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TOM: Good Morning, Mellody.

MELLODY: Good Morning, Tom!

 TOM: An important topic this morning – reading the fine print. What caused you to want to talk about this?

 MELLODY: This past week there were articles on the Huffington Post and in the New York Times discussing the new trend of companies putting non-compete clauses in the contracts of entry level workers, and it got me thinking about how much fine print we encounter every day. Every time we purchase music online, there are terms and conditions. Every time you update your smartphone’s software, you have to agree to terms and conditions. And of course when we make bug decisions, like buying a car, we have to sign on the dotted line. Because of that, I thought it would be good to highlight some of the more important pieces of fine print that our listeners encounter.

TOM: When i think about fine print, the first thing that comes to mind is credit cards. What do you have for us on that front?

MELLODY: You are right to think about that, tom, especially given the role that credit plays in the united states. There are currently around 400 million credit accounts open, or about 1.6 accounts for every American over the age of 18. And now is a great time to talk about credit card applications, because they are once again on the rise. Since 2010, the number of credit card applications and the number of credit accounts opened has been trending upward, rebounding from the previous 3 years, when Americans were closing accounts and consolidating the number of credit cards they had in the lead up to, and during, the great recession.

Now you know me, Tom. I always caution against credit cards, because most of us do not exercise great judgment when it comes to plastic. But, if you have taken the time to look at your finances and you have decided that you will be applying, there are some things to think about. The first thing to remember when you are thinking about the fine print on credit cards is that a credit application is a contract. This means that once you have signed the application, you are committed to the terms within the agreement, even if decide later that you don’t want or need that credit card. Because of this, you have to read the application very carefully and understand it before signing, taking into consideration the interest rates, the credit limit, annual fees and any other terms and conditions.

TOM: What specifically should we look for here?

MELLODY: The main things you have to look at are the interest rate on the card and the fees that are charged. In terms of the interest rate, you need to make sure you know whether the interest rate is fixed or variable. With a fixed-rate card, you know the interest rate should stay the same every month. A credit card with a variable rate will obviously have changing interest rates, depending upon what indicator the rate is tied to – generally the rate is linked to the prime rate. However, know that even the interest rate on a fixed rate card can change, they just have to notify you of the change.

As far as fees go, they can really cost you some money. Common charges include fees for transactions, such as balance transfers and cash advances, for requesting an increase of your credit limit, or for making a payment by phone. Also pay attention to how much the card issuer charges for late payments and for surpassing your credit limit. You want to avoid ANY CARD WITH EXORBITANT FEES, PERIOD.

TOM: You have also mentioned fees on your investments as something to think about. What should we be keeping in mind on that front?

MELLODY: in terms of your investments, there are a few questions you should ask when it comes to your money. The first thing you want to know is what you are being charged for the management of your funds. Typically, an acceptable management fee is 1% or less. That means that for every $100 in investments, you will be charged $1 per year. Most investors should avoid firms that charge management fees above 1.25%. The second category of fees you want to consider are expense ratio or internal expense charges. These fees are charged on mutual funds, and they are not deducted from your account. Instead, the fees will be deducted from the returns gained on your investment. In terms of expense ratio fees, it is simply important to be aware of what is being deducted from the returns on your investments. Generally, if you are paying less than 1.25%, you will be fine. Finally, ask about transaction fees. Many brokerage accounts charge a transaction fee each time an order to buy or sell a mutual fund or stock is placed. If you are investing small amounts of money, these fees add up quickly.

TOM: Beyond credit cards and investing, what other fine print do we need to pay attention to?

MELLODY: Read the small print when it comes to housing, tom. Regardless of whether you are signing a lease or signing a mortgage, you are putting your finances at risk if you aren’t reading and understanding the agreement before you sign on the dotted line. Take a lease agreement, for example. Before you start to plan where you are going to put your furniture in your new place, look for any changes from what you and the landlord or management company agreed, especially security deposits, what day your rent is due, late payment charges, and early termination penalties. You also need to be careful about the terms of dispute management. If you aren’t paying attention, these can force any disagreement to be handled in a distant jurisdiction, or you could be signing a lease that waives your right to litigate at all.

As far as a mortgage, the stakes are even higher. When you enter into a mortgage loan agreement, make certain that all the numbers match your understanding and that no new or unknown charges are included. Also, carefully review the parts that cover whether property taxes and insurance will be held in escrow. If your taxes or insurance change, your payment will change. My advice here is to get a copy of the agreement to read before you sign it, to make sure that you have time to thoroughly review and understand all of the components.

TOM: Anything else you want to mention?

MELLODY: I would simply urge everyone to take the time to read the fine print on any agreement, especially when it comes to your finances, your home, or your job. I know we are all used to signing dozens of things a week – or at least checking the ‘yes’ box and clicking submit – but the fine print can have an enormous impact on your life, so please take time to know what you are agreeing to!

TOM: Thank you, Mellody, for joining us again for Money Monday!

MELLODY: You are welcome, Tom!

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