7 Ways to Support Charities, Even If You’re Broke

4 Ways to Avoid Charity Scams

When college student Kara Skinner was short on cash, she started the blog Lover’s Quarrel, reviewing romance novels and including affiliate links in her posts. Thanks to her posts, she earned $60 from those links. But instead of splurging on pizza and a night out with friends, Kara decided to use her money in a different way: she donated it.

“I read I Am Malala and was so inspired,” Kara says. “Not everyone can get an education like I can because of where they live or their gender.”

Since launching her blog, Kara has donated to organizations like the Malala Fund and the Arbor Day Foundation. Because she uses her earnings from her website, she never has to dip into her bank account to contribute to charities.

Kara isn’t alone in her outlook: millennials are extremely generous when it comes to nonprofit causes. In fact, the majority of this age group donate to charity—an especially notable feat when you consider that debt is the biggest money-related stressor millennials face.

7 Ways to Donate to Charity

While that charitable mindset is admirable, finding the extra money to donate can be difficult. Between bills and debt payments, there’s often very little left over to give away.

However, a lack of money doesn’t have to hold you back from helping your community. You can make a big difference by doing one or more of the following things, without hurting your monthly budget.

1. Sign Up for AmazonSmile

If you shop on Amazon, you can help nonprofit organizations just by making routine purchases. Once a charity signs up with AmazonSmile, Amazon customers can select that organization to receive donations.

To take part in the program, visit Smile.Amazon.com instead of Amazon.com, and do all of your shopping from the new link. After you check out, the AmazonSmile Foundation will donate 0.5% of the purchase price of eligible products to the charity you choose.

That number might not sound like much, but it can add up over time. If you spent $1,000 on the site on regular purchases like toilet paper, laundry detergent, and other essentials, AmazonSmile would donate $5 to your selected charity.

2. Sign Up for Rebate and Reward Apps

If you’re short on cash, you can earn extra money to donate just by signing up for rebate and reward apps. Sign up for apps such as Ibotta and Checkout 51 and turn your receipts into cash.

These apps offer rebates for shopping at select stores or purchasing specific brands. After you’re done shopping, take a photo of your receipt with the app of your choice. Money will be deposited into your account.

Those rebates could add up to a hefty amount of cash. In fact, some people rack up hundreds with rebate and reward apps. With that money, you can make a sizeable donation without digging into your savings.

3. Donate Blood, Plasma, or Bone Marrow

If you’re a healthy adult, you can make a lifesaving donation. Those with severe illnesses or who have been in accidents often need blood, plasma, or bone marrow donations to recover. However, thousands of people cannot find a match, and there are sometimes donor shortages.

Donating your blood, plasma, or bone marrow can be a lifesaving act of charity in itself. In many cases, centers will pay you to donate plasma, allowing you to help someone in need while you earn extra cash to donate. When it comes to bone marrow, however, you’re not likely to be paid for donating—but you can still help save someone’s life.

To find a collection center near you, visit the American Red Cross, Donating Plasma, or Be the Match.

4. Cut Your Hair

Do you get compliments on your long, beautiful hair? You can use those lovely locks to help someone else going through a rough situation.

Children and adults with alopecia or those undergoing chemotherapy can experience hair loss. They often turn to wigs to cover their scalps and feel more confident. Human-hair wigs are the best you can buy; they look the most natural and can be washed and styled like regular hair.

However, human-hair wigs can cost thousands, and they are often unaffordable for many families. Several organizations try to ease the burden by collecting human hair to make wigs for both adults and children.

Locks of Love, Pantene’s Beautiful Lengths program, and Wigs for Kids all accept hair for wigs. While each organization has its own requirements, in general, you must meet the following guidelines to donate your hair:

  • Your hair must be securely fastened in a ponytail.
  • If your hair is in a ponytail, the tail must be at least 8 to 12 inches long to be useable.
  • Your hair cannot be bleached or highlighted. In most cases, dyed hair that does not have any bleached sections is acceptable.

5. Donate Gently Used Clothing or Household Items

If you have old clothes, furniture, or household items lying around, you might be able to help someone in need.

You can donate items to organizations such as Goodwill, which can sell those items in thrift stores and use the proceeds to fund other programs—such as employment training and job placement services—for people in your community.

Use Goodwill’s locator tool to find a donation site near you.

6. Use Side Income to Fund Donations

If you’re like Kara and don’t have much money to donate with your current budget, you can start a side hustle to make extra cash. Side hustles allow you to work as much as you want, when you want. If you want to make a donation around the holidays, you can take on seasonal work to get the money.

Because it’s extra income, you won’t miss it after you give it away. And you won’t fall behind on your rent or student loan payments, either.

7. Collect Spare Change

Even your piggy bank can be turned into a source of donations. At the end of each day, empty your pockets and bag and deposit any loose change into a jar.

You can also boost your donations by looking for forgotten change on sidewalks or streets. One blogger collected $27 just by looking around at car washes, in gutters, and in parking lots.

Once your change jar is full, take it to the bank to turn it into cash before donating it to a charity of your choice.

Donating to Charity

When you’re broke, it’s hard to scrounge up the money to help others. But if you’re determined to help your community, thinking creatively can help you make a tangible difference. Try accounting for donations in your monthly budget to make it a regular part of your spending habits or try looking for credit cards that make it easy to give to charity. By taking on extra work or sacrificing your time, you can help change someone’s life.

Image: istock

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When Your Student Loans Are Sold: What You Need to Know

Lenders can sell your loans whenever they want, so it’s important to have some safeguards in place. Here's what you need to know.

While I was working on paying off my student loans, I checked my account balances weekly. One day, I logged into my account and the $10,000 I had in outstanding loans had disappeared.

At first, I was elated. Had some generous benefactor swooped in to pay off my debt? Then I realized I couldn’t be nearly that lucky — so I tried to figure out what happened.

Many people, including a financial professional, told me not to look a gift horse in the mouth and ask too many questions. But I didn’t think loan servicers were likely to have forgotten about my debt.

Tracking Down My Loans

I tried emailing my loan servicer to find out what happened, but didn’t get a response for a few weeks. I was afraid my loan payments would become due and I wouldn’t know where to make payments, so I decided to check my credit report to see if I could find my loan. (You can view two of your credit scores for free on Credit.com.)

Sure enough, my credit report showed my loan had been moved to a new loan servicer. When I reached out to the issuing bureau, they said my old lender had mailed me a letter as notice of the change, but I never received a letter.

It’s possible they had an old address on file, or I accidentally tossed it in the trash, but I’m glad I pursued it. If I hadn’t continued digging, I never would have found out and could have defaulted on my debt.

What Happens When Your Student Loan Debt Is Sold

My situation is not unique. Federal and private student loans can be sold to other lenders at any time. There’s a market of organizations that specialize in buying and servicing student loans.

When your loan is sold to a new lender, you’re indebted to the new owner of the loan. You have no more contact with the old one. While the new servicer might offer some new benefits, the basics of your loan — such as the interest rate or repayment term — will not change.

The original lender will send you a letter notifying you of the upcoming switch. Then, you’ll get a second letter from the new lender that explains why your loan was sold, who your new loan servicer is and how to make payments.

How to Protect Yourself

Because lenders can sell your loans whenever they want, it’s important to have safeguards in place. You don’t want to miss a notification and end up falling behind on your payments. Here’s what you can do to protect yourself:

Update your contact information. If, like me, you’ve moved around, it’s important to make sure your lenders have your most recent contact information. Log in regularly and check to see they have the right mailing address and phone number.

Read all mail. Read every piece of mail that comes from your lender. Don’t just assume it’s a monthly statement and toss it. It could be an important notification.

Check the notification for accuracy. If you receive a notice that your loan is sold, make sure the balance and terms of your loan are accurate.

Contact your lender with any problems. If you can’t find your loan or make payments, call your lender’s customer service line right away.

Track your loans with the National Student Loan Data System (NSLDS). The NSLDS is a database that tracks your federal loans. It will list which loans are under your name and the loan servicer for each one.

Check your credit report. If you aren’t sure if your private loan has been sold, you can find out by checking your credit report for free at AnnualCreditReport.com. It will list all your current loans and who owns each debt. Once you have the name of the lender, you can contact them to get your login information and start making payments.

By keeping your information up to date and checking your account regularly, you can prevent any confusion when managing your loans.

What to Do If You Hate Your New Loan Servicer

In my case, my new loan servicer was an improvement over the old one. Their online platform was easier to use and their customer service department was more responsive.

Some people don’t have the same experience. The Consumer Financial Protection Bureau reported there are thousands of calls each year from consumers about their student loan servicers.

If you have problems with your new loan servicer, such as delays in getting a response for an issue you reported, here’s what you can do:

Contact the student loan ombudsman. If you can’t get your problems fixed, you can contact the student loan ombudsman. An ombudsman is a neutral third party that will work with you and your lender to identify a solution.

Refinance your loans. If you’re simply looking for more features or want to reduce your interest rate, refinancing your student loans might be a smart approach. If you refinance, you’ll work with a private lender to take out a new loan for the amount of your old one. You can get a different repayment term, monthly payment and interest rate.

Managing Your Loans

The student loan system can be incredibly complex. Trying to navigate it can be difficult, especially since your loans can be sold to a new lender at any time.

You can protect yourself by being proactive and monitoring your credit report. If you hate your loan servicer, know that you’re not stuck with them. You can identify a resolution or get a whole new servicer who offers more favorable repayment terms.

For more information on shopping for a new loan, here’s what to do if you hate your loan servicer.

Image: kajakiki

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Meet the Man Who Makes $600 a Month Selling Crickets

When Jeff Neal’s wife told him she wanted to quit her job to stay at home with their kids, he had to think about how to make one income work.

When Jeff Neal’s wife told him she wanted to quit her job to stay at home with their kids, he had to think about how to make one income work. With over $21,000 in student loans, there wasn’t much extra money lying around. Losing another income stream would be difficult.

But rather than give up hope, Neal did something no one expected. He launched a side business that helped bring in extra money: selling crickets online.

Yes, you heard that right. Crickets.

Now, Neal makes $600 a month selling bugs online at The Critter Depot, which helps him pay off his debt. Read on to learn more about this odd side hustle and how Neal has turned it into a steady income stream.

Searching for a Side Hustle

Neal graduated from Temple University and got a job as a project manager. While he made a good salary, he had student loan debt and a growing family. When his wife decided she wanted to stay home with the kids, Neal knew he had to make changes.

“My wife wanted to stay home, so I had to take full responsibility as the sole provider,” he says.

Since his full-time job involves e-commerce, he focused his side-hustle search on online jobs. After doing extensive research, he decided to put all of his efforts on one specific niche.

The area that he identified was in the pet industry; reptile and exotic animal owners need live crickets to feed their pets, but getting them can be difficult — and expensive. So, Neal’s site caters to pet owners, selling crickets of various sizes in bulk.

But before you rush out and buy tanks and crickets to replicate Neal’s success, you should know his approach is even more interesting. He actually doesn’t deal with the crickets at all. Instead, his business is a drop shipping company.

What Is Drop Shipping?

Drop shipping is a business model where the store doesn’t stock any of the items it sells. Instead, when a customer purchases a product, the drop shipper works with a manufacturer — or in this case, a cricket supplier — to fulfill the order. The drop shipper never comes into contact with the product, so wrangling crickets isn’t part of Neal’s day.

“I don’t know anything about raising crickets,” he admits. “They have short life spans and unique nutritional and environmental needs. It’s a lot of work that takes a lot of knowledge. When I set up my business, I found someone who breeds crickets. He takes care of them and ships them; I just handle the orders.”

For customers, drop shipping is a seamless process, whether it’s through Amazon or a private site. Most of the time, you don’t know when you’re buying from a drop shipper. Once your order is placed, the drop shipper works with the supplier to place the order, and you receive the item like you normally would.

Drop shipping can be a mutually beneficial relationship between the seller and supplier. In Neal’s case, he has the marketing expertise and skills to build a successful website and business. That gets the cricket farmer more exposure and more orders than he would get on his own. Neal estimates that he generates about $3,000 in sales each month from The Critter Depot and his cut is $600.

Previously, Neal primarily sold crickets on Amazon. But meeting Amazon’s strict standards is hard when you’re shipping live insects. He ended up taking his sales to just his website, which requires more work for him each day to build traffic.

His new income stream allows him to take advantage of other opportunities, too. He recently purchased the site Jason Coupon King, which generates another $700 a month in revenue.

Balancing a Side Gig With Life & Work

While Neal’s side hustle is successful, he has to balance his work with his full-time job and his family. But that’s why he says drop shipping is a great option. It gives him the flexibility he needs while still allowing him to earn extra money.

“I don’t have a television, so when I come home from work, I just spend time playing with the kids and catching up with my wife,” says Neal. “Once they’re in bed, I work on optimizing my websites, contributing to forums and building links to my sites.”

Neal says he spends an hour or two a day after work on his side hustle and that his business is still growing. The extra income is substantial enough to help him pay off his student loans early and give his family more wiggle room in their monthly budget. (You can keep tabs on your own finances by viewing two of your credit scores for free on Credit.com.)

Making Extra Money

While selling crickets might not be for you, Neal’s story is just another example of the many ways you can make money on the side. If you’re struggling to make ends meet, or need more income to pay down debt or boost your emergency fund, launching a side hustle can be the right approach.

Photo courtesy of Jeff Neal 

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How Your Credit Report Can Help You Manage Student Loans

Handling your student loan payments may not be easy, but here's where you can start to take control.

More than 1.8 million students graduate from college in 2017. While it’s a momentous achievement, many graduates will walk away with significant student loan debt. Though keeping up with monthly payments can be difficult, knowing how to budget for them can be an even bigger obstacle.

If you’re feeling overwhelmed and don’t know how to begin managing your loans, your credit report can be an essential tool. Here’s how your credit report can help you take control of your debt.

What’s in Your Credit Report?

Your credit report is a complete picture of your financial history. It contains information about your bills, loans and what credit cards you have open.

Lenders use your credit report to make decisions on your reliability and financial stability. They look at your report to evaluate whether to offer you a car loan, mortgage or a new credit card. However, your credit report is an invaluable source of information for you too, especially if you have student loans.

2 Ways Your Credit Report Can Help You Manage Your Loans

When you’re in school and take out federal or private student loans, it’s easy to lose track of who your lenders are or how much you borrowed — especially if you don’t have to start repaying them yet.

To make things more difficult, your debt can sometimes transfer to a new loan servicer. If that happens, you’ll have to make payments on a different website and you’ll have a new account. That’s where your credit report comes in handy. You can use it to locate your loans and their current status in the following ways:

  1. Identify your loan servicer: If you aren’t sure who your loan servicer is, use your credit report to identify who manages your loans. Your credit report will list all the institutions behind your debt. Once you have the name of your servicer, you can use that information to sign into your account and begin making payments.
  2. Find out your current balance: Thanks to interest, your loan balance could grow while you’re in school. If you’re unsure what amount you owe, your credit report will list the current balance on your loans.

Where to Get Your Free Credit Report

There are many services that will send your credit report for a fee. However, paying for your credit report is unnecessary. You can get a free credit report from each of the three credit bureaus — Equifax, Experian, and TransUnion — once a year from AnnualCreditReport.com.

It’s a good idea to stagger your credit reports throughout the year. For example, you could review one credit report from each agency every four months. That way, you can continually review your credit report for issues, rather than waiting a full 12 months. Catching problems early can save you money and protect your credit.

You can also check your credit scores for free on Credit.com. They’re updated regularly and can help you spot changes in your credit reports if they go up or down unexpectedly.

What to Do If There’s an Error

An essential part of checking your credit report is reviewing it for errors. Sometimes loans are reported incorrectly or, in cases of identity theft, fraudulent accounts can be put under your name.

If you find an issue, whether it’s a simple mistake or a more serious issue of theft or fraud, it’s important to take action right away. If the accounts in error become delinquent, those late payments can cause your credit report and score to plummet. That will make it more difficult for you to get a loan, a new credit card or get approved for a new apartment. The longer you wait to act, the longer it could take to correct.

To report a problem, write a letter disputing the errors and send it in the mail to the following:

  • Equifax: Equifax Information Services, LLC., P.O. Box 740256, Atlanta, GA, 30348
  • Experian: Experian, P.O. Box 4500, Allen, TX 75013
  • TransUnion: TransUnion LLC, P.O. Box 2000, Chester, PA, 19016

You should also notify the bank or financial institution that reported the error. Include copies of any supporting evidence you may have to prove your case.

To ensure you have a record of contacting the organizations, it’s a good idea to send the letter as certified mail as proof.

If you report the error and the credit bureaus and financial institutions do not fix the issue, you can escalate the problem to the Consumer Financial Protection Bureau.

Managing Your Credit

Graduating from college is a huge milestone, but it’s easy to get overwhelmed managing your student loans. From figuring out who your loan servicer is to learning how much your loans grew, the process can be complex.

Getting your credit report and credit scores and reviewing them thoroughly can help you keep track of your loans and stay current on your payments.

Image: g-stockstudio

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6 Vital Things Parents Need to Know About Student Loans

Before helping your child take out loans — or taking out loans in your own name — make sure you understand the benefits and drawbacks.

About 3.5 million high school students are expected to graduate from high school this spring, and most will go to college. While this a proud moment for students and parents, many families are stressed about how to pay for school in the fall.

Before helping your child take out loans — or taking out loans in your own name — make sure you understand the benefits and drawbacks. Here are six things every parent should know about student loans.

1. There’s Still Time to Complete the FAFSA

For your children to get federal student aid such as loans, grants and work-study programs, they must complete the Free Application For Federal Student Aid (FAFSA) every year.

If your child hasn’t completed their FAFSA yet, there’s still time — but not much. Though the federal deadline is June 30, 2018, states and individual schools often have much earlier due dates.

Moreover, schools have limited funds when it comes to some loans and grants, so the earlier your child applies, the better. To make sure you get the necessary funds, submit the FAFSA as soon as possible. You can complete the application online in less than 30 minutes.

2. Take Advantage of Federal Loans First

You’ll find out what types of federal aid your child is eligible for after completing the FAFSA. If your children need to take out loans to pay for school, encourage them to start with federal student loans rather than private ones.

Federal loans typically have lower interest rates, more generous repayment terms and do not require a lengthy credit history or a co-signer. Plus, they come with benefits such as access to income-driven repayment plans and deferment or forbearance options if your child struggles to make payments after graduation.

Private student loans can have higher interest rates and typically require a co-signer. They also have fewer repayment options, which can make keeping up with payments more difficult on an entry-level salary. Private loans should be a last resort used to fill the gap if federal loans don’t cover the total cost of college attendance.

3. Learn How Parent PLUS Loans Work

If you want to help your child pay for school but don’t have enough money saved to pay outright, you may be eligible for a parent Direct PLUS Loan. This is a federal loan designed specifically for parents of dependent students.

To be eligible, you must be the biological or adoptive parent and your child must be enrolled at least half-time at a qualifying school. Both you and your child need to be U.S. citizens or eligible noncitizens. Unlike other forms of federal loans, parent PLUS Loans require a credit check.

To get a parent PLUS Loan, your child should complete the FAFSA. You will sign a PLUS Loan master promissory note. You can borrow as much as the cost of your child’s education, minus any other financial assistance you receive. The current interest rate for Parent PLUS Loans is 6.31%.

4. Think Twice Before Co-Signing

If your child needs a private loan to pay for school, the lender may require a co-signer before approving them. Before you agree to cosign, make sure you understand what it entails.

Becoming a co-signer means you’re the guarantor of the loan. If your child falls behind on the payments, you’re responsible for making them. If your child misses a payment and doesn’t tell you, your credit will be damaged. That consequence can make it more difficult for you to get approved for other forms of credit, such as a mortgage or car loan. (You can see how student and other loans impact your credit with a free credit snapshot on Credit.com.)

Co-signing is a huge responsibility, so make sure you’re comfortable with the potential fallout before putting your signature on a loan application.

5. Know Discharge Rules

While no one wants to think about themselves or their child dying or suffering a serious accident, it’s important to understand a loan’s rules about these events before taking on student debt.

If your child has federal loans and later dies, the government will discharge the debt. If you have a parent PLUS Loan and either you or your child passes away, the loans are also eliminated. If your child becomes permanently disabled and can no longer work, they can get their loans forgiven through Total and Permanent Disability Discharge.

Private loans are different. Some lenders discharge loans in the case of death or disability, but not every lender offers this. There have been horror stories about parents who have lost a child, yet are still responsible for the student loans. Make sure you understand the lender’s rules before taking out or co-signing a private loan.

6. Prioritize Yourself

Though supporting your children through school is a wonderful gift to offer, take a hard look at your finances first. If you have other forms of debt or your retirement savings are too small, prioritize your own finances.

Your children can get grants, scholarships and work part-time in school to pay for college. If they struggle to repay their federal student loans, there are a wealth of plans and programs to help them get back on track.

The same is not true when it comes to credit card debt, personal loans or retirement. If you fall behind on payments or don’t save enough before you stop working, there are few places you can turn for help. Ensure you are in a secure financial position before taking on more debt for your child.

Know Your Funding Options

Before signing loan paperwork, make sure you know exactly what you’re getting into. Student loans can be complicated, and if you’re not careful, you could be on the hook for thousands in debt. Work with your children to ensure you understand all your options and obligations as you prepare to send them off to college.

Image: asiseeit

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Moving to One of These 9 States Could Save You Thousands

Should you move to one of the nine states with no income tax? Here's how to decide.

Each year, taxpayers pay trillions in income taxes. In fact, the government collected approximately $3 trillion last year. If you’re like most taxpayers, you owe both federal and state taxes, which means an even bigger chunk of your paycheck goes to the government.

When you’re carrying debt — whether it’s student loans or a credit card balance — it can be frustrating to see so much of your hard-earned money leave your hands. That’s why many people consider moving somewhere with no state income tax.

According to a new study by Student Loan Hero, taxpayers could save an average of $1,977 a year by moving to a state with no income tax. But before you pack your bags, find out what factors you should keep in mind.

States Without Income Taxes

States that collect income taxes use them to fund essential programs and services for residents. More than 50% of state tax revenues go toward education and healthcare initiatives, such as Medicaid. State agencies also use collected income taxes to pay for services, including transportation and law enforcement.

Residents in most of the country must pay federal and state income taxes. However, nine states don’t levy any state income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Because you don’t have to pay state taxes, you can get a significant yearly savings.

How Much Could You Save?

How much you could save by moving to a state with no income tax depends on your income bracket and where you live now. For example, Oregon workers have a state income tax of 7.75%, the highest rate of any state in the country. Someone earning the median salary in the state — $49,710 — would pay $3,851 in addition to their federal taxes.

Moving to another state to save that kind of cash can be tempting. So tempting, in fact, that 30% of survey respondents would move to a state with no income tax to save money. Moreover, 38% of respondents said they’d use their tax savings to accelerate their student loan debt repayment. (To see how student loans are impacting your credit, check out your free credit report snapshot on Credit.com..)

Using Your Savings for Debt Repayment

The savings you get from not paying state taxes can save you even more money in the long run. Using that money to repay your loan helps you pay off the loans faster, cutting down on interest charges. It can also save you thousands over the life of your loan.

For example, say you had $35,000 in student loans with an interest rate of 6.31% (the current rate for Grad PLUS loans) and a minimum monthly payment of $400 a month. Now, take the average $1,977 you would save by moving to a state without income tax and divide it up over 12 months. That would give you an extra $165 in your pocket each month. If you put that additional amount toward your student loans, you could pay off your debt about three and a half years early and save more than $4,500 in interest.

Other Costs

Before packing up and moving to a new state, consider other costs that may eat into your savings. Between putting down a deposit on a new apartment, moving your belongings and registering your vehicle in a new state, you can spend thousands.

In addition, some states with no income tax make up their revenue through other means, such as sales tax. Florida has a 6% sales tax on goods and services, including essentials such as clothing or food. If you’re not used to paying taxes on groceries, the added sales tax can put a dent in your budget. That’s why it’s important to compare the cost of living when deciding if it’s worth it to move to a new state.

Moving to Save Money

Depending on your circumstances, moving to a state with no income tax can give you a substantial savings. You can use that money to pay off your student loans faster, boost your emergency fund or catch up on retirement savings. But before you make the leap, be sure you understand the added expenses of moving so your decision is financially sound.

Image: xavierarnau

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4 Serious Reasons Why You Shouldn’t Lie on Your Taxes

Thinking of lying on your tax return? Here's why that's a very bad idea.

The average tax refund is more than $3,000. When you hear that number and do your taxes, only to find out that your refund is much less — or worse, that you owe money — it can be tempting to fudge the numbers and increase your refund.

But misrepresenting your income on your return counts as tax fraud, and has serious consequences. Below, find out what happens if you lie on your taxes and what IRS penalties you could face.

1. You Can Get Audited

Because the IRS gets all of the 1099s and W-2s you receive, they know if you do not report all of your income. Even if you accept unreported payments in cash or check, your financial activity can reveal red flags about what income you do not report, potentially triggering an audit.

An IRS audit is an extensive review of your taxes and financial records to ensure you reported everything accurately. Though most people have a less than 1% chance of being audited, it’s not worth the risk.

Undergoing an audit is a time-intensive and costly process that involves providing years of documentation and even in-person interviews. If the IRS audits you, you can (and probably should) hire a professional to represent you and your interests. While that’s a smart idea, it can be a pricey, unexpected cost.

While the IRS may have only flagged one return for audit, they can review any return from the past six years. If they find more issues, they can add penalties and fines for every year they find problems. If you made tax mistakes for the past several years, you could end up owing thousands for taxes you misrepresented.

2. Tax Fraud Carries Heavy Penalties and Fees

If the IRS does select you for audit and they find errors, the penalties and fines can be steep.

According to Joshua Zimmelman, president of Westwood Tax and Consulting, fudging your taxes to reduce your tax bill or boost your refund can cost you more in the long run.

“If you don’t pay your tax liability by the due date, the IRS will charge you a late payment penalty. Even if you file on time, you may still be charged a late payment penalty if you under report your income and the IRS finds out,” Zimmelman said.

And the penalty is just the start. The IRS can also charge you interest on the underpayment as well. “If you’re found guilty of tax evasion or tax fraud, you might end up having to pay serious fines,” said Zimmelman.

While tax evasion or tax fraud is normally imagined as something that affects high earners and big executives, even those with lower incomes need to be careful. When describing the penalties for tax fraud, the IRS does not differentiate between income amounts or how much you underpaid your taxes. If you falsify any information on a return, they can fine you up to $250,000.

3. Criminal Charges Are Possible

Besides potentially owing thousands in IRS penalties, fees, and interest, you could also face criminal charges.

“Tax fraud is a felony and punishable by up to five years in prison,” said Zimmelman. “Failing to report foreign bank and financial accounts might result in up to 10 years in prison.”

Criminal investigations and charges start when an IRS auditor detects possible fraud during their audit of your returns. Courts convict approximately 3,000 people every year of tax fraud, signaling how serious the IRS takes lying on your taxes.

The odds of the IRS charging you for fraud is relatively small — if you’re investigated, the chances are less than 20 percent that you’ll face a criminal charge — but the potential consequences are severe. It’s not worth the risk to get a little extra money in your refund.

4. You May Miss Out on a Mortgage or Loan

Finally, not reporting all of your income can have serious ramifications when it comes to buying a car or a home.

“If you under-report your income, it might hurt you when you try to buy a house or apply for a personal loan,” said Zimmelman. “You might not get it if it looks like you cannot afford to pay it back, so lying on your taxes may hurt in that respect.”

When mortgage companies and banks review your application, they request copies of your tax returns to check your total income. If you lied about your income to lower your tax liability, your full income won’t be on the return. That means you may be denied for the loan you need, hurting your financial future.

Accurately Report Your Taxes

No one likes owing money at tax time or missing out on a big refund. But tax fraud is a serious criminal action, and glossing over your income or boosting your deductions counts as lying to the IRS.

Saving yourself a little money at filing time can end up costing you thousands of dollars with auditing, penalties, and fines. Save yourself the trouble and report your information accurately.

For more information on filing your taxes, avoid these six common mistakes millennials make on their taxes.

Image: Jacob Ammentorp Lund

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Want to Pause Your Student Loan Payments? Here’s What You Need to Know

You might be able to postpone your student loan payments, but make sure you've considered the financial consequences before you do.

If you’re struggling with a medical emergency, unemployment or other financial crisis, making your student loan payments can be impossible. Rather than fall behind, you can opt to put your payments on hold through student loan deferment or forbearance.

Deferment is an option that lets you postpone both your principal and interest payments. If you qualify, you can pause payments for up to three years. Forbearance is more temporary — you can postpone or reduce your monthly payments for up to 12 months.

However, delaying your payments through deferment or forbearance can have serious financial repercussions. Depending on the type of loans you have, your loan balance can continue to grow due to interest and other fees.

Choosing Deferment or Forbearance

Below, find out how your loan type affects deferment and forbearance, and what alternatives you may have.

Deferring Federal Loans

With certain federal loans, you don’t have to worry about interest payments if you enter deferment.

If you have federal Perkins loans, Direct subsidized loans or subsidized Stafford loans, the government will cover the interest that accrues on your loans while your loans are in deferment. With your interest taken care of while you get back on your feet, you will have less to pay back in interest.

If you have unsubsidized federal loans or PLUS loans, the government will not pay for the interest that accrues during deferment. If you defer your loans, they will continue to gain interest, possibly causing your balance to balloon and costing you thousands. Not to mention your debt-to-income ratio will get worse, making it more difficult to qualify for new credit such as a mortgage or car loan. (Not sure where your credit stands? You can view two of your scores, with updates every 14 days, for free on Credit.com.)

Before entering deferment, use a student loan deferment calculator to find out how much interest will accrue on your student loans if you postpone your payments.

Federal Loans and Forbearance

Unlike deferment, your federal loans will continue to accrue interest in forbearance, regardless of the loan type. Because interest continues to build, entering forbearance can be costly, but it’s still better than missing payments and defaulting on your loans.

Is Deferment/Forbearance Available on Private Loans?

Technically, deferment and forbearance are federal loan benefits. Not all private loan servicers offer similar options — but some do. For example, SoFi offers deferment for students who are going back to school. And if you’re facing a financial difficulty, you may be able to enter forbearance for up to a year.

If you’re experiencing financial hardship, it’s worth asking your servicer if deferment or forbearance is an option. Just keep in mind that entering deferment or forbearance with private loans can be more expensive than federal loans. There are often fees you have to pay, and interest will accrue while you postpone your payments.

Alternatives to Deferment or Forbearance

If you want to avoid pausing your student loan payments completely, there are other ways to manage payments when they’re too high:

Income-Driven Repayment Plans

If you have federal student loans, you may be eligible for an income-driven repayment (IDR) plan. There are four IDR plans available today: income-based repayment (IBR), income-contingent repayment (ICR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).

Under each plan, the basics are about the same: The federal government extends your repayment term 20 to 25 years and caps your monthly payment at a percentage of your discretionary income. At the end of the term, your remaining balance (if any) is discharged. You still have to pay income taxes on the forgiven amount, however.

Enrolling in an IDR plan can drastically reduce your payments and give your budget more breathing room. Depending on your income and family situation, you may qualify for a payment as low as $0 per month.

Refinancing

Unfortunately, if you have private loans, your options are more limited. But one effective way to reduce your monthly payments is to refinance your debt. By refinancing, you take out a new loan that pays off your old private loans. Your new loan will have completely new terms, including — ideally — a lower interest rate.

Refinancing private loans can help lower your payments and help you pay less in interest over time. It’s a smart way to save money while giving yourself more room in your budget. Be sure to keep in mind that if you refinance federal student loans with a private lender, however, you forfeit federal protections such as IDR and deferment/forbearance eligibility.

Deciding What to Do in a Hardship

Student loan forbearance and deferment are useful options when you experience a financial hardship. If you’re facing an emergency and can’t keep up with your payments, deferment or forbearance can give you a much-needed break while you get back on your feet.

While entering deferment or forbearance is a much wiser option than defaulting on your debt, there are still consequences. Make sure you understand the financial impact of postponing your payments, as putting them off can add thousands to your student loan balance. And in the case of private loans, postponing may not be an option at all.

If you’re struggling to keep up with your loans, the most important thing is to be proactive and talk directly with your servicer to find out what options are available to you.

Image: PeopleImages

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4 Life Goals You Can Still Achieve With Student Loan Debt

life_goals

There are currently more than 44 million people with student loan debt totaling over $1.3 trillion.

With so much debt, many college graduates have delayed major life milestones such as getting married, buying a house, traveling, and starting a business.

But it doesn’t have to be that way.

Although student loans can be a financial burden, you can still follow your dreams. Here’s how to get one step closer to living the life you want by reaching these four goals.

1. Getting Married

A 2013 survey by the American Institute of CPAs found 15% of respondents had delayed getting married because of their student loan debt. But getting hitched when you have student loan debt isn’t totally impossible.

One of the biggest reasons people delay marriage is the high cost of weddings. In fact, the average wedding costs over $32,000, according to The Knot. If you have student loan debt, that expense can hurt your finances deeply, reducing your chances of getting rid of your debt sooner rather than later.

But there’s no law that says you need the elaborate ceremony, giant guest list, and pricey dress. Getting married can actually be a simple and inexpensive celebration. An afternoon ceremony and a simple dinner can make getting married a financial reality, rather than waiting until you pay off your student loans.

2. Buying a Home

For many, breaking the renting cycle and becoming a homeowner is a significant life goal. But some may feel that student loan payments make it impossible to get approved for a mortgage, let alone afford one. (Keep in mind that while your student loan balances won’t necessarily keep you from qualifying for a mortgage, your credit can. You can see how your student loan payments and other credit accounts are affecting your credit by getting your two free credit scores, updated every 14 days, right here on Credit.com.)

Don’t let student loans ruin your dream of buying a house. If you know you can afford the payments, but are struggling to get approved for a mortgage because of your outstanding debt, consider refinancing.

Refinancing student loans at a lower interest rate will reduce your monthly payments, freeing up more cash to put towards student loan debt, as well as lower your debt-to-income ratio. Keep in mind, there are some potential drawbacks to consider when refinancing federal student loans. Even so, this tactic can make you look like a better borrower in the eyes of mortgage lenders.

3. Taking a Vacation

If one of your passions is exploring the world, don’t let student loans hold you back. The best way to travel abroad while keeping up with your student loans is to find ways of earning extra income.

If you can, pick up a side hustle or second job to help bolster your emergency fund. Once you have built up a good nest egg, you can set up automatic payments on your student loans. Then you can travel without worrying about paying down your debt on time.

4. Starting a Business

Launching a business when you have student loans can be challenging, but it is doable. There are ways to become an entrepreneur and still keep up with your loan payments.

Try moonlighting while working full-time to get your side business started. This approach is a smart way to minimize the risk of starting your own company. You’ll still bring in a regular salary, ultimately building your business without risking your income.

Once your business is off the ground, you can minimize your expenses and free up cash by refinancing your loans or signing up for an income-driven repayment plan that will reduce your federal student loan payments. You’ll likely get a lower interest rate and lower monthly payment after the process is done which will make your loans more affordable as your business continues to grow.

Managing your student loan debt can be a real challenge, but it’s no reason to put your life on hold. With some research and preparation, you can accomplish any of these life goals while still managing your loans successfully.

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