Archives for April 12, 2019

Want to pay less to your credit card company? Make a phone call.

While most cardholders have not requested a break on either interest rates or fees recently, the majority of those who did ask were successful, a new survey shows.

In the past year — a time when interest rates were rising — 81% of cardholders who asked for a lower rate got it, and most got a reduction of between 5 and 6 percentage points, according to research from CompareCards.com.

For late-payment fees, 87% were successful getting them eliminated, and 67% got their annual fee waived (24% were given a reduced annual fee).

“I was surprised that the chances of success are sky-high for every break we asked people about,” said Matt Schulz, chief industry analyst at CompareCards.com, which polled more than 1,000 people for its survey.

However, about three-quarters of respondents have not asked for any sort of reduced rate or waived fee, even as the amount of debt they carry — and the cost to finance it — has continued to climb.

The nation’s credit card tab has reached $944 billion, according to NerdWallet. The average interest rate is about 17.7%, separate data from CreditCards.com shows. That compares to about 15.2% three years ago.

Since 2016, the Federal Reserve has made eight increases to a key interest rate that affects consumer debt. It recently indicated that rates won’t move higher this year unless economic conditions change.

Nevertheless, getting your interest rate down is a key way to reduce the cost of carrying a balance month to month.

In the CompareCards study, the average rate reduction that survey participants had been able to get was 6 percentage points. The median — half fell above, half below — was about 5 percentage points.

Say you have a balance of $5,000 on a card that charges you 24% in interest and you pay $250 a month. It would take 26 months to pay off and you’d pay about $1,450 in interest. If you could get that rate to 18%, you’d save more than $450 in interest and pay it off two months earlier, the study shows.

Schulz pointed out that if you already are paying a lower-than-average interest rate, it’s less likely you’ll get a huge reduction. You can also explore 0% deals, which typically charge you an upfront fee but no interest for a certain amount of time.

And, because the poll was random, Schulz said the success rate is likely not limited to consumers with high credit scores.

“That’s a really positive sign and a good indicator that even folks with not-perfect credit should take time to ask,” he said. “Otherwise you could end up paying more to your credit card company than you probably need to.”

WHILE YOU DON’T HAVE much choice when it comes to paying taxes, you can benefit from significant deductions that reduce the amount you owe Uncle Sam.

“We’re allowed to take deductions against income,” explains Traci Kratish Pumo, the managing director with the tax and financial advisory firm BDO. Those deductions reduce the amount of income subject to tax, and taxpayers have two main options: the standard deduction or itemized deductions.

Deductions are especially important this year now that personal exemptions have been eliminated, says Bill Smith, the managing director for the National Tax Office at the financial firm CBIZ MHM LLC. For the 2017 tax year, taxpayers could claim an exemption of $4,050 for themselves and each of their dependents. However, those exemptions were eliminated for the 2018 tax year under the Tax Cuts and Jobs Act, making deductions now the prime way to reduce taxable income.

While the standard deduction is the government’s built-in subtraction that you can take while preparing your taxes, itemizing is composed of individual deductions that, together, can help lower the amount of taxable income you pay.

With the April 15 tax-filing deadline around the corner, now is the time to seize upon beneficial tax breaks. Read on to discover the pros and cons of each deduction method to decide which approach is best for you.

Standard Deduction

To compensate for the loss of personal exemptions, the standard deduction nearly doubled for the 2018 tax year. Depending on your tax-filing status, you are entitled to take one of the following standard deductions:

• Single or married filing separately: $12,000
• Head of household: $18,000
• Married filing jointly or qualified widow(er): $24,000

“More taxpayers are taking the standard deduction this year,” says Tracie Miller-Nobles, a certified public accountant and member of the American Institute of CPA’s National CPA Financial Literacy Commission. That’s largely because many people don’t have enough itemized deductions to exceed the amount of the standard deduction.

Here are the key benefits of the standard deduction:

• It’s easy, convenient and saves time.
• Some taxpayers qualify for a bigger deduction.
• Anyone can claim it.

It’s easy, convenient and saves time. If you like to keep your taxes as simple as possible, opting for the standard deduction might be the wise way to go. The standard deduction is essentially an automatic process that doesn’t require you to devote time or energy to tracking expenses. As a result, it saves you the trouble of providing documentation, filling out a Schedule A form or needing to understand nuances of tax law.

Some taxpayers qualify for a bigger deduction. Some individuals might be eligible for an increase in their deduction based on age or disability. Taxpayers who are age 65 and older or blind are entitled to an additional deduction of $1,300 to $1,600, depending on their tax-filing status.

Anyone can claim it. You’ll be allowed to take a standard tax deduction even if you don’t have expenses that qualify you to make itemized deductions.

Though the standard deduction is a simple method, it might not be the best option based on your financial situation. Here are the drawbacks of taking the standard deduction:

• Standard deductions have filing limitations.
• You might end up with a smaller deduction.

Standard deductions have filing limitations. You won’t be able to take a standard deduction in a few scenarios. If you’re married and filing separately, you can’t claim a standard deduction if your spouse itemizes his or her deductions. Though not as common, if you’re a nonresident alien, a dual-status alien or someone who is filing a tax return for a period of less than a year, then you won’t be eligible for the standard deduction. Your deduction can also be limited if you’ve been claimed as a dependent on someone else’s taxes.

You might end up with a smaller deduction. The standard deduction amount might be lower than the amount you could deduct if you itemize. For example, the standard deduction might be less than the total amount of mortgage interest, real estate taxes and charitable contributions you’ve paid and could deduct.

Itemized Deductions

Unlike the standard deduction, any taxpayer’s itemized deductions can result in different amounts. Itemized deductions are claimed on a Schedule A form and are broken down into five main categories:

• Medical and dental expenses.
• Taxes you paid.
• Interest you paid.
• Gifts to charity.
• Casualty and theft losses.

There is also a line for other itemized deductions, which covers less common situations such as gambling losses and certain unrecovered investments in a pension. “The three areas people should really focus on are the taxes, interest expense and gifts to charity,” Miller-Nobles says. For most taxpayers, those are the ones that are most likely to add up to more than a standard deduction.

Here are the benefits of Itemized deductions:

• You can claim more expenses.
• You can save more money in taxes.

You can claim more expenses. Mortgage interest, property taxes and medical bills are just a few of the expenses allowed with itemization. While some of these categories have caps or limitations, taxpayers with large mortgages who give generously to charity may find they get a larger deduction by itemizing.

You can save more money. Because you can include more deductions when itemizing, you might stand to earn a larger tax refund. The amount itemizing saves you will depend on your tax bracket. For instance, income taxed in the 25% tax bracket will see a 25 cent tax savings for every dollar itemized above the standard deduction.

Itemizing deductions does come with some drawbacks, however. Here are the disadvantages of itemized deductions:

• It takes more paperwork and effort to itemize.
• There are restrictions on some itemized deductions.

It takes more paperwork and effort to itemize. Unlike standard deductions, itemizing is a manual process. “For itemized deductions, you have to keep excellent records,” Kratish Pumo says. Depending on how good your records are and the amount of your deductions, this time-consuming process might not reduce your taxable income enough to make it worth the effort.

There are restrictions on some itemized deductions. The Tax Cuts and Jobs Act caps the itemized deduction for state and local taxes, including property taxes, at $10,000. What’s more, interest on home equity loans taken out for purposes other than a renovation are no longer deductible, and only interest on the first $750,000 of a new mortgage can be included. If you want to deduct medical and dental expenses, only those in excess of 7.5% of a person’s adjusted gross income are eligible to be itemized.

“(Married couples) have to have $24,001 in itemized deductions to get any benefit,” Smith says. This is a high hurdle for taxpayers to overcome. “A lot of people will suffer from the $10,000 limit on state and local taxes,” according to Smith. Unless someone has at least $14,000 in mortgage interest, significant charitable gifts or a major medical event, it may difficult to find enough deductions to itemize.

Keep good records and document your expenses throughout the year. That way, at tax time, you’ll have a better idea of whether standard or itemized deductions will give you the biggest tax break. Whether you’re filing with the help of a professional or on your own, maintaining solid records is essential.

“Pension detective” Ted Siedle, a former SEC lawyer who now runs Benchmark Financial Services, was awarded a record $78 million for blowing the whistle on JPMorgan Chase’s JPM, +0.84% failure to inform wealthy clients about conflicts of interest that drove the bank’s investment advice.

Furthermore, Siedle’s firm has taken the lead in over $1 trillion in forensic investigations of the money management industry and he’s testified in front of Congress as an expert on mutual funds, so he knows a thing or two what goes on behind closed doors in the financial services industry.

That’s what makes this take on today’s public pension system so troubling:

‘We are on the precipice of the greatest retirement crisis in the history of the world.’
He pointed to a “woefully unprepared” U.S. population.

“In the decades to come, we will witness millions of elderly American’s, Baby Boomers and others, slipping into poverty.” he said in a podcast this week with the Peak Prosperity blog. “‘Too frail to work, too poor to retire’” will become the new normal for many elderly Americans.”

Siedle threw out some startling numbers to show just how much pensions are underfunded, a pervasive problem made worse by their inability to reach performance targets, which is typically set around 7%.

“Warren Buffett BRK.A, +0.94% himself has said that is an unrealistic return,” Siedle said in the interview. “Wall Street’s solution to every investor problem is, and will always be, pay us more fees.”

Investors then pay those higher fees for “ever riskier rolls of the dice,” in an effort to chase returns, which “has resulted, predictably, in worse performance.”

Siedle also said oversight boards making decisions are staffed by people — think policemen and teachers — with no experience managing portfolios. Many of these pensions are rarely audited and heavily influenced by politics.

“Pet projects, such as sports stadiums, get funded to disastrous results,” he said, “while making local politically-connected ‘friends of the pension board’ rich.”

And that, he says, is where we stand today.

Google knows your money-saving woes.

It’s financial literacy month, so search engine Google GOOG, +0.20% has released its list of the most-Googled personal finance questions, including the questions they get on saving money. The No. 1 “how to save for” question Google got over the past year (in the U.S. from March 2018 to March 2019): How to save for a house. (And two other questions — 6 and 7 below — are also likely related to homeownership.)

Top 10 “how to save for” questions people asked Google in the past year

1. How to save for a house 
2. How to save for retirement 
3. How to save for a car 
4. How to save for college 
5. How to save for a wedding 
6. How to save for a down payment 
7. How to save for an apartment 
8. How to save for a vacation 
9. How to save for kids college 
10. How to save for retirement at 40

Why people are asking about home ownership

And it makes sense, seeing as how the homeownership rate in America — meaning the proportion of owner-occupied households — has been on the decline for roughly the past 15 years. Now fewer than two in three Americans owns a home. Add to that the fact that roughly three in four Americans who don’t currently own a home say they want to own a home — and you can see why saving for a home is such a popular question for Google.

At the same time, half of Americans who have pursued buying a home say they’ve faced barriers, according to a survey released in April by the National Foundation for Credit Counseling. Cost is the biggest factor — with the No. 1 barrier being rising home prices and the No. 2 barrier being lack of savings for a down payment or closing costs, the survey revealed.

Indeed, in 2018, prices rose nearly 6% from the prior year — and many predict there’s more price appreciation to come; some markets have hit record high prices. And as home prices rise, down payment requirements from lenders — which are typically a percentage of the purchase prices — also rise.

Plus, “saving for a home can be an especially challenging goal, because other needs like student loan debt or paying down credit cards demand more urgent attention,” adds certified financial planner Bobbi Rebell, host of the Financial Grownup podcast and co-host of the Money in the Morning. Indeed, student loan debt hit a record high in 2018, as did credit card debt.

How to save: first, figure out how much house you can afford
So how do you save for a home even in this tough market? “Start with how much you can afford…truly afford,” says certified financial planner Mitchell C. Hockenbury of 1440 Financial Partners. Determine the purchase price of a home you can afford (this calculator can help); then look at what the down payment (it’s typically between 3% and 20% of the purchase price), closing costs and other costs you might accrue (this is a good resource) are. “Don’t forget lawn/snow maintenance and the actual maintenance of the home (new roof, HVAC, etc.),” Hockenbury says.

‘Automate and separate’

Then, make a savings goal based on those costs (down payment, closing and other costs), and “break the goal into smaller goals,” says Trish Tetreault a financial analyst at FitSmallBusiness.com . Once you’ve done that, start saving. “The best way to get it done is often the most boring: automate and separate,” says Rebell. So you should automatically save a certain amount of each paycheck in a separate savings account for your home. “Even if you start small, seeing the balance build up in a separate account will likely motivate you to keep it going,” she adds.

She notes that you should beware of your timeline when picking where to plunk your savings: “If you want to buy a house in the next 5 years, make sure any investments you make are conservative so the money is there when you want it. For example, a CD might make sense. Investing in individual stocks probably is not the best idea, even though you might be giving up gains.”

Trim expenses

And Tetreault adds that if you want to save even more quickly, look for ways to cut expenses. “Are there monthly subscriptions that you can eliminate or reduce? Can you cut back on your entertainment spending? Reducing your current expenses will allow you to save more towards your goal,” she says. You should also see if there are opportunities to make some extra cash: “Do you have things that you no longer use that you can sell? Can you pick up overtime hours? Would a part-time or freelance job provide you with enough additional income to reach your goals?,” she says.

Shares of Google have been up 16% this year, compared to a 12% increase for the Dow Jones Industrial Average DJIA, -0.05% and a 15% increase for the S&P 500 SPX, +0.00%