Paying off Debt the Smart Way

Paying off Debt the Smart Way

With a potential economic downturn in the wings due to COVID-19, being debt-free is a worthwhile goal. Unfortunately, between mortgages, car loans, credit cards, and student loans, this is unrealistic for most people – especially those of pre-retirement age. Instead, it’s better to start by focusing on managing debt. When you handle debt wisely, you won’t have to shell out every cent of your hard-earned money to your lender or feel like you’re always on the verge of bankruptcy.

These tips will help you get started paying off debt the smart way and help you save extra money to pay down those debts even faster:

Assess the Situation

First, assess how much and what type of debt you have by writing it down using pencil and paper or entering the data into a spreadsheet like Microsoft Excel. You can also use a bookkeeping program such as Quicken or a debt management app such as Debt Manager, Debt Payoff Planner or if you are only concerned about student loan debt, Changed. When compiling or entering your list be sure to Include every instance you can think of where a company has given you something in advance of payment such as your mortgage, car payment(s), credit cards (all of them), tax liens, student loans, PayPal Credit, and store payments or cards used on electronics or other household items such as Home Depot or Best Buy.

Record the day the debt began and when it will end (check your credit card statements), the interest rate you’re paying, and what your payments typically are. Next, as painful as that might be, add it all up – try not to be discouraged. Remember, the goal is to break this down into manageable chunks while finding extra money to help pay it down.

If you’re one of the millions of people who have lost their jobs during the coronavirus pandemic, many auto and student loan lenders, as well as mortgage and credit card issuers are offering temporary concessions. Before you make any payments call or visit their websites to see what their policies are during the pandemic and whether there are options for deferral and other measures you can take.

Identify High-Cost Debt

Even if you haven’t lost your job or experienced sickness related to COVID-19, it never hurts to identify which debt is more expensive than others and pay it off first. Unless you’re getting a payday loan – which you shouldn’t be – the worst offender is consumer debt such as personal loans, auto loans, and credit cards with high-interest rates. Credit cards are easiest to tackle so start with them first. Here’s how to deal with them:

  • Don’t use them. You don’t have to cut them up, but take them out of your wallet, put them in a drawer, and only access the one with the lowest interest rate in an emergency.
  • Identify the card with the highest interest and pay off as much as you can every month and pay the minimum amount due on other cards. When that one is paid off, work on the card with the next highest rate. Check your credit cards for balance transfer rates and transfer balances from higher interest accounts to a lower interest one. When you pay less interest, you can pay down your debt faster. The catch is that at the end of the balance transfer period (typically 6 to 12 months), the low or if you’re lucky, zero interest rate, reverts to a higher credit card interest rate.
  • Don’t close existing cards or open any new ones. It won’t help your credit rating, and in fact, will only hurt it.
  • Pay on time, absolutely every time. Late payments – even one – can lower your FICO score.
  • Go over your credit card statements in detail and look for monthly charges for things you no longer use or don’t need anymore.
  • Call your credit card companies and ask them nicely if they would lower your interest rates – sometimes it works!

Save, Save, Save

Do whatever you can to retire debt – even if it means reevaluating your priorities and changing your lifestyle. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.

Do Away with Unnecessary Items to Reduce Debt Load

Think twice before purchasing the latest high-tech gadgets. Do you need the latest iPhone? You’ll be surprised at what you don’t miss. Consider buying a used car, forgoing that expensive gym membership you don’t have time to use anymore, visiting the public library to check out DVDs or subscribing to a video streaming company instead of going to the movies – at least until your debt is under control.

Never, Ever Miss a Payment

Not only are you retiring debt, but you’re also building a stellar credit rating. If you ever get another job, buy a house, rent an apartment, or buy another car, you’ll want to have the best credit rating possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment and a completely missed one is even more serious.

Pay with Cash

To avoid increasing debt load, make it a habit to pay for everything you purchase with cash or a debit/credit card. If you don’t have the cash (or the money in your bank account) for it, you probably don’t need it. You’ll feel better about what you do have if you know it’s owned free and clear.

Shop Wisely, and Use the Savings to Pay Down Your Debt

If your family is large enough to warrant it, invest $45 to $60 and join a store like Sam’s or Costco – and use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride. If you’re concerned about buying organic, rest assured that even at places like Costco you will have many options. Use coupons and store savings clubs religiously. Calculate the money you’re saving and use it to pay down debt. Remember, every penny counts, and even if it’s a small amount every month, consistently saving adds up over time.

While each of these steps, taken alone, probably doesn’t seem like much, if you adopt as many as you can, you’ll see your debt decrease every month. If you need help managing debt or need advice regarding steps you can take to recession-proof your finances, help is just a phone call away.

PPP Loan Forgiveness Application Update

PPP Loan Forgiveness Application Update

Last week the Small Business Administration (SBA), in consultation with the U.S. Department of the Treasury, released their updated Paycheck Protection Program (PPP) Frequently Asked Questions document to provide additional guidance on PPP loan forgiveness While the updated document does provide us with some supplemental information including caps on owner compensation, the treatment of health insurance and retirement expenses and timing of payroll cycles, there are still areas of the loan forgiveness application process that lack clarity and leave us with many unanswered questions.

As of yesterday, August 10th 2020, the SBA intended to open their portal to receive PPP Forgiveness Loan Applications.  Since we expect further guidance from the SBA, we are asking that our clients continue to remain patient over the next couple of weeks.  We understand you are eager to apply for PPP loan forgiveness, but it is critical that we have all of the details we need to make the process as easy and efficient as possible, ensure accurate applications are submitted and ultimately, maximize loan forgiveness.

The good news is that the SBA appears to be trying to simplify and accelerate the forgiveness application process so when the time is right, it should be less arduous for PPP loan recipients.  In the meantime, please know we will continue to monitor the situation and keep you updated as additional guidance is released. Please contact our office if you have any questions or concerns.

Tax Returns Are Due Today – Taxpayers Who Can’t Pay Should Still File Today

Tax Returns Are Due Today – Taxpayers Who Can’t Pay Should Still File Today

Today, 2019 tax returns are due. Taxpayers should remember to file or request an extension of time to file and pay any taxes they owe by the July 15 deadline to avoid penalties and interest. Here are some tips for taxpayers who owe tax, but who can’t immediately pay their tax bill.

Taxpayers should:

  • File their tax return or request an extension of time to file by the July 15 deadline.
    • People who owe tax and do not file their return on time or request an extension may face a failure-to-file penalty for not filing on time.
    • Taxpayers should remember that an extension of time to file is not an extension of time to pay.
      • An extension gives taxpayers until Oct. 15, 2020 to file their 2019 tax return, but taxes owed are still due July 15, 2020.

  • Pay as much as possible by the July 15 due date.
    • Whether filing a return or requesting an extension, taxpayers must pay their tax bill in full by the July filing deadline to avoid penalties and interest.
    • People who do not pay their taxes on time will face a failure-to-pay penalty.
    •  IRS.gov has information for taxpayers who can’t afford to pay taxes they owe.

  • Set up a payment plan as soon as possible.
    • Taxpayers who owe but cannot pay in full by the deadline don’t have to wait for a tax bill to request a payment plan.
    • They can apply for a payment plan on IRS.gov.
    • Taxpayers can also submit a payment plan request in writing using Form 9465Installment Agreement Request.

Some disaster victimsmilitary service members and eligible support personnel in combat zones have more time beyond the July 15 deadline to file and pay their taxes.

Taxpayers should also check their state filing and payment deadlines, which may be different from the federal July 15 deadline. A list of state tax division websites is available through the Federation of Tax Administrators.

The IRS is processing tax returns, issuing refunds and accepting payments. Taxpayers who mail or who have already mailed a tax return will experience a longer wait. The IRS will process these returns in the order received and there is no need to file a second tax return or call the IRS.

Trump Signs Small Business Loan Program Extension

Trump Signs Small Business Loan Program Extension

President Trump signed legislation Saturday extending the deadline for small businesses to apply for the Paycheck Protection Program, enacted in the weeks following the economic shutdown caused by the coronavirus pandemic.

The original deadline to apply for the PPP was June 30th, but $130 billion still remained in the fund, out of $660 billion allocated. Both houses of Congress approved the extension unanimously earlier this week. With Trump’s signature Saturday, businesses will now have until Aug. 8 to apply for the assistance.

The PPP lets businesses get direct government subsidies for payroll, rent and other costs. The subsidies come as federal loans, but those loans can be forgiven if businesses use at least 60% of the funds for payroll.

The program has so far doled out about $520 billion in loans to almost 5 million small businesses across the country. The loans were meant to let businesses cover about two and a half months of typical costs.

The program’s sponsors say they want to re-purpose the program to better serve the challenges businesses are facing now, several months into the pandemic.

If you missed the first two opportunities and need any assistance in applying for this program, please do not hesitate to contact the office.

Economic Impact Payments Belong to Recipient, Not Nursing Homes or Care Facilities

Economic Impact Payments Belong to Recipient, Not Nursing Homes or Care Facilities

WASHINGTON – The Internal Revenue Service today alerted nursing home and other care facilities that Economic Impact Payments (EIPs) generally belong to the recipients, not the organizations providing the care.

The IRS issued this reminder following concerns that people and businesses may be taking advantage of vulnerable populations who received the Economic Impact Payments.

The payments are intended for the recipients, even if a nursing home or other facility or provider receives the person’s payment, either directly or indirectly by direct deposit or check. These payments do not count as a resource for purposes of determining eligibility for Medicaid and other federal programs for a period of 12 months from receipt. They also do not count as income in determining eligibility for these programs.

The Social Security Administration (SSA) has issued FAQs on this issue, including how representative payees should handle administering the payments for the recipient. SSA has noted that under the Social Security Act, a representative payee is only responsible for managing Social Security or Supplemental Security Income (SSI) benefits. An EIP is not such a benefit; the EIP belongs to the Social Security or SSI beneficiary. A representative payee should discuss the EIP with the beneficiary. If the beneficiary wants to use the EIP independently, the representative payee should provide the EIP to the beneficiary.

The IRS also noted the Economic Impact Payments do not count as resources that have to be turned over by benefit recipients, such as residents of nursing homes whose care is provided for by Medicaid. The Economic Impact Payment is considered an advance refund for 2020 taxes, so it is considered a tax refund for benefits purposes.

The IRS noted the language in the Form 1040 instructions apply to Economic Impact Payments: “Any refund you receive can’t be counted as income when determining if you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. These programs include Temporary Assistance for Needy Families (TANF), Medicaid, Supplemental Security Income (SSI), and Supplemental Nutrition Assistance Program (formerly food stamps). In addition, when determining eligibility, the refund can’t be counted as a resource for at least 12 months after you receive it.”

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Trump Signs Small Business Loan Program Extension

Changes to The PPP Loan Program Under the New PPPFA

Big changes to the PPP loan program happened quickly, and last week’s changes brought a lot of new forgiveness deadlines. This information is based on the PPPFA (Paycheck Protection Program Flexibility Act) updates as of June 5th when the President signed the final ruling into law.

1)  8 Week Covered Period is Extended to 24 Weeks

Borrowers can choose to extend the eight- week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, and in all cases, the covered period can not extend beyond Dec 31, 2020.

2) The Deadline to Apply For a PPP Loan is June 30th 

There are still funds available and the deadline to apply is now set at June 30th. So if anyone was not applying thinking they did not have time to spend the funds they should act quickly and apply before this month ends.

* There are conflicting reports on this loan deadline, the house version had December 31st, and a Senator demanded the program stop lending new funds on June 30th.

3) 75% Rule Reduced to 60%

Now borrowers must spend at least 60% on payroll, not the 75% in the original bill. However, there was a cliff provision meaning borrowers must spend at least 60% on payroll or none of the loan will be forgiven. However, this has already been updated just a few days after it was passed.

Due to the 24 week covered period, this rule should not be a problem. This along with the other changes should make it easier to achieve 100% forgiveness.

4) Rehire Date Moved From 6/30/20 to 12/31/20

Businesses now have until 12/31/20 to rehire employees back to the 2/15/20 level.

Due to the 12/31/20 rehire date, most typically won’t be filing forgiveness applications until January 2021 at the earliest.

5)  Required FTE Goal For The Rehire Exemption is Reduced If You Are Unable To Rehire People or Business Has Declined Due to HHS, CDC, or OSHA Requirements Regarding COVID-19

The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.

We will need guidance to clarify the inability to restore business operations, but overall this is helpful to increase Safe Harbor and obtain full forgiveness.

6) New PPP Loans Will Have a Minimum Maturity of 5 Years

New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.

7) Allow Payroll Tax Deferral

Allow small businesses to take a PPP loan and also qualify for a separate, recently enacted payroll tax deferral, currently prohibited to prevent “double dipping.”

8) Extend Loan Forgiveness Period

Extend the period for when a business can apply for loan forgiveness, from within six months to within 10 months of the last day of the covered period, before it must start making interest and principal payments. Under the new bill, PPP loan interest and payment of principal and fees will be deferred until the loan is forgiven by the lender.

Here Are Some Indirect Changes to The PPP Loan Program: 

  • We assume the $15,385 per person payroll limit will be increased to $46,154 but need confirmation from the SBA.
  • The forgiveness application will be completely changed.
  • Although utilities, health insurance, SUTA, and other small costs are still eligible, they become less important. Rather than worry about tracking small receipts, we are recommending focusing on the big items that are easy to show to the lender that’ll review the forgiveness application – payroll and rent.

We will continue to keep you updated as we get additional guidance.