything you buy on up to 20, 000 spent in the first year. That's worth up to about 300 cash back. And a lot of these will have bonus offers too. So you look out for those bonus offers, uh, to make sure that you can see what those bonus offers are available.

And then a lot of these will also have, depending on what you spend money on, they will have some, uh, great options to, you know, you get more cash back on dining or you get less cash back on Cash back on different things. So on that one, you can actually earn 5 percent on travel purchase through the chase ultimate reward system.

You can earn 3 percent on dining at restaurants. So if you're going out to eat, you can earn 3 percent back 3 percent on drugstore purchases and 1. 5 percent on all other purchases. And that one has a 0 annual fee. So you're not paying money for this. Uh, it's got a 0 annual fee, so it's a great option there if you want to look at the Chase Freedom Unlimited.

Another great one is the Capital One Quicksilver, and so with the Quicksilver, they have an intro offer where you get 200, but you earn 5 percent unlimited cash back on hotels, rental cars, Cheers. Book through Capital One Travel and you earn unlimited 1. 5 percent cashback on every single purchase, which is the same as the Chase Freedom Unlimited.

So both of these, if you're more of a Capital One fan, Capital One Quicksilver is a an interesting card if you want cash back and it's a great starter one as well. And so that is one that you can earn some additional stuff. And then they also have the Capital One Saver, which the saver is another one that will allow you to earn more.

On dining. And so that's another great one as well. Then there's the AMX blue cash card and the AMX blue cash card is one that also has a 0 annual fee and you can earn 3 percent cash back on supermarkets. So if you spend a lot of money on groceries, you have big family, something like that, 3 percent cash back on supermarket, 3 percent cash back on online retailers to all my Amazon fans out there.

3 percent cash back on gas stations, and then 1 percent cash back on all the purchases. So this one has only 1 percent cash back on all the purchases, but it has 3 percent cash back on all these other things. So if you're frequenting supermarkets, if you're frequenting retail purchases, and if you're frequenting gas stations, those are the three that.

Would be great. And then you can also earn a 200 statement credit if you spend 2, 000 in purchases on your card within the first six months. So, uh, that's pretty easy to do for most people. And for most people putting your bills on there, you'll spend way more than that. So cashback cards are ready to do this.

Now you can also do this with the travel rewards cards, meaning you can actually reimburse travel points for cashback. It is just not the. Highest dollar use that you can utilize those points for it is better. Use it for travel stuff, uh, than it is to use for cash back, but you can also do that too, if you get a ton of travel points built up, then you can also use that for cash back.

So that's a way to get a lot of this stuff for free by travel hacking is using cash back rewards cards. You can also go out there and like, look for discounts, things like that. When you're traveling on, if you're going on excavations or those types of things, or if you're going on tours, you can look for coupons and discounts out there.

And there's a bunch of great websites out there for that as well. So if you just Google search, um, some of those options, they will give you some coupons and some ways to really hack your way through some of that stuff, which is really, really cool. So I would check some of the travel hacking sites as well, but that's the way that you can do it completely for free.

Is with some of these cash back cards. Uh, and if you have any questions on those cards, feel free to reach out to me. All right. So the last question is I've heard you talk about a credit freeze a couple of times before, but I also had a friend who was telling me about getting a credit lock and I wanted to know what is the difference between a credit freeze and a credit lock.

All right. So this is a fantastic question. And a lot of times we talk about here on this podcast is some of the best ways to protect your financial information online. And so credit freezing and credit locks, which we'll talk through here in a second, the difference between the two, those are two great ways to protect your information online.

Now, another thing that I think that most people need to do. And when we talk through this a lot, we talk through delete me, which is one of my Favorite services that are out there. And delete me is a service that you can go out and utilize and remove your personal information from the internet, especially from a lot of these data brokers.

So if you've ever Googled your name or you ever Googled your phone number, you're going to see your information is actually out there with a lot of data brokers out there and you didn't ever tell them to put your information out there. They just started putting your information on the internet. Well, this is a major problem because when a piece of your financial information is stolen, for example, these scammers can then go look up your name and find the rest of your information, be able to scam you much, much easier if they can find the rest of your information.

Well, what delete me does is they go to these data brokers and they go out there and say, Hey, You should not have this information online. We want this information removed and they get that information removed for you so that you don't have to worry about this. I tried to do this on my own. It took me hours and hours and hours and delete me did all the work for me.

So it is worth every single penny when I utilize delete me. So If you want to use Delete Me, you can go and use the promo code p fp. So you can go to join delete me.com/pfp, and you can use that promo code pfp and they will get you 20% off just by utilizing that promo code. And it is a great way to protect your financial information online, just like what we're talking about here today, which is the difference between credit locks and credit freezes.

So if you've never heard of a credit lock, credit locking is a financial service. That almost always costs money and it's usually through a subscription. And this is a paid service that promises to protect your credit information through methods that differ from company to company. Okay. So these are usually through private companies, companies you've heard of probably like LifeLock or other credit lock companies, Credit Karma has one too.

And so I've looked at a bunch of these and they're like 29 to 30 per month, somewhere in that range, typically where a credit freeze is a free way to do this, where you go to each of the major credit bureaus. So you go to Equifax, And you tell them, Hey, I'm not using my credit right now. I want you to put a freeze on my credit so nobody else can use my credit.

Make sure I don't get scammed or anything like that. Now, this is a really easy way to avoid getting scammed. It takes you like 15 minutes to call each of the credit bureaus and they freeze your credit. Then once you want to apply for a mortgage or you're going to go buy a car or something along those lines, then you can call them up, unfreeze your credit so that companies can run your credit when you want to go utilize this.

Then once you actually go and get that loan or whatever else you use your credit for open up that credit card or whatever else, then you freeze your credit again. And so nobody can actually hack into your credit and start to open up credit cards or student loans or anything like that in your name.

Instead, it is frozen and there's no way for them to use it. And you have to call in and unfreeze it to be able to utilize your information. And so I am more so prone to just doing a credit freeze and not a credit lock. Now, if you have more money than time, then a credit lock is fine. It prevents others from accessing your credit information, but it costs money and it's run by credit bureaus, but it's not really clear on like who the liability goes to if there are any losses.

Like if somebody still got into your credit, it's not really clear what the liability is. Whereas a credit freeze losses are legally protected. It is governed by federal law. Okay. It is administered by credit bureaus only, and it is free of charge with all three credit bureaus. And it also does the same thing.

It prevents others from accessing your credit information and or opening new credit in your name. So the credit freeze, honestly, in my opinion, is much, much easier overall. So basically, a credit lock is just a paid version of a credit freeze, but the liability falls on we don't know who. And so if you want to do it for free, what I would do is just go call the three main credit bureaus.

Tommy want to freeze your credit. It just takes you a little bit of time and then you're done. And so you don't have to worry about this credit lock service if you don't want to go through that process. And so I've never used a credit lock service. I've used credit freezing before. It is not that difficult of a process.

And if you want to learn more about that, we have an episode called how to protect your information online, and that's when we talk deep on how to freeze your credit. So that is another great option as well. Well, listen, thank you guys so much for listening to this episode of money. Q and a, can I thank you guys enough?

For investing in yourself, because that's exactly what you're doing. When you listen to this podcast, as you are investing in yourself, if you got value out of this episode, consider leaving that five star rating and review. Can I thank you guys enough for leaving those five star ratings and reviews and make sure you subscribe to this podcast.

We have a ton more amazing content coming out and really, really excited to talk through that as well. Thank you guys again so much for listening to this episode and we will see you on the next episode.