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Paying Off Student Debt

Paying Off Student Debt

According to the Wall Street Journal: Should repayment of student loans be a family affair? For those who answer “yes,” there are ways to give financial assistance, while still holding the young adult accountable. Listen to this informative podcast from WSJ. Dive into an in-depth discussion of student loans and best options for becoming debt-free.

Parents who want to help their children paying off student debt need to be sure they have taken care of their retirement plans first. To avoid reaching out to their adult children for money as they age, it is essential that parents take control of their personal finances. Don’t allow well-intended emotions to dictate personal financial security.

Some parents offer to pay the loan payments until their child’s salary exceeds the loan amount. Then both parties can create a plan to allow the student to finish paying off the remainder of their student debt. Some parents agree to match payments made by the student. It is often best to pay off private loans, with set terms. Let students deal with the government loans, which may have negotiable terms. Parents need to be aware of the gift tax when assisting a student unless they co-signed the loan. Any payments made by either party would not be affect taxes. Parents should all pay the bills directly rather than giving cash to the young adults.

Other Options

One popular method for paying off student debt is the “debt snowball” method. Pay off the smallest loan. As that loan is canceled out, apply the same payment to the next smallest loan. If you currently owe money and need help, this resource from nerdwallet.com (below) is very helpful.

If you have excellent credit: Student loan refinancing can save you money by lowering your % of interest. Earnest is one of several companies that refinance student loans. To make sure you are getting the lowest rate, get several estimates before choosing a lender.

To qualify for refinancing, you typically need a credit score at least in the mid-600s and enough income to afford all of your bills every month. Not sure what your score is? Find out with NerdWallet’s credit score tool.

***Important fact: If you owe money to the government, you will lose access to income-driven repayment and forgiveness if you refinance federal loans.

Budgeting Tools for Today’s Students

If you have a student beginning their journey into higher education, be sure to check out the online budgeting resource from the affordablecollegesonline.org. This company specializes in ranking the best online college offerings and assisting people to earn college credits while keeping costs down.

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AFRAID OF THE IRS

IRS-Agent

It’s amazing how many people are terrified of the IRS. They view this government organization as the ultimate parent or authority figure. Even when they know they’ll get a refund, the process of getting their financial numbers together (and the fear of a possible audit) are enough to make some people avoid dealing with their taxes altogether.

Some even believe they’ll end up in prison if they have avoided filing taxes for years. Debtor prison ended a long time ago, but fines for filing taxes late are real. Ignoring tax responsibilities does not make them go away, it merely increases work later and often has a penalty attached.

When you fear authority and do not take responsibility for your finances, you essentially put the responsibility on others to make your decisions. If you’re not taking action out of rebellion, you’re saying, “I don’t like your ideas, so go ahead and do whatever you want.” If you’re relinquishing your financial responsibilities because of insecurity, you might say, “I’m afraid of doing it wrong, so I will do nothing.” Although the intentions are different, the result is the same.

Sam, one of my of my clients, came to me one day to talk about his taxes. He said, “Um, I don’t want anybody to know this, but I haven’t filed my taxes in ten years.” He was very embarrassed. I completed his returns, and it turned out he would have had tax refunds, but lost all the money due to him because the IRS deadline to collect the refunds had passed.

Once Sam became current with his filings, he was relieved and promised he would never let it happen again. The next year, I called him to remind him to send me his tax information … and the next year and the next. I finally stopped calling him. Caution! There is no time frame if you owe the IRS money. Sam was literally paying the IRS 5,000 dollars per year to not file! It is truly amazing how expensive inaction can be—and inaction is often triggered by fear.

One way to avoid fear is to be intentional as you journey through the year. Purchase an accordion folder this week & start stashing paperwork into categories. File them as soon as you pay the bills or get a paycheck. Breaking the entire fiscal year into a weekly routine of filing paperwork into your different categories will make that big April 15th chore much more manageable!

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Let’s Make Tax Season Easier!

3x3 Easy tax TipsNeed a few financial tips to assist with your money and tax decisions? As a CPA, I get a lot of questions on how best to prepare for paying taxes, and preparing for tax season. Today, I would like to give you a few suggestions for this year and steps to be sure you will be ready next year!

A lot of people wait until the last minute to start adding up receipts. What I suggest is to purchase a money management tool, like Quicken or QuickBooks to track your money and expenses on a weekly or monthly basis, so that you are not playing “catch-up” at the end of the year.

OR: For those of you that don’t like to manage receipts digitally, I recommend purchasing several large manila envelopes and labeling them for the different expenses you will incur over the year. For example, you might have ten big yellow envelopes and one might be labeled automobile expenses, one might be repair and maintenance expenses, and one could be labeled cell phone and communications, etc. Each month you would just throw the receipts for that category into the envelope.

A lot of people make the mistake of filing or presenting their receipts by month: January, February, March, and so on. The government doesn’t care about monthly receipts, only what the sum of each category is – as related to your income and deductible expenses. So filing receipts by category is much more efficient. Another thing you might do is to save all receipts when making a charitable donation. Place these receipts in an envelope as well, to document your tax deductions.

Additionally, if you have several streams of revenue, be sure to save several of your pay stubs, in the event you don’t get a W-2 from that employer. At the least, save the final pay stub of the year to give yourself a “snapshot” for determining your annual salary from that employer or company.

Hopefully you will find these tips helpful. These simple steps will result in you being better organized, while making tax season less stressful and easier to deal with!

You CAN have a healthier relationship with your money!
Bob