Can I Deduct Medical Expenses When I File Taxes?

Yes, certain medical expenses can cut your tax bill, but you've got to reach this threshold first.

Q. I pay pre-tax premiums for health care to in my paycheck and I have a health savings account (HSA). Are there any medical expenses I can deduct?
— Trying to save

A. Health care costs can be a big line item in your budget. If you’re able to deduct some of the costs, it may take the sting out of it.

However, you can only deduct the amount of expenses that exceeds 10% of your adjusted gross income (AGI), said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield, New Jersey.

If you’re 65 or older, you have a lower threshold, Gobo said. The expenses only need to exceed 7.5% of your AGI for 2016. The senior exemption will go away in 2017.

Not every expense is deductible, but lots are.

Equipment, such as crutches, wheelchairs, artificial limbs and hearing aids are deductible, Gobo said. So are dental services, doctor’s appointments, nursing services and hospital services — as long as you haven’t been reimbursed for the cost by your health insurance company.

If you renovate your home because of a medical condition or disease you may be able to deduct the costs, Gobo said.

The key is that deductible expenses must be unreimbursed expenses.

“That means if you pay for an expense but get reimbursed by your insurance company or anyone else, you can’t claim that expense as if you paid for it,” Gobo said.

He said you can claim expenses the year you paid them or when they were charged if you used a credit card.

Also, if you pay medical expenses from your health savings account, you may not include these payments when considering your deductions.

“Make sure to keep any receipts from doctor visits and pharmacies, bank statements, and credit card statements showing where you paid for services, supplies, and any insurance premiums paid,” Gobo said. “Keeping track of your expenses will save time and headaches when filing your taxes.”

If you’re not sure, talk to your tax adviser or financial professional.

Wondering what else you can do to save some money on your taxes? Here’s 7 more ways to cut your tax bill.

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Looking to Get a Mortgage in 2017? Here’s What You Need to Know

Here's what you need to know about buying a home in 2017.

The mortgage industry has gone through some changes in the last three months. If you are looking to finance a home in 2017, it is important that you know what the opportunities are and how to capitalize on them. Over the next 12 months, here are some things to keep in mind as you consider your financing.

Interest rates have spiked and are now sitting at over 4% on the widely popular 30-year fixed-rate mortgages. This change occurred seemingly overnight once Donald Trump was elected president. The markets saw this and rallied, marking a change that meant less regulation, with more opportunity in the investment market. Subsequently, this meant that expense bonds were driving mortgage rates higher. The market was further affected when the Federal Reserve tightened its monetary policy in December 2016. As a result, you can now expect an interest rate on your mortgage anywhere between 4% and 4.5%, depending on your credit score, the loan program and your financial stability. (If you’re not sure where your credit stands, you can view two of your free credit scores, with updates every 14 days, on Credit.com.)

Is Buying a Home a Still Worthwhile?

Buying a home is still a solid goal for many, and it is certainly still an attainable one. With higher interest rates, however, affordability will become the main thing to consider, especially the choice between being able to make a mortgage payment and continuing to save. When you qualify for a loan, an interest rate with a half percent difference can translate to around $75 to $80 per month, depending on the amount being financed. While this change may not seem significant, in the long run it is something to take in to consideration when planning to invest in a high-ticket item. Keeping your credit score as high as possible is also important for scoring a good interest rate and keeping your housing payment manageable. (Tips on how to do that here.)

What About Refinancing in 2017?

The option to refinance in order to lower your interest rate might not be the best choice for the moment. Rates are not where they were prior to the election, so going from a 30-year mortgage to a new 30-year mortgage and expecting a lower interest rate may not be in the cards for a little while. Here are some refinance opportunities that are more accessible in today’s environment:

  • Cash-out refinancing: Refinancing with the intent to pull equity out of your home is a byproduct of an inflationary environment. Remember, when mortgage rates rise, it is also common for interest rates on consumer obligations such as lines of credit, student loans, and credit cards to rise as well. Cash-out refinancing can be a smart and prudent move to rid yourself of high payments that are typically associated with consumer debts. For example, if you can pull out $20,000 in a cash-out refinance and use that money to pay off your larger outstanding debts (i.e. car loan, student loan, credit cards, furniture), your mortgage payment may rise to $100 per month, but you’ll save $600 per month in obligatory debt. You can then take that extra $500 and save that money or pay down your mortgage principal.
  • Shortening your loan term: Long-term fixed-rate loans are expensive when you consider the total interest paid over the life of the loan. Going from a safe 30-year fixed-rate mortgage to a 15-year fixed-rate mortgage can save you a substantial amount of money. Fifteen-year and 10-year fixed-rate mortgages are both hovering in the mid-to-low 3% interest margins, marking an opportunity to pay your mortgage off in full while also perhaps planning for retirement.
  • Refinancing to drop mortgage insurance: This form of refinancing might mean having to pay a slightly higher interest rate on a long-term 30-year mortgage, but it also means dropping the private mortgage insurance that brings up your payments several hundred dollars per month. The key is to take the money and do something smart with your new savings.

What’s in Store for Mortgages This Year?

Here are some things to keep in mind in 2017.

  • Financial Markets: If the stock market continues to improve and rally, expect mortgage rates to continue their upward climb.
  • Big Events: It would take something big and unexpected to cause the market to reverse course, shifting money into bonds and driving mortgage rates lower. If something like this does happen and you are eyeing a particular interest rate, act quickly.
  • Fannie Mae and Freddie Mac: Pay attention to any news from Fannie Mae or Freddie Mac. If rates continue to rise, current underwriting standards might be adjusted to meet the needs of the shrinking housing market. Expect guidelines to loosen slightly to offset the higher interest rates.

If you are looking to purchase a house or refinance one you already own, and there is a financial benefit to the terms and rate you qualify for, act on it. Let affordability be the driver of your decision to purchase or refinance a home to meet your financial goals. The market will always change and evolve, and if you can justify the opportunity, it should be something for you to seriously consider.

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This Trick Will Help You Finally Pay Off Your Credit Card Debt

Here's the best way to leverage those flashy 0% APR offers from credit card issuers.

In 2017, one-in-four Americans say they’re thinking about money more than just about anything else. Does that sound like you? One of the best ways to clear some of your head space may be to pay down credit card debt. Less debt means fewer minimum payments, which means an easier time managing your day-to-day cash flow.

That’s not the only benefit of paying off credit card debt early either. With annual percentage rates (APRs) in excess of 15%, credit cards can cost you a big chunk of change in interest. Plus, high credit card balances can do big damage to your credit. (You can see the effect of your current balances by viewing two of your free credit scores, updated every 14 days, on Credit.com.)

A Big Trick for Paying Off Credit Card Debt

Paying off credit cards takes planning and discipline. But you can also use a few tricks to make the process easier.

One big trick to make paying off credit card debt both easier and faster is using 0% APR balance transfer offers. It’s a simple strategy that can save you hundreds, or even thousands, in interest, not to mention allows you to potentially pay off your debt sooner.

You’ve got to leverage the offer correctly, however. Here are the basic steps to using this strategy.

  1. Apply for a card with a 0% introductory APR offer on balance transfers.
  2. Move some or all of your balance from an interest-bearing card to the card with the 0% APR. (Wondering what card to use? You can view our picks for the best balance transfer cards here.)
  3. Pay down that card as quickly as you can.
  4. If the card still has a balance when the introductory offer is up, consider applying for another 0% introductory APR card, and transfer the balance again. (More on this in a minute.)

That’s the gist of the strategy. It’s a great option for those with credit high enough to qualify for 0% introductory APR offers. Before you dive in, though, read through these additional tips and tricks.

1. Watch the Balance Transfer Fees

First off, it’s essential that you look at and understand balance transfer fees. Most balance transfer deals come with an upfront fee that gets tacked onto your balance once you make the transfer. This is how credit card companies come out on top with balance transfer deals.

Many times, transferring the balance to the 0% interest card will still save you money. But that may not be the case if you’re transferring a relatively small balance or if you’ll pay off the debt quickly either way.

To know whether or not a balance transfer will save you money, you’ll need to calculate your break-even point. First, estimate how many months it will take you to pay off the transferrable balance. Then, figure out how much interest you’d pay in that period of time if you did not transfer the balance. Finally, calculate the total fee you’d pay on the balance transfer.

If the balance transfer fee is more than the interest you’d pay in your current situation, it’s not worth your while.

2. Keep Track of Timing

Because balance transfer deals typically last between six and 18 months, you’ll need to keep careful track of when each introductory offer ends. If you’re running multiple balance transfer offers to pay off a lot of debt, keep a spreadsheet of offer end dates, current APRs, and future APRs once the offer is up.

Have a look at your spreadsheet each month. When a card’s offer period is about to end, decide whether to roll the remaining balance to a new balance transfer deal, or to leave it where it’s at.

Remember, it’s in your best interest to pay your transferred debt off in full by the time the 0% introductory offers expires. While you could potentially move the debt to another balance-transfer credit card, you’ll likely have to pay another fee. Plus, you’ll incur another hard inquiry on your credit report, which could ding your credit score. That’s why the next step is particularly important.

3. Know Your Credit Situation

This debt payoff strategy won’t work for everyone. You’ll likely only qualify for good balance transfer deals if you have good credit in the first place. And it’s difficult to say for sure how this scheme will affect your score.

On one hand, the hard inquiries generated by additional credit card applications will ding your score. But having a higher overall credit limit will improve it. These two may balance one another out over time.

The key is to keep track of your credit score throughout this process. If your score isn’t currently high enough to qualify for a 0% introductory APR deal, you may want to take time to polish up your credit before you apply.

4. Don’t Add New Debt

The number one key to making this strategy work for you is to not add any new debt. If you can’t avoid temptation to spend because you now have more available credit, you’ll just add to your mountain of credit card debt. One option is to shred your cards, even if you don’t close your accounts. This makes it harder to impulse spend on those cards that now have no balance once you’ve completed the transfer.

As long as you keep from adding new debt and follow the steps outlined here, 2017 could be a great year for getting free from debt.

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The post This Trick Will Help You Finally Pay Off Your Credit Card Debt appeared first on Credit.com.

Student Loan Borrowers: Here’s How to Renew Your Income-Driven Repayment Plan

If you are on an income-driven repayment plan, it’s important to know that you must renew your plan each year in order to remain enrolled. And waiting on your student loan servicer to remind you of that fact isn’t the smartest idea

The Consumer Financial Protection Bureau recently filed a lawsuit against Navient, the country’s largest loan servicer. Among many other claims, the CFPB alleged Navient failed to adequately inform borrowers of their need to renew their income-driven repayment plans.

The outcome of the CFPB’s lawsuit is still unknown. Navient has already taken steps to improve communication with borrowers around repayment plan renewal time. Even so, the news serves as a prime example of why you should learn the details of the income-driven repayment renewal process on your own.

Here’s a quick guide on renewing your income-driven repayment plan. In this guide, we’ll cover:

Choosing an Income-Driven Repayment Plan

  • Income-Based Repayment Plan
  • Pay As You Earn (PAYE) Plan
  • Revised Pay As You Earn (REPAYE) Plan
  • Income-Contingent Repayment Plan
  • Income-Sensitive Repayment Plan

How to Enroll in an Income-Driven Repayment Plan

How to Renew Your Income-Driven Repayment Plan

Choosing an Income-Driven Repayment Plan

The DOE began offering income-driven repayment, or IDR, in 2009 to help ease the burden of student loans on borrowers struggling to repay federal student loans. If you can meet certain income or family criteria, you could pay as little at $0. Another important benefit is for the first three years after enrollment, many borrowers qualify to have the federal government pay part of the interest charges if they can’t make payments.

In addition to the two standard repayment and graduated repayment plans, borrowers have five income-driven repayment plans to choose from. It’s important to note that under most IDR plans, you’ll pay more over time than you would under the standard plans.

Here’s a quick rundown of each:

  1. Income-Based Repayment Plan

The traditional income-based repayment plan generally caps your payment at either 10% or 15% of your discretionary income. Your payments will never be more than what they would be on the standard 10-year plan. Payments are recalculated each year and are based on your updated income and family size.

After 25 years of payments, your loan balance is forgiven, although you’ll have to pay taxes on the forgiven amount when you file your taxes for the year.

  1. Pay As You Earn (PAYE) Plan

Pay As You Earn increases your monthly payment as your annual earnings increase, but generally sets your monthly payments at about 10% of your discretionary income. Only those who took out their first federal loan on or after October 1, 2010, or who received a direct loan disbursement on or after October 1, 2011, can qualify for the PAYE plan. Applicants must also have a partial financial hardship (disproportionately high debt compared to current income). Your payment is recalculated annually based on your updated income and family size. The loan’s outstanding balance is forgiven after 20 years.

  1. Revised Pay As You Earn (REPAYE) Plan

The Revised Pay As You Earn Plan expanded the PAYE plan to about 5 million more borrowers. You may qualify for REPAYE regardless of when you took out your first federal student loan. It doesn’t require you to have a partial financial hardship. REPAYE generally sets payments at about 10% of your discretionary income and doesn’t cap income. Spousal income is considered in calculating payments no matter how you file your taxes. Under this plan, undergraduate loans are forgiven after 20 years, while graduate loans are forgiven after 25 years.

  1. Income-Contingent Repayment (ICR) Plan

This plan caps your monthly payment at either 20% of your discretionary income or the amount you would pay on a two-year fixed payment plan, adjusted for your income. The payments are recalculated each year and based on updated income, family size, and the amount you owe. After 25 years of payments, your balance will be forgiven.

  1. Income-Sensitive Repayment Plan

The income-sensitive repayment plan serves as an alternative to the ICR plan for those who received loans via the Federal Family Education Loan Program (FFELP). It makes it easier for low-income borrowers to make their monthly payments. Under the ISR plan, you can make monthly payments based on your annual income for up to 10 years. The payments are set at 4% to 25% of gross monthly income, and the payment must be larger than the interest that accrues.

Currently, Federal Direct loans and Direct PLUS loans qualify for both IBR plans, but private loans and Parent PLUS loans do not qualify. Read more about your repayment options here.

How to Enroll in an Income-Driven Repayment Plan

If you are unable to afford your loan payments, you can apply for an income-driven repayment plan. The first time you apply for an IBR plan, you can either do so through the government’s website at studentloans.gov or contact your student loan servicer to help you enroll. You’ll need to log in to the platform and follow directions to fill out the application. It should take about 10 minutes, although you may be asked to mail in supplemental documentation to your servicer for review.

You can use the studentloans.gov website repayment estimator to estimate how much your payments, interest, and total amount paid would be under each plan option.

Repayment estimator results from studentloans.gov

Your servicer will notify you once your request has been processed.

How to Renew Your Income-Driven Repayment Plan

IMPORTANT: If you are on an income-driven repayment plan, you have to renew your plan each year.

This will require you to submit updated information about your annual income and family size to your servicer. The time to renew your plan is typically a month or two before the 12-month mark.

If you do not renew your income-driven plan, you’ll get kicked out of your IDR plan and your payment may increase since it will no longer be based on your income.

There are two ways you can renew your IBR plan:

  1. Visit the Federal Student Aid website at studentloans.gov: This is the fastest and generally the most convenient way to renew your plan.

Steps:

  1. When you get to the website, follow the “Apply for an Income-Driven Repayment Plan” link. You will follow the same link if you need to renew your IBR. The form will prompt you to select a reason for your request once you begin.

Select “Apply for an Income-Driven Repayment Plan” to get started:

 

Choose “submit recertification”:

  1. The application will ask you for information such as your marital status, household size, employment, and income. Once you are on the “Income Information” section, you’ll have the option to retrieve and use your most recent income information from your taxes if you filed them with the IRS.

Choose the “annual recertification” option:

The application asks for your personal information:

  1. Follow up with your loan servicer. If you have loans with multiple servicers, you only need to submit the request once. They should all be notified when you renew online via the Federal Student Aid site. Below is an example of a completed submission with one servicer; your other servicers will be listed if you have multiple servicers.

Completed submission:

  1. Use the Income-Driven Repayment Plan Request form

Steps:

  1. Download the official income-driven repayment plan renewal form here on the Federal Student Aid website or on your servicer’s website.
  2. Once you print and complete the form, you can submit it to your servicer’s website if they allow. Navient allows you to upload the completed form. You also have the option to mail or fax the paperwork to your loan servicer.
  3. Your servicer should notify you once your request has been processed.
  4. You should be able to monitor the status of your renewal on your student loan servicer account.
  5. If you mail or fax the paperwork to your servicer, you’ll need to mail one to each servicer individually as they will not be automatically notified of your request.

The post Student Loan Borrowers: Here’s How to Renew Your Income-Driven Repayment Plan appeared first on MagnifyMoney.

These 5 Credit Cards Can Help You Reach Your 2017 Money Goals

It may seem counter-intuitive, but a new credit card may actually help you meet your 2017 money goals.

You start out every new year with the best of intentions — This is the year you’re going to go to the gym more, start eating better and finally pay off your credit card debt. Sound familiar?

It’s great to aspire to these big changes, but sometimes lofty goals can be hard to keep. After all, even if your goal is to shed a couple pounds, who can turn down the friend who brings cookies right out of the oven?

We can’t quite help you fit into your skinny jeans, but what if we told you it’s possible to achieve the financial successes you’re hoping for in 2017 without feeling like it’s an uphill battle? You may not believe this, but a credit card, so long as it’s used responsibly, can help. These pieces of plastic can make it easier for you to stick to your goals — maybe even surpass them — all while spending the way you usually would.

Remember, part of qualifying for new plastic is your credit score. So the first step in your journey is to find out where your credit stands. You can do this by taking a look at two of your free credit scores on Credit.com. Once you know what types of cards you’re eligible for, you can take the next step in the process of achieving your goal.

If Your Goal Is to Save for a Dream Vacation: Chase Sapphire Reserve

This card really captured everyone’s attention when it was announced last fall, thanks to its 100,000-point signup bonus. While that offer is no longer available online (you have until March 12 to apply in person at a branch), new card members can earn 50,000 bonus points after spending $4,000 in the first three months. This equals $750 in travel rewards (like airfare or hotel rooms, for example) when booked through the Chase Ultimate Rewards portal. Best of all, there’s a $300 annual travel credit each year. Cardholders earn 3x the points on travel and dining. Just make sure your budget can handle the card before you apply: There’s a $450 annual fee and a 16.49% to 23.49% variable annual percentage rate (APR), depending on your creditworthiness.

If that $450 annual fee is a bit much for your budget, you may want to consider the Chase Sapphire Preferred credit card (find the full review here). You’ll get two times the points on travel and at restaurants but only get hit with a $95 annual fee (waved the first year). 

If Your Goal Is to Put More Money Aside for Retirement: Fidelity Rewards Visa Signature Card

Sure, you can put money in your company 401K plan (which is a really smart idea, especially if your company matches your contributions). But you can take it one step further and use the spending you’re doing now to benefit you down the road. With the Fidelity Rewards Visa Signature credit card, you’ll get 2% cash back on every net purchase deposited into your eligible Fidelity account. Best of all, there are no limits and no annual fee with this card. The variable APR for purchases is 14.49%.

If Your Goal Is to Pay Off Your Credit Card Debt: Citi Simplicity

Wait — are we really suggesting you get another credit card when you’re already carrying credit card debt? Yes. Well, sort of. First, you have to make sure you look at your budget and have a plan in place if you’re going to use a balance transfer credit card, as these cards can be really effective but come with a time limit.

Here’s what we mean: When you transfer your credit card balance to the Citi Simplicity credit card (full review here), you will enjoy 21 months with no interest charges. (Full Disclosure: Citibank, as well as Chase, Visa and Discover advertise on Credit.com, but that results in no preferential editorial treatment.) That gives you almost two years to focus on paying down your balance without tacking on additional charges. (Note: After the introductory APR expires, the variable APR will be 13.49% to 23.49%, depending on creditworthiness.) You won’t be paying an annual fee with this card either.

Not sure how long it will take you to pay down your balance or how much you should be aiming to pay each month? Consider playing around with our credit card payoff calculator tool to see different possibilities.

If Your Goal Is to Develop Better Financial Habits: Citi Double Cash

Do you have a habit of missing deadlines, one of which includes paying your bills on time? Hey, we get it — life gets busy and the statement that came in the mail gets buried under other things on your kitchen counter. But paying your bills on time not only helps you avoid late fees, but will also have a positive effect on your credit scores (payment history is the largest influencer of your scores).

Even with all that said, sometimes a little extra motivation can help. Enter the Citi Double Cash credit card (read our review here). You’ll get 1% cash back on all your purchases, but there’s incentive to pay your statement off because, when you do, you earn another 1% cash back. That’s like being handed money for being responsible. These cash back rewards are unlimited, with no caps or category restrictions, and you can redeem them for statement credits, gift cards or checks. And if you do slip up again, you won’t get a late fee the first time it happens. There is no annual fee and your variable APR is 13.49% to 23.49%, based on your creditworthiness. 

If Your Goal Is to Build Up Your Emergency Fund: Discover it Card

There are a lot of cash back cards on the market, all with different tiers and offerings. But one that is going to offer some of the biggest kickbacks is the Discover it credit card (you can read our review here).

Each quarter, there are new reward categories that offer you 5% cash back on up to $1,500 in purchases — through March this includes gas stations, ground transportation and wholesale clubs — and an unlimited 1% cash back on all other purchases. Discover will match whatever cash back you’ve earned at the end of the first year. There’s no limit, no expiration date and no annual fees with this card, either. So as long as you’re paying on time so you don’t pay interest (there’s a variable 11.49% to 23.49% APR, after the 14-month 0% introductory rate expires) you’ll really be able to increase your rainy day savings.

At publishing time, the Citi Simplicity, Citi Double Cash card and Discover it cards are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for these cards. However, these relationships do not result in any preferential editorial treatment. This content is not provided by the card issuers. Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuers.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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The post These 5 Credit Cards Can Help You Reach Your 2017 Money Goals appeared first on Credit.com.

How to Prepare Your Money for a Trump Presidency

Here's how to prepare your funds for a Trump presidency.

After a volatile election, President-elect Donald Trump will be inaugurated as the 45th president of the United States on Jan. 20. Consumers are divided over what this means for their finances — some are eager to bet big on American stocks, while others are considering hiding their cash under a mattress. To help you prepare for the changes ahead, we spoke with a handful of financial experts who shared their thoughts on investing with caution.

‘Dysfunctional Politics Aren’t New’ 

“We tend to invest based on emotion, and some people are really high on Trump, and some people are scared to death of Trump,” said Allan Roth, founder of Wealth Logic, a financial planning firm in Colorado Springs, Colorado. “When Obama was elected, a lot of people were like, ‘We’re going to print money, U.S. stocks are horrible, put everything in gold, avoid the dollar, avoid the stock market’ — and the absolute opposite happened. I’m a believer in capitalism, and capitalism trumps dysfunctional politics. And dysfunctional politics aren’t new.”

Roth won’t be the only financial expert keeping a grounded outlook. Jude Boudreaux, a financial planner based in New Orleans, said the main question around investing should be your goals and time horizon, not what we expect to happen in the next four years. “The biggest message I have is not to overreact,” he said. “The next 12 months, from a market standpoint, are not going to be the difference between you being able to retire successfully or not.”

“My advice to consumers is boring,” said Michael Falk, CFA and partner with Focus Consulting in Long Grove, Illinois. “Spend less than you earn, keep your focus on your goals, which are likely more than four years away, and never stop learning.” (You can see how your financial decisions are affecting your credit by viewing your free credit report snapshot, with updates every two weeks, on Credit.com.)

Hedge Against Inflation 

Many investors are rightly concerned about inflation, said Robert Dowling, a financial planner with Modera Wealth Management in Westwood, New Jersey. Employment is up, and Fed Chair Janet Yellen recently said it “makes sense” for the U.S. central bank to gradually raise interest rates. For these reasons, he said investors may want to give themselves exposure to Treasury Inflation-Protection Securities, or TIPS, which provide a hedge against inflation, as well as commodities. “I would never suggest selling everything and buying these two different asset classes,” he said, but if investors have exposure to these, it could benefit their portfolio when inflation takes hold.

Think Globally

Another option for concerned investors is adding more global exposure, Dowling said. Again, you’ll want to broadly diversify, not concentrating too much on one country or type of investment, and avoid currency risks by choosing a quality mutual fund with help from an expert. “There is a portion of exposure we always like to have to emerging markets — small economies and small countries offer lots of growth (and volatility),” Boudreaux said. Investing no more than 5% “has always helped us.”

When betting on emerging and developed markets — which are all available in inexpensive index funds — “don’t pick stocks just to pick them,” advised William Bernstein, author of The Investor’s Manifesto. “The transaction costs will eat you alive.” Keep your risk tolerance in mind and try not to overestimate it. “If you think you can [tolerate more risk], maybe you want to tamp it down,” he said. “Once every 10 years you get a real financial crisis. You want to have an allocation you can live with when that does happen — and that’s not an if, that’s a when.”

Set Aside Cash

“Because I think the potential impacts are so opaque,” Falk said, referring to the Trump presidency, “I lean toward avoiding leverage and major directional bets, and maintaining some dry powder (cash) or quick access to capital.”

Dowling agreed, suggesting consumers shore up at least two years’ worth of living expenses, which can be stashed in a CD or money market account. For retirees, having the cash to draw from while they work to replenish their lagging portfolio — a popular strategy known as cash-flow management — can be invaluable. For young professionals, it can help to have those savings on hand in case of emergency. “Pay yourself first, fund your Roth IRA and build good spending habits,” Boudreaux advised. “The spending habits you develop in your 20s and 30s will have a much greater impact on your financial future than what the market does in the next two to four years.”

Image: BasSlabbers

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5 Risks of Working with a Debt Settlement or Debt Relief Firm

If you’re deep in debt, you may have looked into getting some outside help to find relief. Frequently, your search for aid will bring you to debt settlement firms.

Debt settlement firms negotiate directly with your creditor to reduce your debt. If they succeed in settling your debt for a lesser amount, you will then be required to make one lump-sum payment, effectively wiping out your obligation.

Using these firms may sound like a lifesaver to someone struggling to pay off many debts at once. But debt settlement firms can actually cause more harm than good to your finances if you aren’t careful.

“Based on all the evidence we’ve seen, it is extremely rare that anyone benefits from using a debt settlement firm,” says Andrew Pizor, a staff attorney with the National Consumer Law Center.

Before you agree to work with a debt settlement firm, it’s important to know the risks:

5 Risks of Working with a Debt Settlement Firm

  1. You will have to stop paying your debts. When you begin working with a debt settlement firm, many firms will encourage you to stop paying your debts and start paying into a third-party bank account. The idea is that you will eventually build up enough money in that account to be ready to make a lump-sum payment when the firm succeeds in convincing your lender or collections agency to settle.

This, of course, means that your accounts are going to become increasingly delinquent. It can take up to 36 months to fully fund a debt settlement firm account, according to the Federal Trade Commission.

While you are not paying your debt, your creditor can send your account to collections or even file a lawsuit against you before the settlement firm gets a chance to negotiate. You could also be responsible for any interest, late fees, and legal fees that have accrued over that time as well.

2. They may not succeed in settling your debt. Once you have saved up enough money to make a lump-sum offer to the creditor, the debt settlement firm will attempt to enter negotiations. What they may not tell you is that some creditors will not work with these firms as a rule. That means it’s possible that after you’ve saved enough money for the payment — meanwhile, allowing your accounts to become severely delinquent and your credit score to tank — you could be left without a resolution at all. To avoid this, call your lender or collections agency directly to ask if they work with debt settlement agencies before you sign up for their services.

3. They’ll take a portion of your debt savings. If the firm is able to successfully negotiate, they will often take a cut of your savings in return. For example, if you owe $10,000 and they are able to negotiate a lump-sum payment of $8,000 with $2,000 of your original debt forgiven, the firm would take a percentage cut of that $2,000.

4. Your credit will tank. It is important to note that debt settlement shows up on your credit report when it is reported to the credit bureaus. It will serve as a red flag to future lenders that in the past, you have not paid your debts in full. This could result in higher interest rates, smaller lines of credit, or even failure to get approved for credit at all.

5. You could face a hefty tax bill. If the amount forgiven is $600 or more, you will most likely have to report it as taxable income. Let’s look back at our earlier example. When that person settled their $10,000 debt for $8,000, the lender effectively forgave $2,000. To the IRS, that forgiven debt could be treated as additional income and you could owe taxes on it.

What to Look for in a Debt Settlement Firm

There are six things you should consider red flags when it comes to debt relief services, according to the FTC:

 

  • The company charges any fees before it settles your debts
  • The company advertises that they are part of a “new government program” to bail out personal credit card debt. There are no such programs.
  • The company guarantees it can make your unsecured (credit card) debt go away
  • The company tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
  • The company tells you it can stop all debt collection calls and lawsuits
  • The company guarantees that your unsecured debts can be paid off for pennies on the dollar

Almost all states have some form of regulation for debt relief services. Some states ban them altogether.

A debt settlement firm may be licensed to operate in your state, but that does not mean they are necessarily the best for your needs. Because state licensing agencies are not federally regulated, quality standards can vary widely from state to state.

What should you look for, then?

A best-case scenario, according to Pizor, is finding a company that only takes a percentage of your debt reduction in exchange for their services. “This setup helps better align their interests with your own,” Pizor says. If you do well, they do well.

How to Avoid Debt Settlement Scams

Most debt settlement firms focus on unsecured consumer debt, like credit card debt. The most common scams in these situations involve telemarketing. You’ll receive a call from a company posing as a debt settlement firm that promises to reduce the amount of debt you owe as long as you pay an upfront free. They may even tell you that you don’t have to pay a fee until later as long as you’re saving money in a third-party account.

The latter sounds legitimate, but in both these situations, the supposed debt settlement firm can easily run with your money. There was a flurry of these telemarketing scams following the 2008 financial crisis, prompting the FTC to add further federal regulations under their Telemarketing Sales Rules.

If you can’t sit down with someone in person, it’s difficult to judge their legitimacy. In these situations, it’s best to just hang up.

Another tactic scammers perpetrate is using a lawyer as a front. This lawyer may be licensed to practice in your state, but will outsource your debt woes to companies across the country, or even the world, that have no legal background.

In order to avoid this scam, make sure you can sit down with the lawyer face to face in their office. Pizor recommends asking probing questions to get a feel for their legitimacy, including, “Who will be working on my case?”

If the lawyer or a paralegal in their office will be doing the work, that is much more acceptable than someone they cannot immediately supervise in person, or someone without a background in law.

Scams also frequently happen in the student loan sector. You’ll often see settlement firms advertising that there is a “new government program” that could help you settle your student loan debt. This is tricky because there are legitimate government programs that can help those with federal student loans defer payments or even forgive their remaining debt, but you should never have to pay anyone a fee in order to access these programs.

In late 2014, the Consumer Financial Protection Bureau prosecuted two companies that were preying on those with student loans.

Try Negotiating Your Own Debt Settlement

As long as you’re aware of the effect it may have on your credit, you can negotiate a settlement on your own. Many creditors have a floor for how much they’ll reduce your debt in favor of a lump-sum payment. This floor applies to debt settlement firms and consumers alike. By entering negotiations without a third party, you can save yourself the fees and potential victimization that you would risk by working with a debt settlement firm.

There are two important things to remember before you settle your debt:

  1. You will likely need to provide a lump sump payment right away. It’s unlikely a debt collector or lender will accept installments. Also, having the ability to make a lump sum payment could give you additional bargaining power.
  2. As we mentioned before: If the debt is settled for a lesser amount, you may be taxed on the portion of the original debt that was forgiven.

Consider Paying Your Debt in Full

Debt settlement leaves a scar on your credit report that will take years to fade. If possible, attempt to negotiate a lower interest rate and/or longer terms that may decrease your monthly payment. Just be aware that a longer term may lower your monthly payments but increase the amount of interest you pay over the course of your loan, even if your interest rate goes down or stays the same. However, you’ll more likely be able to afford your payments and possibly save your credit report.

That being said, some debts may have passed their statute of limitations in the state in which they originated. Once that statute of limitations has been passed, it is no longer possible for the lender or collections agency to sue you for those unpaid debts. Furthermore, they may have already fallen off your credit report. However, if you make any further payments, the clock will restart and the debt will be revitalized. Consult a consumer law attorney or a credit counselor before deciding whether to make a payment on an old debt.

 

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3 Lies Your Student Loan Company Might Tell You

Student loan servicer Navient found itself in hot water with a consumer watchdog on Wednesday, when the Consumer Financial Protection Bureau announced a long-anticipated lawsuit against the company. Navient, formerly known as Sallie Mae, is the nation’s largest servicer of both federal and private student loan debt. For years, the CFPB alleges, Navient loan servicers steered borrowers who were struggling to repay their loan debt in the wrong direction, “providing bad information, processing payments incorrectly, and failing to act when borrowers complained.

One of Navient’s biggest transgressions, the CFPB alleges, is that Navient representatives encouraged borrowers to put their loans in forbearance even when it wasn’t the best option. By doing so, Navient potentially added $4 billion to its own coffers in the form of additional interest charges.

The lawsuit is a major wake-up call for the student loan servicing industry as a whole. It should also trouble the millions of student loan borrowers who may rely on their student loan servicer for advice when they are deciding how to repay their debts. With vast numbers of customers to support and an increasingly complicated menu of federal repayment plan options to sort through, student loan servicers may not be the best sources of guidance.

Here are three lies student loan servicers may tell you:

1. “Can’t pay? You’re better off putting your loans in forbearance.”

When you can’t scrounge up the money to cover your student loan bill, forbearance can sound like a dream option. Forbearance allows borrowers to pause student loan payments for up to 12 months at a time. Your loan servicer may encourage you to put your loans into forbearance because it is a much easier process on their end. But here’s what they may not tell you: Interest will continue to accrue on your loans. So while you enjoy the break from those student loan bills, your loan balance will balloon more and more every day. Over time, you could bring your loans out of forbearance only to find out you now have even higher monthly payments because your balance has increased.

If you know you will be unable to make your federal student loan payments for an extended period of time, a better option may be to enroll in an income-driven repayment plan. IDR plans can reduce your payments to an affordable amount based on your annual income (sometimes as low as $0/month). Interest will still accrue if you enroll in an IDR plan; however, the government may cover your unpaid interest charges if your monthly payment is not enough to cover them. That benefit lasts for up to three consecutive years from the date you enroll in the IDR plan. And it does not apply to borrowers whose loans are forbearance.

Another perk of IDR plans is that your remaining debt is generally forgiven after your plan period is over – from 20 to 25 years, depending on which plan you are enrolled in (see chart below).

Source: https://studentaid.ed.gov/sa/

It is especially important for people who work in nonprofit or government jobs to understand their income-driven repayment plan options. After making 120 consecutive federal student loan payments (10 years) while working in the public or nonprofit sector, you may be eligible for public student loan forgiveness. But if you are in forbearance, you are not making any payments at all, which means you do not get credit toward your 120 payments goal. If you are in an income-driven repayment plan, however, those payments will count toward your public student loan forgiveness required payments.

2. “Once you enroll in an income-driven repayment plan, you’re set for life.”

Contrary to what your student loan company may tell you, it is absolutely vital to re-apply for income-driven repayment plans each year. That is because the plans are based on your annual household income. If your income changes during the year, you need to update your income on your income-driven plan in order to calculate the proper monthly payment.
If you do not renew your IDR plan, you could wind up with higher student loan payments you cannot afford and you may risk falling into delinquency again. What’s more, you have to be enrolled in an income-driven repayment plan in order to qualify for federal student loan forgiveness. If you let your enrollment lapse, you could derail your eligibility for future loan forgiveness.

Unfortunately, millions of student loan borrowers fail to renew their income-driven repayment plans each year. The CFPB is working to crack down on student loan companies that do not properly inform borrowers about the deadline to renew, but it’s also up to borrowers to stay on top of their enrollment status. In order to renew your plan, contact your student loan company directly and ask them to re-enroll you. Alternatively, you can download the application and fill it out yourself here: Income-Driven Repayment Plan Request.

Before you enroll in an income-driven repayment plan, know the cons as well as the pros. You may reduce your monthly payment but pay more in interest over the long term. Also, if your loans are ultimately forgiven, you may owe federal tax on that forgiven amount. Use this student loan repayment calculator to find out if IDR is the right plan for you.

3. “We’re happy to allocate your payment to whichever loan you want.”

Student loan borrowers often have multiple loans to manage. Let’s say you’ve got five student loans. One month, you realize you have an extra $200 to put toward those loans. Theoretically, you should be able to ask your loan company to take that extra $200 and apply it to the loan with the highest interest rate. It is generally considered wise to allocate extra payments toward whichever loan has the highest interest rate. This way, you are working to reduce the loan that is accruing the most interest each month and avoiding spending more on interest than you have to.

In the case of Navient, the CFPB alleged that the company’s representatives repeatedly misallocated borrowers’ payments. In order to fix the issue, the borrowers themselves had to keep a close eye on their monthly payments and alert the company.

It’s important to review your loan statements carefully each month to be sure your payments are allocated the way you desire. Some student loan servicing websites make it fairly simple to allocate your payments manually, without having to rely on the help of one of their loan specialists. Even so, play it safe and double-check your loan statements to be sure your payments are being applied according to your wishes.

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Most Borrowers Don’t Think Trump Will Be So Bad for Their Student Loans

Many borrowers actually like an idea about student loan repayment Trump mentioned in a speech during his campaign.

Nearly 40% of student loan borrowers are concerned that Donald Trump’s administration will negatively impact their student loans, according to a new survey from Student Loan Hero. As the country moves into a new era of governance, some graduates are concerned that an already-difficult student debt situation will get worse.

In fact, more than one-fourth (26.6%) of survey respondents admitted they believe a Trump administration will have a “very negative” effect on their student loans. On the other hand, about 40% said they think Trump will have neither a positive nor a negative effect on their student loans, and the remaining respondents (about 20%) said they think he will have a somewhat or very positive effect on their student loans.

These figures come from a poll conducted by Google Consumer Surveys on behalf of Student Loan Hero from Jan. 6 to 9, and the results are based on a nationally representative sample of 1,001 adults with student loans living in the United States.

In the last few years, there’s been quite a lot said about the growing student loan crisis. But what can be done? Student loan borrowers have some idea of policy changes they’d like to see implemented during the Trump administration.

Borrowers Want More Student Loan Forgiveness Options

When asked which student loan changes they would like to see implemented under Trump’s administration, nearly half (44.3%) of respondents chose “federal loan forgiveness after 15 years.” In a speech during his campaign, Trump mentioned something along those lines, proposing a repayment plan in which borrowers pay 12.5% of their income for 15 years, after which any remaining balance would be forgiven. (Whether or not that’s a viable proposal is another matter.)

Currently, student loan borrowers can have their loans forgiven after 20 to 25 years of payments on a federal income-driven repayment plan. There is also a program for federal student loan forgiveness after 10 years in a qualifying public service job (only payments made after Oct. 1, 2007 count). Additionally, borrowers in certain industries can qualify for partial loan forgiveness. However, not everyone qualifies for these forgiveness programs; of those who do, not all will actually have any debt left over by the time the repayment term is up.

It’s not surprising many student loan borrowers expressed interest in a federal loan forgiveness program that discharges student debt after 15 years. According to the survey, 25% of respondents have either stopped making student loan payments or have lowered the amount they put toward repayment in the hope that the government will forgive student loan debt in the future.

Borrowers Also Want Refinancing Options

Student loan borrowers aren’t just asking for forgiveness. Close to one-third of respondents (31.4%) would like to see a program to refinance federal student loans implemented during a Trump administration.

Currently, it’s only possible to refinance through private lenders — the federal government doesn’t offer a refinancing option. The problem is that refinancing federal loans with a private lender means losing access to federal protections such as income-based repayment, deferment, forbearance and some forgiveness programs. Not to mention, borrowers are subject to credit checks and other underwriting criteria that’s at the discretion of each individual lender.

A federal refinancing program could help more borrowers gain access to refinancing options, retain their federal benefits and allow them reduce their interest charges.

How Much Debt Do Student Loan Borrowers Have?

Addressing student loan debt is likely to be on the radar for the incoming administration, especially with nearly $1.4 trillion in student loan debt outstanding.

According to the survey, more than one-third (36.4%) of student loan borrowers have more than $30,000 in debt. Nearly one-fifth (19%) have more than $50,000 in student loan debt. Interestingly, 7.5% of the survey’s respondents aren’t even aware of how much debt they have.

It’s yet to be seen how Trump or Betsy DeVos, his nominee for Secretary of Education, will handle what many consider to be a crisis, but the consensus seems to be that something needs to be done. In response to a request for elaboration on Trump’s student loan repayment proposal, a spokeswoman from his transition team said, “If confirmed, the Secretary designate looks forward to working with the President-elect, the Congress and other stakeholders to address the issues of student debt and repayment.”

No matter who is president, student loan debt can seriously impact your financial situation, including your credit score. (You can see just how much by reviewing the two free credit scores you can get through Credit.com, which are updated every 14 days.) Knowing your options when it comes to student loan repayment and refinancing will be crucial over the next four years and beyond.

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Chase Freedom Unlimited or Capital One Quicksilver Cash Rewards: Which Card’s Right for You?

Here's how to choose between some of the best cash back credit cards — Chase Freedom Unlimited and Capital One Quicksilver Cash Rewards.

If you are looking to pick up a new cash back credit card, you have two choices. You can either get a card that offers different reward values depending on the type of purchases you are making, or you can choose a card that offers a flat rate, no matter what you might be buying. The latter are hassle free and take very little effort on the part of the consumer.

If you are looking to go down the easier path, then two of the best cards available are Chase Freedom Unlimited (which we’ve reviewed in detail here) and Capital One Quicksilver Cash Rewards. Both of these cards will offer the same flat rate on purchases, and both have no annual fee. Where these cards differ slightly is in how you redeem your rewards. In this article, we’ll walk you through the benefits each card has to offer. We’ll also talk a little about the costs and help you determine which card’s right for you.

Comparing the Rewards

The earnings potential is where these cards are very similar. With Chase Freedom Unlimited, you have the ability to earn an unlimited 1.5% cash back on every purchase. You also receive a generous signup bonus of $150 after spending $500 in the first three months. And you receive an additional $25 bonus when you add an authorized user who makes a purchase in the same three-month period.

The Capital One Quicksilver Cash Rewards card also offers 1.5% back on every purchase. There is no limit to the amount of cash back you can earn. Plus, when you sign up for this card, you will receive a $100 bonus after spending $500 in the first three months.

Redeeming Your Rewards

If your sole purpose in having either of these cards is to earn cash back, both will do the job. However, if you would prefer having additional redemption options, then you will enjoy the Chase Freedom Unlimited card. While this is technically a cash back card, you will also have the opportunity to convert your earnings into Ultimate Reward points, with some restrictions. You will then be able to use these points for travel through the Ultimate Rewards portal. If you go this route, your points will be worth 25% more. Alternatively, you can transfer points to one of the many airline or hotel transfer partners.

Now that you’ve heard the good stuff, let’s discuss why to choose either card.

Reasons to Pick the Chase Freedom Unlimited

If you are trying to decide between these two cards, then you are likely to choose the Chase Freedom Unlimited for two reasons. First, you will receive a higher signup bonus, including the ability to earn even more when you add an authorized user. The second reason is that you’ll have the option to convert your cash back into Ultimate Rewards. While earning cash back is nice, knowing you can also use your rewards for travel might be something you’d like.

If you are planning to make a large upcoming purchase, then you might find the introductory APR from the Chase Freedom Unlimited to be a little more useful. You will receive a 0% APR for 15 months on purchases and balance transfers. After that, there’s a variable 15.49% to 24.24% APR. The Capital One Quicksilver Cash Rewards card only offers 0% for the first nine months (and a variable 13.49% to 23.49% APR after).

Reasons to Pick the Capital One Quicksilver Cash Rewards Card

The Capital One Quicksilver is great if you are looking for a plain-and-simple cash back card. This card is perfect for someone who doesn’t want the hassle of transferring points and figuring out whether they’re getting a good value. Plus, it has no foreign transaction fees (Chase Freedom Unlimited has a 3% fee), so this card is ideal for anyone who enjoys traveling outside the U.S.

Remember, before you apply for any credit card, it’s a good idea to know where your finances stand first. You can view two of your credit scores, with updates every 14 days, for free on Credit.com.

At publishing time, the Chase Freedom Unlimited and Capital One Quicksilver Cash Rewards Card are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

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