Tax Refund Predators Are Waiting

People who don’t have much money during the rest of the year can become big targets during tax refund season.

For those living paycheck to paycheck, tax refunds — which average around $3,000 — may be the largest chunk of unobligated cash they see all year. Retailers hope to get some of that money, but so do debt collectors, buy-here-pay-here car lots and purveyors of interest-free loans that come with fat fees. People flush with cash need to proceed with caution.

Paying old debts

Collectors step up calls and mailings during tax season because they know more people “will have some extra cash to address past problems,” says Michael Bovee, president of debt settlement company Consumer Recovery Network in Spokane, Washington.

But people who are ready to settle old debts also can turn the situation to their advantage, Bovee notes.

“Use tax time as leverage [by telling] a debt collector the offer you are making is as good as it gets, and it could be another year before you have anything extra in your budget,” he says.

Many old debts have been sold to collectors for pennies on the dollar, which people may be able to settle for 20% to 50% of the original amount, Bovee says. That’s the good news. The bad is that paying old debts typically won’t help the credit scores most lenders use and could cause other collectors to come out of the woodwork.

“Settling often means updates to your credit reports, and that can bring other debts to the surface that had gone quiet,” Bovee says.

If your debt troubles are too big to solve with a single refund, you may still have a good use for that check: filing for bankruptcy. Filing a Chapter 7 bankruptcy costs $335, while attorneys fees often range from $1,200 to $2,500 depending on location and the complexity of your case, according to self-help legal site Nolo.

Shopping at buy-here-pay-here car lots

The pitch is tempting: Use your refund as a down payment to replace your old, unreliable car — regardless of how bad (or nonexistent) your credit may be. Unfortunately, you may be replacing one junker with another, and not for long.

The Better Business Bureau warns that buy-here-pay-here lots often hawk older, high-mileage cars, typically with steep markups and high interest rates. The payments can be so big that borrowers fall behind, which allows the dealerships to seize and resell the vehicles — sometimes over and over. (Borrowers are typically required to make weekly payments at the dealership, and many cars are equipped with remote switches that disable the vehicle if the borrower doesn’t pay on time.)

People with bruised or nonexistent credit shouldn’t assume buy-here-pay-here lots are their only option. Credit unions and regular dealerships are increasingly willing to offer auto loans for subprime customers. In addition, more than 150 nonprofits affiliated with Working Cars for Working Families offer low-interest loans, matching funds for down payments and even free cars for those in need.

Borrowing against a tax refund

Several years ago, regulators put the kibosh on tax refund loans that charged exorbitant interest rates. The newest incarnation — the “interest-free tax refund loan” offered by tax preparation services — may not be as benign as it seems.

People typically have to pay tax preparation fees to get the loans for a portion of their refunds. Those fees — for services they might not pay for except to get the refund loan — can represent a sizable chunk of the loan. A $200 fee, for example, represents an annual percentage rate equivalent to 480% on a one-month $500 loan. If the loan were $1,000, the APR would be a still-sizable 240%.

Many taxpayers can avoid paying anything for tax preparation by using the IRS’ Free File options. Free tax software is available for people who earn less than $64,000, while those who earn more can use free fillable forms that check their math.

For those who need cash fast, credit unions offer a payday alternative loan, which are small loans with a maximum annual percentage rate of 28% and application fees capped at $20. Borrowers can pay off the loan when their refund arrives.

The best use of a refund for many people, though, is to save at least some of it. Even a few hundred dollars in emergency funds can be enough to weather small financial shocks, break the paycheck-to-paycheck cycle and start down the path to a healthier financial life.

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of “Your Credit Score.” Email: lweston@nerdwallet.com. Twitter: @lizweston.

This article was written by NerdWallet and was originally published by The Associated Press.

The article Tax Refund Predators Are Waiting originally appeared on NerdWallet.

Elder Financial Exploitation

To con artists, down-on-their-luck relatives, or opportunistic acquaintances, they are gold mines. Individuals over the age of 50 control 70% of the country’s wealth, and seniors between the ages of 65 and 74, with an average net worth of $1.06 million, have more assets than any other age group.

“That’s where the money is,” says Jay Haapala, AARP associate state director of community outreach in Minnesota. “If college kids had a bunch of disposable income lying around, criminals would be trying to figure out how to scam college kids.”

Dementia, disability, and decline can make it even easier for criminals. All told, it is a problem that costs American seniors billions of dollars every year.

Common forms of exploitation
There are myriad scams, unethical businesses, and unscrupulous individuals preying on seniors all the time. While the details vary, there are a few familiar scenarios.

Breach of trust
The vast majority of elder financial abuse—as much as 90%, according to the National Adult Protective Services Association—is committed by caregivers or close family members. A son is added to a checking account to help manage Mom’s bills and then starts using the account to pay off gambling debts. Or Grandpa gives valuables to the housekeeper and eventually—at her suggestion—names her in the will.

Phone scams
Someone calls, ostensibly from the IRS, saying that an individual has a tax bill that is going to rise with interest and fees unless paid immediately. Or someone calls with news that there is a problem with a credit card and they need a Social Security number and birth date to access account information to clear things up.

Phishing scams
As more seniors head online, they grow more susceptible to phishing scams. Phishing emails look as though they come from legitimate sources such as banks or credit card issuers. They ask seniors to click on a link to enter account information in order to verify recent transactions or to rectify problems with accounts. Unfortunately, the links are fake, and criminals use them to gather personal account information, which they use to drain accounts or steal identities.

So, how do you protect yourself and your loved ones from elder financial abuse? Sign up on the Do Not Call Registry. This prevents businesses from contacting you. Those that do come through either don’t know what they’re doing or don’t care. “Either way,” says Haapala, “you should not do business with them.”

Haapala also reminds seniors to conduct their personal business within the financial services system. Financial institutions have fraud protection services that limit an individual’s risk. They also have systems that make it possible to trace funds back to criminals in some instances.

Copyright 2017 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.

The 4 Best Things College Students Can Do With Their Tax Refund

For many of us who have recently graduated school or are still in school, tax season can be a happy time financially. Many people will get a tax refund from the IRS, and more will squander that money before it has a chance to make it through one statement.
Here are some ways to spend it responsibly and feel good about it.

1. Let it grow
Consider putting all of that money or part of it into a high-yield savings account. Instead of just holding on to it, why not let it grow while it’s sitting in your savings? Talk to the friendly folks at your local credit union about the right fit for your financial situation.

2. Invest
If you’ve been waiting on an injection of extra cash to take the first step, consider this your investment window. Finding the right investment opportunity for you and your financial outlook is much easier to do if you’ve got the cash on hand. Talk to your credit union to see what advice they offer for starting your portfolio.

3. Pay it off
This one ties in closely to suggestion No. 1. If you’ve got a credit card or loan accruing more interest monthly than you would gain in a CD or similar account, consider paying that off. Take a look at your obligations and see if one of them can be knocked out all at once with a portion of that tax refund.

4. Give yourself a small treat
It’s all right to spend a little on yourself. You work hard on your budget, and, hopefully, figured out a financially responsible way to spend a major portion that refund money. Take what’s left and buy yourself something fun.

Happy tax-refund season! Spend responsibly.

Copyright 2017 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.

How Much to Withhold in Taxes

How Much to Withhold in Taxes
The average tax refund is more than $2,000. While it may seem pretty awesome to get that big check in the mail, it’s actually an indication that you may be overwithholding.

Overwitholding means you’re having your employer take out too many taxes from your paycheck, essentially giving the federal government an interest-free loan for the year. Underwithholding means that, when you file taxes, you owe the Internal Revenue Service (IRS) money.

Withholdings
If you’re getting a tax refund, ask yourself two questions:
1. Do you have credit card bills?
2. Do you have an emergency fund to tide you over for a few months if you become unemployed?

If you answered “yes” to the first question or “no” to the second one, getting a tax refund is not such a good deal. The refund is money you could have used all last year to pay off bills and to beef up your emergency fund.

The good news about your refund is that you can use it right now to address those issues. So, tempting as it is to treat yourself when that check comes in from Uncle Sam, use it to relieve some financial stress instead.

To break even, Bankrate.com advises looking at last year’s tax bill. If the amount you had withheld was close and you haven’t had major lifestyle changes, such as getting married or having a baby, then you’re probably safe to leave your payroll withholding the same. If you owed a lot or received a large refund, then you might want to adjust your withholding.

Adjusting your W-4
The more allowances you claim on your W-4, the less income tax will be withheld. The fewer claimed, the larger the withholding amount.

If you’re getting a large refund, visit your employer’s payroll or human resources department and change your W-4 form, which establishes how much your employer withholds for taxes each paycheck. Use the IRS Withholding Calculator (https://www.irs.gov/individuals/irs-withholding-calculator) and the tax form you just completed to answer its questions, and see how adjusting your withholding affects your take-home pay. You could see a few hundred dollars more each month by increasing your allowances.

Now it won’t help much if that extra money just slips through your fingers. So take one more step, and set up direct deposit so that newfound cash goes to your credit union emergency fund account every payday. Trust us—a full rainy day fund feels a lot better than a once-a-year tax refund.

Keep in mind that everyone’s tax circumstances are different. Work with an independent professional tax adviser or a tax specialist at your credit union before making tax-related decisions.

Copyright 2017 Credit Union National Association Inc. Information subject to change without notice. For use with members of a single credit union. All other rights reserved.

19 Ways to Save on a Wedding

First comes love, then comes paying for the wedding.

Weddings cost an average of $35,329 nationally — excluding the honeymoon — according to The Knot’s 2016 Real Weddings Study. That’s the highest reported average cost since the survey began in 2006.

But you’re not obligated to spend that much, and many couples don’t. We asked experts how you can set a reasonable budget and cut costs on some of the most expensive elements of your upcoming nuptials.

The budget

1. Be realistic

Don’t start your marriage in debt, says Anne Chertoff, a trend expert for WeddingWire. “Most couples don’t anticipate how much a wedding is actually going to cost, so they end up underestimating what they’re going to spend and then going over their budget,” she says. Set realistic spending limits from the beginning that account for all areas of your wedding. If you overspend in one area, cut back in another.

2. Use a credit card —  responsibly

It can be smart to use a credit card for wedding-related purchases — as long as you’re not taking on more debt than you can afford to pay off. Chertoff recommends using accumulated points toward your honeymoon, particularly if you have a card with travel rewards.

The date

3. Consider a winter wedding

Not all wedding dates are created equal. Find out which are most popular on WeddingWire’s wedding date calendar. If there’s more demand for a given date, you’ll usually pay a higher price for a venue. You could score a discount for choosing a less popular month, such as January or February, Chertoff says.

4. Book a Sunday

Saturday is a popular day for weddings, but it’s also generally the most expensive day to get married. You can likely reserve your venue at a lower price if you hold your wedding on a Sunday, or even a weeknight.

The guests

5. Put a twist on ‘plus one’ etiquette

Instead of giving all guests older than 18 a “plus one,” limit them to couples you socialize with regularly, says Sharon Naylor, author of dozens of wedding books, including “1,001 Ways to Save Money … and Still Have a Dazzling Wedding.” To avoid awkward questions, explain how you’re determining the guest list.

6. Mix up your invitations

You’ll probably want to mail out traditional invitations, says Stephanie Cain, an editor at The Knot. But you can post wedding weekend itineraries on your wedding website and email save-the-date alerts. That’ll save you the cost of printing and postage.

The dress

7. check out a prom shop

Brides aren’t finding dresses at just the bridal shop these days, Naylor says. You can pick up a white dress in the prom or party dress section of any department store. The popularity of colored dresses makes formal gowns a nice substitute, too.

The national average spent on a wedding dress was $1,564 in 2016, according to The Knot’s latest Real Weddings study. A simple Google search for white prom dresses pulls up options that cost a fraction of that.

8. budget for your accessories

There’s more to your dress budget than the dress. Cain suggests taking extras such as tailoring fees, shoes, jewelry and a clutch into account when setting a spending limit. To save on your veil, Chertoff recommends making it your “something borrowed” and wearing a family member’s.

The venue

9. negotiate

Lots of unexpected expenses can pop up during planning, including cake-cutting and corkage fees or power for your DJ and photo booth. Naylor says you don’t have to take them as they are. If a cost seems unreasonable, respectfully request to have it removed.

10. Use the venue’s resources

Some venues provide tables and linens, Cain says. If you opt for a backyard wedding, you’ll have to rent items like these. Always read a venue’s contract in its entirety before signing so you know what is and isn’t included.

And keep an eye out for requirements. You might not want to be obligated to use the venue’s caterer, for instance.

The decor

11. communicate with your vendors

Naylor says some floral designers have warehouses with excess inventory they’re willing to give away or lend out for free. Once you’ve placed an order, ask about expanding your options.

12. borrow from other newlyweds

Ask friends who have recently gotten married if you can borrow centerpieces or other items that they have left over.

13. Scout out decorations at craft stores

Look for wedding decorations — especially light-up decor — in places like craft stores. They have “more than glue guns and glitter,” Naylor says.

The flowers

14. Stick to in-season blooms

You might have your heart set on pink flowers to accent your bridesmaids’ bouquets, but consider settling for a different shade or variety. Local blooms that are in season at the time of your wedding are generally less expensive. Also, “local flowers tend to look fresher because they didn’t have to travel for days,” Cain says.

15. Get the most out of your flowers

A larger flower, such as a hydrangea, naturally looks fuller and takes up more space with fewer stems, Cain says. And you can repurpose ceremony flowers for the reception, instead of buying more. For instance, use a ceremony arch to adorn your sweetheart table at the reception.

The menu

16. Go for a shorter cake

The more tiers on your cake, the more it’ll cost you. Cain suggests sticking to two tiers and having sheet cakes to serve. The cake you cut for your pictures doesn’t have to feed all of your guests.

17. Cut down on drink sizes

Arrange for the bartender to serve your signature drinks in smaller glasses. “Most people will go and try the signature drink, take a sip, put it down and go back to their regular drink,” Naylor says. Minimize the cost of your bar tab by opting for shooters.

The rest

18. Choose a charitable favor

Don’t want to buy a favor for each wedding guest? Make a charitable donation on behalf of all your guests, Chertoff says. That way, you can set the amount you’re comfortable spending, donate to a cause you care about and write off the contribution on your taxes.

19. Limit your photographer’s hours

Save money by shaving off some of the time your photographer and videographer are present, Naylor and Cain suggest. You’ll likely want them there for the ceremony, but you might not need footage of the end-of-reception dancing.

Bottom line, these experts suggest keeping a close eye on your wedding spending. “Anybody — whether they have a $10,000 budget or a $500,000 budget — is still working on a budget,” Cain says.

Devote the biggest parts of your budget to the areas that are most important to you and be willing to compromise on the rest.

Courtney Jespersen is a staff writer at NerdWallet, a personal finance website. Email: courtney@nerdwallet.com. Twitter: @courtneynerd.

The article 19 Ways to Save on a Wedding originally appeared on NerdWallet.

Five ways to turbo charge your car shopping process

More than 23 percent of Ohio consumers are considering purchasing a vehicle this year, and 83 percent are more likely to finance the purchase than pay cash, according to a consumer survey conducted by the Ohio Credit Union League.

When asked what factors respondents considered when vehicle shopping, 67 percent said monthly payment is the biggest influence on their decision. For 61 percent of participants, gas mileage is the most important issue, while 47 percent said consumer reviews are important in their decision-making process. Other aspects considered when shopping for a vehicle included a safety rating, vehicle’s history report, and general aesthetics.

It’s no surprise gas mileage is at the top of consumers’ minds. According to Time Magazine’s Everyday Money, after a slight gas-tax increase (to 31.3 cents per gallon) took effect Jan. 1, the average cost of a gallon of gas in the Buckeye State is $2.03. Up from $1.49 a year ago. The national average for gas sits at $2.29 per gallon, according to AAA. That’s 29 cents more than the national average at this time last year.

In addition to the cost at the pump, here are a few tips when choosing a new vehicle that will have the least affect on your wallet.

  • Use your tax refund. The more money you’re able to put down on a car, the smaller the loan and ultimately, the less you pay in interest over the life of the loan.
  • Get pre-approved. Before car shopping, get pre-approved at your local credit union. Pre-approval will give you more power to negotiate on the purchase price of the vehicle. Pre-approval also tells you how much you can afford and what type of monthly payment you will have.
  • Budget ahead. As a rule-of-thumb, do not allow a monthly payment for a vehicle to exceed 12 to 16 percent of your gross monthly income.
  • Consider the total cost of ownership. When car shopping, consider the cost of insurance and maintenance. Also, keep in mind that a high-end vehicle typically costs more to insure and maintain.
  • Check with a credit union. Rather than purchasing items like a warranty and Guaranteed Asset Protection (GAP) coverage at the dealership, check with a credit union. Most credit unions offer these items at a lower cost than what you would find at a dealership.

To learn more about how a credit union can help you afford life, visit www.aSmarterChoice.org and find a credit union in your area.

 

Debt-To-Income Ratio

If you have applied for any type of loan, especially a mortgage, then you probably heard the your loan officer use the term “debt-to-income ratio.”

Your debt-to-income ratio is the sum of all your monthly debt payments divided by your gross monthly income. This number gives lenders a way to measure your ability to repay your loan, based on your income.

Basically, imagine that your monthly mortgage is $1,000 per month. If you also have a car payment of $300, a student loan payment of $350, and a credit card payment of $150, your total monthly payments are ($1,000 + $300 + $350 + $150) = $1,800. If you have a gross monthly income of $4,800 (gross means before taxes and adjustments), your debt-to-income ratio is computed as follows: $1,800 / $4,800 = .375 or 37.5%.

This means that 37.5% of your gross monthly income is devoted to servicing your debt. Lenders know that beyond this, you still have to afford to eat, insure your belongings, and buy cat food. These “other than debt” costs are actually why lenders pay attention to this ratio. If the amount of income being devoted to paying off debt gets too high, it’s likely you will either default or starve. Generally, defaulting is what more people opt for.

Your debt-to-income ratio will likely be evaluated before any [reputable] lender makes any kind of loan to you, but this ratio is especially important for a home loan. In order for a new mortgage to be considered a “Qualified Mortgage,” the borrower must have a debt-to-income ratio of less than 43%, including the new payment.

Oh, and in case you were wondering, a Qualified Mortgage is one that meets certain standards, ensuring that the lender did their due diligence to make sure you can afford the loan, and which gives the lender access to certain legal protections.

There may be circumstances where you could get a mortgage while having a debt-to-income ratio of more than 43%, but that loan may not be in your best interest. Before taking out any new loan, carefully consider for yourself if you can really afford the payment, and afford a comfortable, financially-savvy lifestyle.