Facebook Rss Twitter Youtube MSN

Monday’s need-to-know money news

Jun 09, 2014 | | Comments Comments Off

Today’s top story: President Obama will take action to help those with student loan debt. Also in the news:images How not to get scammed on your summer vacation, being honest about your debt situation, and how to make sure you’re being paid what you’re worth.

President Obama to Take Executive Action on Student Debt Monday
“Pay As You Earn” will be widely expanded.

How to Avoid Getting Scammed on Your Summer Vacation
Protecting your mobile devices is key.

Are You in Denial About Your Debt?
Be honest with yourself.

3 Ways to Tell If You’re Being Paid What You’re Worth
Don’t shortchange yourself.

2 Things You Have To Teach Your Kids About Money
Budgets and credit cards.

Categories : Liz's Blog
Comments Comments Off

Q&A: Independent consulting and taxes

Jun 09, 2014 | | Comments Comments Off

Dear Liz: I am a full-time employee who just started independent consulting work on the side. I have submitted my W-9 with the company with which I am a consultant, but I know the onus will be on me to set aside federal tax payments. Here’s my question: Will I pay state taxes on my consulting income? And if so, will those taxes be paid in the state where I live or the state where the company is based?

Answer: If you live in a state that taxes income, and you have income to tax, then yes, you’ll probably have to pay state income taxes on your net income — your gross revenue minus your expenses.

“Since you are in business for yourself, contracting with another company, you will pay taxes in the state where you do the work,” said enrolled agent Eva Rosenberg of the TaxMama.com site. “If you perform the services in your own state, that’s where your taxable responsibilities lie. However, if you frequently go to the client’s location and do work there, you will be liable for taxes in that state as well.”

A good rule of thumb is to set aside half of any money you make to cover the various taxes you’ll owe, Rosenberg said.

“Payroll taxes are 15.3%. If you’re making enough to live on, you’re in the 25% bracket at least. That’s 40%,” she said. “Depending on the state, that could be another 5% to 10%.”

You probably should make quarterly estimated tax payments to avoid a penalty. Business owners, especially newly minted ones, would be smart to hire a tax pro to help them navigate their obligations.

Categories : Q&A, Taxes
Comments Comments Off

Q&A: Using a car loan to establish credit

Jun 09, 2014 | | Comments Comments Off

Dear Liz: Our son is graduating from college and needs a car for his new job. Is this an opportunity to help him establish a good credit rating? His credit union offers loans to first-time auto buyers who don’t have a credit history, but the interest rate is 8.4% (6 percentage points more than standard auto loans). We parents intend to help pay for the car, so we could provide a larger down payment or help with larger payments to pay off the loan sooner as a way to reduce the higher interest costs. Would doing either of these, however, lower the credit rating he might earn? He has no other debt and has two credit cards (co-owned by us) on which he pays monthly in full. Are there better ways to help him establish his own credit rating?

Answer: If your son is a joint account holder on two credit cards, he might not have to bother with a “credit builder” loan. He should already have credit histories and credit scores that would qualify him for better rates.
He should first check his credit reports at http://www.annualcreditreport.com, the federally mandated site where people can check their credit histories annually for free.

If he has credit histories, he can take the additional step of buying at least one of his FICO scores from MyFico.com. (He can buy a total of three, one for each credit bureau.) There are other sources for free scores, but they’re usually not the scores used by most lenders. He then can ask the credit union for a quote on the interest rate he’d be charged, given his score or scores. It probably will be lower than 8.4% if he has a good history with these cards.

If he doesn’t have credit reports in his own name, he probably is an authorized user rather than a joint account holder on your cards. (Some issuers don’t export the primary cardholder’s history with a card into an authorized user’s credit files, although many do.) In that case, the credit-building loan could be a good idea, particularly if you were willing to help him pay off the loan quickly. Although there’s some advantage to paying off a loan according to schedule, your son will get most of the credit-scoring benefit just by having the loan, and he’ll save by paying it off fast.

Another way you could help is by co-signing the loan, but then you’re putting your credit at risk. If he makes a single late payment, your credit scores could suffer. If the credit union is willing to make the loan, that’s usually a better way to go.

Categories : Credit & Debt, Q&A
Comments Comments Off

Sad lonely pensive old senior womanA substantial number of people file for Social Security benefits as soon as they’re eligible. Many live to regret their decision.

Two out of five early retirees wish they had waited, according to a recent survey by the Nationwide Financial Retirement Institute, an arm of Nationwide Mutual Insurance. Here’s why, according to an article in the AARP Bulletin:

When you look at the differences in their monthly payout, you can understand their remorse. Those who took their benefit early report an average monthly payment of $1,190. Those who collected it at their full retirement age have an average $1,506 monthly payment. And those who delayed collecting their benefit report an average monthly payment of $1,924 (or $734 more than the early payout). The difference between the lowest and the highest monthly checks over 20 years comes to a whopping $176,160.

I suspect the longer folks live, the more they’re likely to regret rushing to grab their benefits. And this is an especially critical issue for women, since we tend to live longer and often have smaller Social Security benefits than men.

Financial advisors typically understand the huge potential benefits of waiting a few years to start Social Security checks, and many recommending tapping other resources, including retirement funds, if that’s the only way to delay. But many people apply for Social Security without ever checking in with an advisor. Many rely on friends and family for advice–not the best course with something as complicated as Social Security claiming strategies. The worst reason for starting early? The unfounded fear that Social Security will “go away” if they don’t grab their checks now. That can be a costly misconception.

I have a lot of posts on this blog that can help you make better claiming decisions; just type “Social Security” into the search box above. Here’s a link to one post that has important information, as well as links to recent research that underscores the importance of waiting to claim.

Categories : Liz's Blog
Comments (13)

Friday’s need-to-know money news

Jun 06, 2014 | | Comments Comments Off

Zemanta Related Posts ThumbnailToday’s top story: Teaching your kids to avoid money mistakes. Also in the news: Becoming a smarter investor, cleaning up your digital life, and how your summer vacation could earn you credit card perks.

Teaching Kids to Avoid Money Missteps
Put them on the right path early.

One Phrase That Will Make You a Smarter Investor
It’s all about the evidence.

Tips for Cleaning Up Your Digital Life
Protecting yourself from identity theft.

The Best Summer Credit Card Rewards Offers
How to get perks from your vacation spending.

3 Tips to Increase Your Paycheck
It’s time to maximize your allowances.

Categories : Liz's Blog
Comments Comments Off

Thursday’s need-to-know money news

Jun 05, 2014 | | Comments Comments Off

Zemanta Related Posts ThumbnailToday’s top story: What can be learned financially during a parent’s last days. Also in the news: How to reduce your credit card debt through balance transfers, what new college grads should know about money, and should you buy life insurance for your kids.

5 financial lessons from a parent’s last days
What can be learned during a difficult time.

Save Thousands on Credit Card Debt with Balance Transfers
Playing the balance transfer shuffle.

What New College Grads Need To Know About Money
The “real world” is expensive.

Should You Buy Life Insurance for Your Kids?
Determining the best savings strategies.

Five Little Money Leaks That You Can Plug Right Now
Stopping the drips.

Categories : Liz's Blog
Comments Comments Off

Wednesday’s need-to-know money news

Jun 04, 2014 | | Comments Comments Off

Zemanta Related Posts ThumbnailToday’s top story: Financial moves to make in the month of June. Also in the news: What to do if you forgot to pay your taxes, hot to create the ideal household budget, and what you need to know about your future spouse’s finances before getting married.

The Financial Moves You Should Make in June
How to take the month by storm.

What to Do if You Forgot to Pay Taxes
Don’t panic.

A Guide to Creating Your Ideal Household Budget
Something all members of the house can live with.

Getting Married? 10 Things to Know About Your Fiance’s Finances
No honeymoon surprises.

Are Student Loans Worth it?
Weighing the short-term benefits and long-term costs.

Categories : Liz's Blog
Comments Comments Off

DrowningI recently talked to yet another recent grad who owes six figures for an undergraduate degree. The ease with which young people can drown themselves in debt makes me furious.

And a lot of young people are having trouble paying this debt. The exact number of struggling borrowers is a bit of a mystery, as I wrote in this week’s Reuters’ column, “Confusing data flummoxes fixing of student loan defaults.” But it’s safe to say a sizable portion of borrowers is having trouble paying down their education debt.

A college education, or at least some post-graduate education, will be a virtual necessity if you want to remain in the middle class in the 21st century. But believing that any investment in any education will pay off is naïve. The thing is, the colleges know better, or at least their financial aid staffs should. But their vested interest in selling educations typically means they don’t step in or even offer warnings as their teenage and twenty-something students pile on ridiculous amounts of debt.

Here’s what I wish every college student and every parent knew:

1. You should stick to federal student loans. These loans have fixed rates, tons of consumer protections and most importantly, limits on how much you can borrow. You typically can only borrow $5,500 for your freshmen year. You typically can’t borrow more than $31,000 for an undergraduate education. That makes it virtually impossible to take on too much debt as long as you get the degree. Can’t afford the education you want with just federal loans? Then you need to look for cheaper schools.

2. Steer clear of private student loans. Honestly, these loans should have warning stickers plastered all over them, like cigarette packs. The rates are typically variable, there are few options if you can’t afford the payments and you can borrow far more than you could ever repay. They should only be considered if the total amount you’ll borrow in both federal and private loans is no more than you expect to make your first year out of school.

3. Mom and Dad should not risk their retirement. Federal parent PLUS loans have some of the advantages of federal student loans. The rates are fixed and there are some repayment options (parents can choose extended, graduated or income-contingent payments, but not income-based or “Pay as You Earn,” the most helpful payment plans for overburdened debtors). But unlike federal student loans, there aren’t reasonable limits on what you can borrow. Parents’ ability to repay isn’t taken into account, and they can borrow up to the full amount of their child’s education. That’s a recipe for disaster. Parents should consider borrowing for college only if they’re able to comfortably repay the debt AND continue saving adequately for their own retirements.

4. You should get through school as fast as possible. If Mom and Dad are paying the bill in cash, then you can afford to party, pack your schedule with electives and switch majors 10 times. If your future self is paying the bill via loans, then you need to get your act together. Get help—find a mentor or advisor who cares about you enough to set you on the right path. The place to look is among your school’s best teachers. Ask around, because these teachers get talked about; take their classes; ask for their help.

 

Categories : Liz's Blog
Comments (3)

images (1)Today’s top story: What you need to know when negotiating with a debt collector. Also in the news: Quick ways to get your finances in order, how you may be unintentionally damaging your credit score, and what you need to know about funeral costs.

3 Things You Need When Negotiating With a Debt Collector
Know your numbers.

4 Quick Ways to Get Your Finances in Order
Start doing your homework.

Are You Unintentionally Damaging Your Credit Score?
Time for some mythbusting.

The Only 2 Things You Need to Remember About Funeral Costs
Don’t be caught off guard during a difficult time.

Is Your Student Loan Servicer Ruining Your Credit?
Know where your loans are.

Categories : Liz's Blog
Comments (2)

Zemanta Related Posts ThumbnailWe know about how much outstanding student loan debt there is ($1.2 trillion, per the Consumer Financial Protection Bureau). We have numbers about how many borrowers default on their federal student loans (the two-year default rate is 10%, which means one out of 10 of borrowers who entered repayment in 2010-11 let 270 days pass without a payment, while the three-year default rate is 14.7%).

What we don’t know is how many borrowers struggle to repay their loans, falling behind and potentially trashing their credit, without actually defaulting. The U.S. Department of Education, which provides the default numbers, doesn’t provide statistics on delinquency. A recent study by the Federal Reserve Bank of New York used credit bureau records to put the “effective” delinquency rate at 31% at the end of 2012. The Fed researchers tried to figure out and subtract from the equation the loans that don’t have to be paid because the borrowers are in school, in grace periods or in approved suspension with forbearance or deferrals. They determined that of the rest–those borrowers who were supposed to be in repayment–nearly one in three was 90 days or more late with their payments.

Which is shocking, but it doesn’t quite match up with other studies and published statistics, student loan expert Mark Kantrowitz pointed out in my Reuters column, “Confusing data flummoxes fixing of student loan defaults.”  A sampling of those other statistics:

  • The Federal Reserve Bank of Kansas in 2013 determined that 9.7% of student loan accounts at the end of 2012 were past due, but the delinquency rate was 23% once loans that appeared to be in forbearance, deferment or for students still in school were eliminated. Notice that this study looked at accounts (individual loans), of which the typical borrower has more than one. If one out of four loans (roughly) were delinquent, the proportion of delinquent borrowers would be expected to be smaller (perhaps much smaller).
  • Over a five-year period, the Institution for Education Policy (IHEP) concluded that 26% of borrowers were delinquent at some point and that another 15% had delinquencies that led to default. IHEP analyzed repayment data for nearly 1.8 million borrowers provided by five student loan guarantee agencies in 2011. Note, again, that what’s being measured is different from the New York Fed study. If one out of four borrowers had trouble paying their debt in a five year period, you’d expect the percentage in any single year to be substantially smaller.
  • A previous report by the New York Fed researchers found the total volume of delinquent student loan debt in the third quarter of 2011 was 21%, yet figures published by the leading student loan company Sallie Mae suggest a much smaller pool of troubled loans. The company’s most recent quarterly filing with the Securities and Exchange Commission showed that 85.9% of its federal student loans in repayment were current, with just 7.5% 90 days or more late. The delinquency rate for the company’s traditional private loans was 2.9%. Private loans overall comprise about 15% of outstanding student loan volume.

So, the statistics so far measure different things–borrowers vs. accounts vs. volumes of student loan debt–using different sources (data from credit bureaus vs. data from lenders vs. data from one albeit very large lender) and coming to different conclusions.

Why does it matter? Well, if most borrowers are figuring out ways to pay their debt down over time, then the available solutions for dealing with student loan debt are probably adequate for most. If a huge proportion are struggling, on the other hand, then it may be time to roll out additional help.

Because student loan debt isn’t just a problem for those unwise enough to pile on too much of it. Struggling borrowers with lousy credit are hampered in every area of their economic life and could even have trouble getting the jobs that might help them pay their debt (because many employers check credit as a condition of employment). A big chunk of borrowers who can’t buy homes or cars or get decent jobs could be a real drag on the economy.

Categories : Liz's Blog
Comments (2)