Category Archives: Information

How to Rent When You Have Bad Credit

The following is presented for informational purposes only and is not intended as credit repair.

Finding a new apartment is stressful enough in the best of circumstances, but if your credit is less than stellar, things can get pretty difficult. That’s because many landlords and property management firms require a credit check as part of the application process. And depending on your score and the requirements for the property, that credit pull may lead to your application being denied.

Why do landlords look at your credit report at all?

It’s probably helpful to understand why landlords are looking at your credit report at all. After all, they aren’t loaning you money, so why do they care about your creditworthiness?

In truth, however, your landlord is lending you something of value – the rental property itself. And just as banks and credit unions weigh the risk and reward of lending you money, property managers do the same thing before handing over the keys.

So while your credit report and, more specifically, your credit score can’t tell a landlord exactly how you’ll behave as a tenant, they can tell a prospective property manager how you’ve handled other financial responsibilities. A bad credit score can be interpreted as you having a hard time staying current on previous debts and bills. If a landlord or property management firm is trying to minimize the risk of having tenants who fall behind on rent (or worse, ultimately require an eviction) they’ll likely see your credit score as a strong indicator of what to expect over the course of the lease.

So it helps (a lot) to have strong credit score. And while it would be great if you could just fix your credit overnight, improving your score takes time – time you probably won’t have if you’re looking for new housing. So what can you do if your credit score is low but you need to find a new apartment? Here are some steps to take if you’re trying to rent an apartment with bad credit.

EXPLAIN THE ISSUES IN YOUR CREDIT HISTORY

There are a lot of reasons why your credit score can dip and you being irresponsible with money doesn’t have to be one of them. If you feel comfortable explaining the circumstances behind your poor credit score, go ahead and share that with the property manager. Landlords are more interested in your recent history, so if your low score is the result of something that happened years prior be sure to discuss that and share what you’ve been doing to improve your score and fulfill your responsibilities since then.

OFFER REFERENCES FROM PRIOR LANDLORDS

You can have a poor credit score and a spotless rental history, which is why it may be helpful to provide documentation from previous landlords. If you can show that you have a history of making your rent payments on time (in addition to all the other behaviors that make you a good tenant) then a poor credit score may not be as big of a deterrent.

BE WILLING TO PAY MORE UP FRONT

A security deposit is one way that landlords offset the risk of renting out their property. Should something happen, they can use those funds to cover any cleaning or repairs above and beyond what’s covered in the rental agreement.

The higher the risk, the more you may need to pay up front to mitigate that risk. This could be a larger than usual security deposit, or possibly even upfront rent payments for one or more months. Whatever you agree to, however, make sure it’s captured in the lease and you understand how that money will be used and how you can get it back (if applicable). You should also consider your financial capacity – while you’re likely under pressure to find an apartment, try not to overextend yourself. If the required deposit puts you in a dangerous position, keep looking.

ADD A CO-SIGNER

As a last ditch option, you can try to add a co-signer. The co-signer wouldn’t need to live at the property, but they would be equally responsible should you fail to meet your obligation. In other words, if you miss payments, the property manager could go after the co-signer for the back payments.

Co-signing can put both parties in an awkward position, though, so be sure that you and the co-signer are comfortable with the arrangement and understand what’s expected.

Finding an apartment with a bad credit score is far from impossible, but it’s harder than the alternative. If you’re not planning on moving any time soon, now’s the ideal time to start working on your credit score. If we have tons of great articles on building a positive credit history, but if you’re interested in one-on-one help with your credit, consider working with a trained counselor to review your credit report and create a plan for long-term credit success.

How to Prepare for the End of an Eviction Moratorium

If you’ve lost your job, are furloughed, or have a small business that’s been temporarily shuttered due to the coronavirus pandemic, you may have received temporary relief in a form of an eviction moratorium. At the local level, governments have provided these moratoriums as a way to keep people in their homes during this difficult time. However, an eviction moratorium doesn’t prevent your rent or mortgage from falling further and further behind and once a moratorium ends you’ll need to bring yourself current or face a potential eviction.

Of course, if your financial outlook hasn’t improved (or hasn’t improved dramatically), staying in your home will be a challenge. Here’s how you can prepare yourself for the end of an eviction moratorium:

KNOW YOUR RIGHTS AS A RENTER

Eviction moratoriums vary depending on where you live. So you’ll want to do some research on COVID-19 eviction moratoriums in your city, state, and county. Here are a few things you’ll want to look into:

  • How long an eviction moratorium is in place for. Some locales have extended moratoriums so be sure to understand the protections in your specific county or city.
  • Whether you’ll be on the hook for any nonpayment fees or penalties. You most likely won’t need to pay for fees or penalties for not making your rent during a moratorium. However, this could change once it’s been lifted, or after the grace period to pay outstanding rent ends.
  • How to be offered protection under an eviction moratorium. You might only be eligible if you’ve suffered an economic setback, are on unemployment, or if your business has been hit hard financially.
  • How much time you have to pay back in rent or mortgage payments you owe. This varies depending on the locale. In some places, it’s 3 months after an eviction moratorium is lifted. In other areas, it’s 6 months or 12 months. During this time, you cannot get kicked out for deferred rent.

APPLY FOR RENTAL ASSISTANCE

Programs at the state and local level are available to help renters catch up on payments and stay in their homes. Applying for any type of aid program can be time-consuming, so start soon than later. 

The Consumer Financial Protection Bureau (CFPB) has an extensive breakdown of the programs available and how to apply. Your first step should be researching the availability of programs in your area. 

NEGOTIATE FOR LOWER RENT

If you can afford to, pay something now. Not only does it show your landlord that you’re a responsible tenant, but it also means you’ll owe back less money down the line.

Try to work out an agreement with your landlord. While it might seem intimidating, start by approaching your landlord as a teammate. And your situation is a problem to work out together, suggests Tilden Moschetti, a real estate attorney of the Moschetti Law Group. “Everything is negotiable,” says Moschetti. “Most landlords want to work out arrangements to get caught up.” So come up with a plan to get caught up on your payments — which we’ll get to in just a bit.

A pro tip: It’s often easier to negotiate when there are no intermediaries between the tenant and owner, explains Alexander Lerner, a realtor with Figure 8 Realty in Los Angeles. In other words, the landlord is an individual or is a family-run operation versus a property management company.

Be upfront about your situation. “Tenants should be honest and forthcoming with as many details as they feel comfortable sharing,” says Lerner. “The more you can show that you have been impacted financially and need assistance, the greater the likelihood you will find the person on the other side being amenable to negotiation.”

Put yourself in your landlord’s shoes. As Lerner, who works with landlords and is one himself, points out, landlords don’t want to be in a situation where you’re defaulting on your lease or aren’t unable to pay at all. In turn, they’d probably rather know that you’re going to pay a reduced amount.

If you aren’t able to cover any rent, it puts the landlord in a position of having to find a new tenant when the rental market might not be as strong as when you rented out the place. Or needing to pour resources into getting you evicted or collecting on any money owed.

Let’s say your rent is $2,000 a month. And it takes the owner a month to find a new tenant. In that case, they’d be missing out on one month’s rent. But if your rent got bumped down to $1,800 for four months, they’d only be losing $800. So it’s worth their while to keep you around but bump down your rent.

“Plus, there’s no guarantee — given a lot of the current economic uncertainty — that a landlord will be able to find someone to rent right away, which could mean that the unit will stay vacant longer,” says Lerner.

COME UP WITH A PAYMENT PLAN

Your payment plan depends, of course, on your financial situation. If you’ve been laid off and are receiving unemployment benefits, you might be able to afford to pay half of your rent now. Once you are gainfully employed again, you can drum up a plan to make up whatever remains.

If you’re out of work and have zero income coming in, you might have to skip rent payments for now, and get on a more aggressive repayment plan, where you’re paying, say, your rent plus 20% for a year or what have you.

Whatever your case might be, it’s essential to plan ahead. Your plan should be feasible and in step with your current financial situation.

Should things change, keep your landlord looped in and make sure they’re on board. Try to think of any payment plan as a win-win. If you need more time to pay off whatever rent is owed, communicate this to your landlord as soon as you can. This especially rings true if you were a tenant in good standing that stayed on top of your payments before the pandemic. If you’ve got a positive payment history before everything went sideways, your landlord might be flexible and give you a few options so you won’t need to uproot.

WHAT TO DO IF YOU GET EVICTED

Evictions are a loss for both parties involved, points out Anderson Franco, Esq., a San Francisco-based tenant attorney. “Tenants don’t want to lose their homes, and landlords don’t want the expense of a vacancy or eviction,” he says. “As such, it behooves both tenants and landlords to negotiate mutually beneficial terms that could allow the tenant to remain in their home and avoid the landlord-eviction expenses.”

If you look just at the numbers, reducing your rent might generate less money for the landlord. But let’s say you end up defaulting on your rent, and the landlord ends up needing to evict you. That’s extra money and time they need to dole out on evicting you. Plus, they’ll need to find a new renter, which takes time, and potentially lost rent money during the vacancy.

In the worst-case scenario and you are in danger of getting evicted, know your rights. The process of eviction, including the timeframe and your responsibilities, will depend on the laws in your state of residence. No matter where you live, be sure to keep track of all communications from your landlord or lender. You can seek more information and help from a non-profit agency that can provide free legal guidance to tenants. Some might even offer free mediation.

Finally, it may come to pass that there’s no path forward other than leaving the property. Once that decision has been made, you’ll want to refocus your financial and mental resources towards finding temporary or long-term shelter.

Regaining Pride in My Finances: A Queer Journey From Struggle to Strength

This year, Pride Month looks different than it has before. Most obviously, the Coronavirus forced Pride organizations across the country to cancel in-person events, eliminating one of the most visible components of the month-long celebration. It’s also taking place at the onset of a new economic reality that makes the moment more introspective than in years past.

Suddenly, millions of people are experiencing unexpected financial hardship because of the economic fallout, creating a very different dynamic for Pride this year. Pride Month 2020 presents a chance to be more self-reflective – more focused on personal growth (or survival) than collective enthusiasm.

Personally, I’m excited about this. My coming out story and my financial journey are inextricably linked, a reality that’s shared by many of us in the LGBTQ community. Pride month is, among other things, about liberation, something that we should experience in our finances, too.

COMMON FINANCIAL STRUGGLES WITHIN THE LGBTQ COMMUNITY

#1 KEEPING UP WITH THE QUEER JONESES

For many in the LGBTQ community, creating and maintaining an image of success – however loosely defined – has become the norm. Undoubtedly, there are many reasons for this.

For some, a perfectly curated Instagram feed presents an image of LGBTQ prosperity that must be attained, regardless of how much credit card debt it takes to achieve. Others, wounded by family and friends, use retail therapy in an attempt to heal, a practice that ultimately fails to fill the void while often creating copious amounts of debt.

For me, after coming out to my family, I felt an incredible pressure to present a successful picture of myself in an effort not to further disappoint them. Knowing that rejection could be around any corner, I made risky financial decisions (including credit card debt, an adjustable-rate mortgage, and cars I really couldn’t afford) to protect myself against the potential for rejection. Ultimately, I repelled healthy relationships, exchanging them for attempts to impress people in the hopes of earning their tolerance or acceptance.

In reality, we don’t have anything to prove to anyone. Instead, we have a responsibility to ourselves to take our financial health seriously, ensuring that we are positioned to thrive now and in the future.

#2 EXPEDITED ADULTHOOD

While some in the LGBTQ community are blessed by supportive friends and family when they make their sexual orientation public, too many face a serious support crisis. It’s not a coincidence that 40% of the 1.76 million young people who experience homelessness each year identify as LGBTQ. What’s more, nearly half ran away because of family rejection, 43% were forced out by parents, and a significant number experienced physical, emotional, or sexual abuse at home.

Regardless of the circumstances, expediting the transition to adulthood is common among LGBTQ people, a reality that comes with real financial consequences.

While I avoided many of the worst possibilities, upon coming out I felt that appearing successful and independent was the only way to gain the approval of people I was so desperate to please – both my biological family and my new LGBTQ family. As a result, I took a full-time job when I was 18, and I felt compelled to provide for my own professional and educational opportunities. I relied on student loans to finance my education and credit cards to afford what my salary couldn’t.

When you start adulthood in the red, financial wellness becomes a real challenge. Personally, it took me nearly 15 years to pay off my student loans, credit card debts, and other financial obligations. At the time, debt-funded adulthood was all I knew, but my journey to financial freedom became its own form of liberation.

#3 BLATANT DISCRIMINATION

On June 14th, 15,000 people congregated in Brooklyn, New York, in a Black Trans Lives Matter protest that underscores the reality that blatant discrimination continues to be an affront to the financial prospects of LGBTQ people. For example, according to data compiled by Pride at Work, a nonprofit organization representing LGBTQ union members:

  • 35% of people experienced harassment on the job because of their identity.
  • 53% have reported that they kept their identity a secret out of fear of discrimination or harassment.
  • 30% of transgender respondents surveyed on their job prospects reported being fired, denied a promotion, or not hired because of their gender identity.
  • LGBTQ workers often experience inadequate healthcare coverage.

This is just a snapshot of discriminatory practices that are frustratingly common. Many LGBTQ workers face discrimination impacting their ability to make financial headway. In 2020, this is especially relevant for LGBTQ people of color. Movements, like the recent protest march in Brooklyn, are bringing some awareness to this issue, but it’s one that needs to be continually exposed and examined as a factor in financial wellness within our community.

POSSIBLE NEXT STEPS

In my experience, there is a clear connection between the queer and financial journeys. Exploring this relationship can help unlock new understanding that can put you on a path to financial wellness. Here are a few steps to get you started:

SELF-ASSESS

We often don’t stop to consider the parallels between our life experiences and finances. Improving your financial outlook will require a better understanding of your history, psychology, circumstances and, most importantly, their collective impact on your wallet.

DON’T MINIMIZE

Often, the process of honest self-assessment can be painful and difficult. Be courageous and allow yourself to feel your emotions. Financial challenges are a universal human experience and they have many causes. Simply put, financial hardships aren’t a personal indictment, but a common struggle worth examining.

GET CONNECTED

Nobody has to go through this process alone. Identify the people in your life with whom you can be vulnerable. Allow them to listen, weigh in, and provide accountability and support throughout the process. For many, exploring and discussing financial struggles is a “coming out” experience of its own. Get connected with people that matter to you so that you don’t have to navigate it alone.

If you need to expand your circle of support, contact MMI today. Our trained counselors can help process your financial experience and plan for a brighter future. You’re only a phone call or click away from receiving help from a certified expert who supports you and your finances.

What You Need to Know If You Live in a Community Property State

Most states are “common law states,” which means married couples may share many aspects of their lives, but their property is individually owned unless both of their names are on a contract. Things work differently in community property states, where assets and liabilities that either person acquires during the marriage become the joint property of both spouses. In other words, “what’s mine is yours” legally applies to all sorts of income and debts.

Generally, community property laws become important during a divorce and for estate planning purposes. They can impact how a judge will split up the property that’s been acquired since you got married. Or, which property you can pass on in your will.

WHICH STATES HAVE COMMUNITY PROPERTY LAWS?

There are nine community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Additionally, couples in Alaska can choose to use community property laws, while those in South Dakota and Tennessee can create a trust and move assets into the trust if they want them to be jointly owned.

WHAT COUNTS AS COMMUNITY PROPERTY?

If your primary residence is in one of those states, then most assets acquired by either spouse during the marriage are treated as community property. Property can refer to physical possessions and intangible assets, including:

  • Property
  • Vehicles
  • Furniture
  • Savings
  • Investments
  • Pensions
  • Businesses
  • Patents
  • Debts

In essence, the state views your marriage unit as a single entity, a bit like a business partnership. For example, any wages you earn are equally owned by you and your spouse, even if the money goes into an account that only has your name on it (rather than a joint account).

Similarly, both spouses owe the debts taken on by either spouse, even if only one of them takes out the loan or uses a credit card. Although, there may be some exceptions if the debt isn’t taken on for a purpose that benefits both spouses in some way.

When a married couple moves into a community property state, the property they’ve acquired since getting married but before the move may be called quasi-community property or community-like property. Although it may have been separate property when it was acquired, it could still be treated as community property by the state where they now live.

EXCEPTIONS TO COMMUNITY PROPERTY

Even if you live in a community property state, you may still retain some of your property as separate property—meaning you’re the sole owner.

Separate property generally includes everything you owned before you got married, along with gifts and inheritance that are only given to you during the marriage. It can also include debts you took on before the marriage, such as student loans.

When you buy something with your separate property, the distinction can also carry over. For example, if you use separate property savings to purchase a rental property or an inheritance to buy a vehicle, those may remain separate property as well.

Sometimes, separate property gets mixed with community property, which is referred to as commingling. For example, you may inherit money (separate property), but then deposit it into a joint account where it becomes community property. Or, you could have a retirement account that has a balance in it when you’re married (separate property), but then contribute to it after your marriage with income that’s community property.

You may be able to separate commingled property later. During a divorce, you could hire a financial advisor to determine how much of a retirement account’s balance is due to the separate versus community property, for example. However, there are also times that funds get mixed together so much that the entire account or property becomes community property.

During a divorce, community property may be split 50-50 between both parties. However, if you can agree to an equitable split, you don’t necessarily need to divide all community property in half. For example, rather than dealing with the tax consequences of withdrawing money from a 401(k) early, perhaps you get to keep all the 401(k) funds and your former spouse gets to keep the house.

COMMUNITY PROPERTY AND TAXES

In addition to divorce and estate planning, community property laws can also impact your annual tax return if you use the married filing separately tax return status.

Because you own half of the community property, along with your separate property, you’ll have to include all that income on your tax return. You’ll also receive half of the tax deductions and credits to determine how much you owe or how big of a refund you’ll receive.

You’ll need to follow the rules even if you’re separated but still legally married and at least one person lives in a community property state. As a result, you might have to add or subtract income from your tax return, or even if you don’t share any money with the other person. But there are also exceptions, such as when you didn’t live together for the entire year and didn’t transfer the community property between each other.

PROTECTING YOURSELF FROM FUTURE CONFLICT

If you’re worried about community property becoming an issue after you’re married, you could write up and sign a prenuptial agreement that overrides the state’s default community property laws.

For example, the prenup may explicitly state that both party’s earnings, assets, and debts remain separate property. Or, it could be more explicit about a particular situation, such as designating one person’s business and business income as separate property, but allowing everything else to become community property.

If you’re already married, you could also draft and sign a postnuptial agreement that covers many of the same things. These can be particularly helpful if you get married in a common law state and are moving to a community property state. With both pre and postnuptial agreements, state laws may limit what you can include in, and you’ll want to work with an attorney who is familiar with the specific state’s laws.

How Minimalism Can Improve Your Relationship With Money

Problems with managing money can stem from a number of different causes. For many people though, one cause that doesn’t generate much discussion is philosophy. Many of us, without even realizing it, are caught up in a philosophy of consumerism that leads to excess and sometimes entirely unnecessary spending.

One way to counter this is to embrace minimalism as an alternative. This is a financial mindset that is increasingly associated with millennial consumers, who have had to find ways to cope with difficult economic circumstances throughout their young adult lives. Millennials came of age amidst financial crisis, and are also famously burdened by student debt. Partly as a result of having less money than their parents did at this age, and partly in the name of strategy, many young people have learned to deal with this by taking a minimalist approach. They value experience over materialism, they delay or forego unnecessary expenses, and they buy less stuff.

Adopting this general approach — whether or not you’re a millennial — can save you a lot of money. But in a number of ways, it can also improve your relationship with personal finance.

IDENTIFY UNNECESSARY LUXURIES

When you adopt a mindset of limiting expenses, rather than being drawn to them, you might be surprised how quickly you become better able to identify unnecessary luxuries. One example has actually become quite prominent of late, as people look for ways to simulate their real-world experiences at home during quarantines. People are finding ways to work out at home, and it’s a good bet that a lot of them won’t go back to their gyms, yoga studios, or personal trainers. While there are certainly things you can do at a gym that you can’t do at home, a little bit of brainstorming and some internet searching can land you a very effective home workout that doesn’t cost a penny.

People who embrace minimalism can find little trade-offs like this throughout their lives and not just with non-essential spending. The clearest examples are cooking instead of eating takeout; opting for sustainable and affordable modes of transport; and reducing energy expenditure at home.

TAKE A SUSTAINABLE APPROACH TO SPENDING

Minimalism and sustainability share very similar values— living simply and unencumbered by material things, and finding purpose for all aspects of life. Following a minimalist lifestyle, you’re probably reducing your overall consumption of goods, like electronics. This can also be sustainability in practice because it calls individuals to avoid purchasing products in volume for environmental and ethical reasons. So by abstaining from buying the newest gadget for the sake of being trendy, you’re not just saving your money, but the planet and its stakeholders as well.

In fact, sustainability has become such a vital topic that it’s not just a practice that people follow, but a subject to be studied. And sustainability isn’t just changing the way families and individuals consume goods, it’s also changing the financial mindset of many industries. Across the world, big businesses are switching to renewable energy, eco-friendly packaging, and healthier working conditions — all of these pave the way for a more sustainable future.

These efforts are also applicable to the individual level. For instance, installing solar panels, though a bit of an initial investment, can pay off in the long term. Cooking vegetables that are in season or taken from one’s own yard could save you substantially over time. You’re also promoting personal health and avoiding potentially expensive medical conditions. What these examples highlight is the importance of thinking for the long-term to promote financial growth.

PRIORITIZING EXPERIENCE

We mentioned before that millennials often value experience over materialism, and this is a fairly fundamental lesson one can learn from adopting a minimalist perspective. The clearest example of this practice in action can be found in how many young people are planning their weddings. Many are spending less on engagement rings (with the majority of Gen Z and millennials believing rings shouldn’t cost more than $2,500). As a result, they’re finding the early days of their marriages less stressful. Some are enjoying more relaxing honeymoons, or even more “perfect” weddings.

The point is that experiences have come to matter more. As a financial minimalist, you’ll likely start to recognize numerous situations like these, in which expensive things can be traded for richer experiences. These aren’t limited to huge events, like weddings, but even simple get-togethers can be made more meaningful in different ways. For example, families can cook together to celebrate birthdays, rather than go on a luxurious trip. Or going on a picnic with friends is just as, if not more, enjoyable than attending a glamorous party.

In the end, these are all surprisingly easy adjustments to make in your mindset. But the effects on your relationship with money in your day-to-day life can be profound.

Interested in one-on-one help re-imagining your relationship with money? MMI offers free financial counseling sessions 24/7, online and over the phone. 

How Do HELOCs Work and When Should You Use One?

Homeowners who hit a financial snag or want to take on an expensive project, may have the option of using their home as a piggy bank. With a home equity line of credit (HELOC), you can borrow against the equity you’ve built in your home — the difference between the home’s value and your outstanding mortgage balance.

A HELOC is a type of second mortgage. But instead of getting the full loan amount upfront, you’ll open a line of credit that you can borrow against multiple times. It can be a helpful option if you anticipate needing to take out multiple loans in the coming years. Or, if you want access to a line of credit in the future without the requirement of borrowing the money right now. However, HELOCs also aren’t always the best way to go.

HOW DO HELOCS WORK?

With a HELOC, you can borrow up to a certain percentage of your home’s value (generally, 85% to 95%), minus what you currently owe on your mortgage. For example, if your home is worth $300,000, you may be able to get a line of credit for 90% of that, or $270,000. But if you still owe $200,000 on your mortgage, the line of credit will be limited to $70,000.

Your HELOC will usually have two distinct periods — a draw period and a repayment period. The specific lengths will depend on your loan, but draw periods tend to last around five to 10 years, while the repayment period may be 15 to 20 years.

During the draw period, you can borrow against your line of credit (i.e., take a draw) and make interest only payments. It’s like a credit card in that you can free up your credit limit by paying down your balance, and borrow against your credit line multiple times as long as you don’t go over the limit. In fact, your HELOC may come with a card and checks you can use to access the money.

Once the draw period ends, you’ll have to make larger payments to repay the principal balance of your outstanding loan plus interest over the repayment period. Or, with some HELOCs, the entire amount is due once the draw period ends.

HOW TO GET A HELOC

You can apply for a HELOC from different lenders — you don’t have to use the same company that you took out your original mortgage from. As with other types of loans, your creditworthiness and debt-to-income ratio can impact your ability to qualify, along with the rates and terms you receive.

Similar to other mortgages, lenders may charge closing costs to have your property appraised and to open the line of credit. There may also be annual fees to keep the credit line open, transaction fee when you take a draw, inactivity fees if you don’t use the credit line, and early closure fees.

You should research your options as the loan amounts, fees, interest rates, and other important terms can vary depending on where you get your loan. During economic downturns, some lenders may also stop offering HELOCs or make the requirements stricter, which can make it more difficult to find a good offer.

WHEN SHOULD YOU USE A HELOC?

If you’ve built equity in your home and can qualify for a HELOC, it may be one of the best options when:

  • You need to borrow a lot of money: By using your home as collateral, you may qualify for a larger loan than you could get with an unsecured personal loan or line of credit.
  • You’re using the money to improve your home: If you use the money from a HELOC to substantially improve your home in a way that adds to its value, such as adding a new room, the interest on the loan may be tax deductible. Repairs and maintenance don’t count.
  • You need to make a series of payments: A line of credit can be helpful if you’re going to make progress payments to a contractor, tuition payments, or other types of ongoing payments. If you need all the money at once, look into an installment loan, such as a home equity loan or personal loan.

WHY A HELOC ISN’T ALWAYS THE RIGHT CHOICE

But sometimes, a HELOC could be riskier or more expensive than other types of loans that you can use to meet your needs. Keep in mind:

  • You’re using your home as collateral: If you can qualify for similar or better terms with an unsecured loan, such as a personal loan from an online lender, then you might not want to get a HELOC. Because you’re using your home as collateral, you risk losing the home if you can’t afford the payments in the future.
  • There could be many fees: Part of the comparison should be the fees you’ll need to pay to open and use a HELOC. While other loans might have some fees, unsecured loans don’t have closing costs, and a home equity loan (HEL) generally won’t have ongoing fees.
  • Your costs could quickly rise: Many HELOCs have variable interest rates. The changing rates can impact how much interest accrues and your monthly payments, making it difficult to budget. You’ll also want to beware of when your draw period ends and how much your repayment period payments will be, or if you’ll owe a large balloon payment.

LEARN MORE BEFORE BORROWING AGAINST YOUR HOME

While a HELOC can be a helpful tool, particularly when you can borrow against your home to increase the value (and comfort) of your home, it’s not a one-size-fits-all solution. If you’re looking for more personalized guidance with budgeting, debt, or finding the right loan, schedule an appointment with one of our trained counselors.

How Collecting Unemployment Can Impact Your Taxes

The following is provided for informational purposes.

Tens of millions of people are now collecting unemployment, many for the first time ever. But depending on their annual income and whether they elect to have withholdings taken out of their unemployment benefits, they may get a nasty surprise when filing their tax returns next year.

While you may have paid into the unemployment fund while you were working, the money you’re receiving isn’t tax-free. (The one-time stimulus checks from the CARES Act are tax-free, but the extra $600 weekly unemployment benefits and regular unemployment benefits are not.)

Figuring out how much you may need to pay and preparing ahead of time could help you avoid getting caught off guard.

YOU MAY HAVE TO PAY INCOME TAXES ON UNEMPLOYMENT

Unemployment is treated the same as your regular earnings and gets added to your overall taxable income to determine your federal income taxes for the year. But unlike your wages, you don’t have to pay Social Security or Medicare taxes (FICA taxes) on unemployment.

How much you pay will depend on your total taxable income and the tax brackets for the year. For example, if you file your tax return using the single status (i.e., aren’t married and don’t have any dependents) and make $40,125 to $85,525 after deductions in 2020, then you’ll pay a 12% income tax on your unemployment.

As is always the case, moving into a higher tax bracket won’t increase how much income taxes you pay on all your income. It only impacts the money you earn that’s within that bracket. Even if you make $100,000, you still only pay 12% income taxes on the money that’s in the $40,125 to $85,525 range.

Your unemployment benefits could also be taxable at the state level. However, in addition to the states that don’t have any income taxes, California, New Jersey, Oregon, Pennsylvania, and Virginia don’t tax unemployment income.

YOUR UNEMPLOYMENT GETS REPORTED TO THE IRS

Similar to how you receive a W-2 from your employers each year, your state will send you and the IRS a Form 1099-G with your total unemployment income for the year.

You can copy the numbers from this form when preparing your tax return. If you choose to have money withheld from your unemployment, that will also be recorded on the Form 1099-G. Your return could be flagged if you don’t include these numbers as the IRS gets a copy of the form and knows you received the money.

3 WAYS TO DEAL WITH UNEMPLOYMENT INCOME TAXES

While your unemployment income is taxable, you can decide whether to pay the taxes now or later. You could approach the situation in three ways:

  • Have money withheld: You can ask your state to withhold money from your unemployment and send it to the IRS. This works similar to how employers withhold taxes from your paychecks.
  • Make estimated tax payments: You could also proactively make estimated income tax payments to the IRS and your state (if necessary) online. Many freelancers and gig workers do this quarterly because income taxes aren’t withheld from their pay.
  • Wait and pay later: You may want to choose to receive your full unemployment benefit without paying any taxes. While this will give you more money now—which may be necessary—it also means you’ll have to pay all the income taxes later.

There are pros and cons to each, and you’ll have to decide if it’s best to have less income now or pay more taxes later. However, you should also consider your overall financial situation before deciding.

For example, if you make less than the standard deduction for the year, you might not have to file a tax return or pay income taxes at all. For 2020, the standard deduction is $12,400 if you file as single or married filing separately, $24,800 if you file a joint return with your spouse, and $18,650 if you have a dependent and file using heads of household.

If you make less than that amount, you won’t owe any federal income taxes. But if you have income withheld or make estimated tax payments, you’ll have to file a return to get that money back.

REVIEW YOUR BUDGET TO PREPARE

Whether you regularly budget or are new to the concept, you may want to revisit your financial plan when you start to collect unemployment. Reviewing or creating a budget could help you find ways to save money, and it allows you to make an informed decision about if, when, and how much you want to set aside from your unemployment income for taxes.

If you’re looking for guidance or an expert’s opinion, you could also set up a free debt and budget counseling session with one of Money Management International’s certified counselors. Counselors can help answer specific questions you may have, and give you personalized recommendations based on your situation and goals.

The Dos and Don’ts of Switching Service Providers to Lower Your Bills

When times are tough and money is tight, you may find yourself combing through your budget, looking for any chance to save a little cash – no matter how small.

While there may be a few chances to cancel services outright, before you take that step you’ll want to use your leverage as a consumer to shop for a better deal. Because when times are tight for you, there’s a good chance that they’re tight for service providers, who may be fighting for every inch of market share.

You could try to use this leverage to negotiate for a lower rate with your current provider. Or you might want to switch companies altogether – especially if you can land a better price elsewhere. However, when making the transition between providers, you’ll want to be mindful of a few things. Otherwise, the switch might end up costing you more or be more trouble than it’s worth.

For those who are considering moving on from your current car insurance provider, cable company, or other essential service you just can’t quit, here’s what you should keep in mind to save money:

DO: MIND THE FEES

When you’re changing companies, there might be some fees tacked on with your new provider. For instance, if you’re switching cable or home internet, you might have to pay an activation fee or to purchase new equipment.

I’ve switched car insurance companies and home internet providers since the quarantine. And when I changed internet service, I asked if there would be any fees that would be tacked on. Indeed, there was a $10 one-time activation fee. I figured it would be worth it, as I would be getting 10 times faster internet speeds.

And because I was willing to stomach the fee, I accounted for it in that month’s budget. On the flip side, the modem and router would be provided free of charge. There was also a sell-installation option, which meant I wouldn’t have to pay for a service tech visit.

If the fees to open a new account are higher than the savings, or the added costs for that month aren’t merely something you can afford, then it might not be worth the trouble to switch companies.

DO: SEE IF YOU CAN GET THE FEES DROPPED

If you still want to switch, try putting on your negotiating hat and talk to a sales rep. Explain why you’re switching companies (because you’re trying to save money), and why you can’t afford to pay those activation fees (see the part about saving money). Ask if they might be willing to drop the fees or offer you credit down the line. Chances are they want your business and might be willing to give you a few options. And if not – well, no harm in asking (or in saying no).

DO: TIME THE SWITCH

You’ll want to time the switch so that there’s no overlap in service. Let’s say you’re swapping cable companies. And the monthly cycle for your current company ends on the 20th of each month. When making the change, try to time it so that your new service kicks in around the 20th. That way, there aren’t days when you’re paying for both providers.

This was something I did end up doing right. Before I decided to switch my car insurance company, I checked to see when my policy was up for renewal. And I started the policy with my new carrier the same day my current one ended.

If you’re not able to time the switch in such a neat manner, you can ask to stop your service by a specific date and be prorated that amount. So if your last cycle with your cable company is 20 days, you’ll only need to pay for those 20 days and get refunded the rest.

DON’T: STALL ON INSTALLING NEW EQUIPMENT

I failed on both fronts with this. When it came to car insurance, I switched over to a pay-per-mile coverage. With pay-per-mile coverage, you need to install a device in your car to track your mileage. I lollygagged for about a week before I installed the doo-hickey. While I didn’t end up paying for two policies, I risked losing insurance with my new carrier.

And when it came to setting up my new internet service, I also stalled. While it could’ve been easily prevented, I ended up paying for both services for about a week. Bottom line: Once you get new equipment, install it right away. Be sure to set time aside, in case you run into any snags and take longer than expected. Procrastination can be costly.

DON’T: FORGET TO REVIEW PROMO PERIODS

If you’re hopping on a new plan because of a discounted introductory rate, be mindful of when the promo period ends. And while there’s a chance there will be new promos or your current promo may be extended, prepare yourself for when the base price kicks in. Otherwise, you could find yourself in a budgeting bind (of your own making).

You may also want to reach out to your provider before the promo period ends to see if you can get signed up for a new discounted price. If you’re not under contract, you may have to look into once again jumping ship to a new provider (or, at least be prepared to do that when you call asking for a discount).

Switching providers to save money could help your wallet, but for it to really help lower your bills you need to be smart, willing to negotiate, and able to follow through.