URGENT – Mortgage Forbearance Deadlines this Week!

We mentioned Mortgage Forbearance earlier as a helpful tool for homeowners who are having trouble with their mortgage payments. Forbearance is when your mortgage servicer or lender allows you to pause or reduce your mortgage payments for a limited time while you build back your finances. The CARES Act (passed back in April of 2020) required that when a mortgage is backed by a Federal Agency, the borrower is automatically eligible for 3-6 months of forbearance if they are experiencing financial hardship resulting (directly OR indirectly) from COVID-19. Forbearance creates a helpful reprieve for struggling families.

The deadline to apply for forbearance under the CARES Act is September 30, 2021 IF your mortgage is backed by HUD/FHA, USDA, or the VA! That means NOW is the time for action. NOTE: if your loan is backed by Fannie Mae or Freddie Mac, there is not currently a deadline for requesting an initial forbearance.

Not Sure About Your Mortgage? Contact your mortgage company and ask them about your mortgage — asked if was backed by any of the agencies listed above. It that answer is “yes,” and if you are struggling with payments and bills, apply right away: ask your mortgage company to provide the needed application materials.

What does it mean to have your mortgage “backed” by a government agency? That simply means that when you bought your home, you qualified for special terms – often a lower down payment, reduced fees, or preferential interest rate thanks to a government program. I remember that when I bought my first house it was an FHA Loan; many first-time homebuyers qualify for special terms, and others do as well. If you are not sure, there is no harm in asking!

The Consumer Financial Protection Bureau provides more information about forbearance. Financial assistance for homeowners at imminent risk of foreclosure may be available as well; the Iowa Finance Authority provides more information, about help that is currently available, and notes that more assistance, authorized under the American Rescue Plan Act, will be available within the next several months.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Prioritizing Bills

When money is tight, we sometimes have to make VERY difficult choices. 

What do I mean by “difficult?” I’m NOT talking about “which sweater should I buy?”  That does not qualify as a difficult choice in the true sense of difficult choices. I am talking about “I have 8 bills to pay, and I can only pay 5 of them.”

When you need to consider which bills to pay, a key is to ask “what would be the consequences of not paying each bill?” With that in mind, there are three types of bills that generally need top priority. These are bills that are necessary to:

  1. Keep you safe and healthy (for example, picking up your prescription medicines)
  2. Keep you housed (for example, paying rent or mortgage)
  3. Keep your employment (for example, renewing your professional license, or keeping transportation to work)

These three priorities go beyond actual bills, too. For example, buying groceries is not a “bill,” but having healthy food is essential to keeping you and your family safe and healthy. Likewise, if driving is the only way to get to work, then your car needs gas. Applying those three priorities will help you make the difficult choices about what bills to pay and what money to spend.

Asking for help is important too. Sometimes direct help is available for your bills; for example, the Low Income Home Energy Assistance Program (LIHEAP) can help with heating/utility bills if you qualify. In other cases, getting help with something else can free up some money for your bills. For example, getting food from a food pantry would make money available to pay more of your bills.

Using these three priorities is a short-term solution. When you’re in a difficult situation, you need a short-term plan to get you through the week or the month. But when the problem continues over time, the short-term solution is no longer enough. Longer-term changes will be needed, such as increased income, or a permanent reduction in expenses.

If you face a situation where long-term changes are needed to resolve your financial challenges, it is often wise to seek help assessing your situation. ISU Extension and Outreach specialists can help you examine your options. We cannot tell you what to do – only you can make that decision – but we may be able to help you identify new options, or thoroughly assess the pros and cons of various actions. Find and contact your local educator here.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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College Students and Money: Discretionary spending adds up

This is the fourth in a series this week about financial issues faced by students in college and trade schools. Yesterday’s post discussed discretionary spending. Today we share an example that can help students as they consider how much they will spend on discretionary items.

Suppose Student A and Student B are financially identical, except Student A spends $450 a month on discretionary spending and Student B spends $150 a month. Student A spends $300/month more on discretionary expenses through four years of college (I’m including summers too, since most students continue having discretionary spending through the summer). When four years are over, suppose Student B has total student loan balance of $20,000. Since they were identical except for discretionary spending, that means Student A’s total student loan debt will be $34,400, or $14,400 more than Student B.

The current interest rate on federal student loans is 3.73% per year. Let’s suppose they repay their loans using the standard 10-year repayment plan, although there are other plans available with longer repayment terms and lower monthly payments. On the 10-year plan, Student B will pay $200/month. Student A, on the other hand, will pay $345/month. 

As fresh college graduates, will Student A be ready to deal with a monthly loan payment of $345, instead of a payment of $200? That extra $145 student loan payment is the consequence of their extra college spending; extra spending during college limits their options in the future. Understanding the consequences of their actions helps students make informed decisions they can live with in the long run.

What’s the “right” decision on discretionary spending? Only the student can decide. I have heard of college juniors and seniors who look back on their spending in their first one or two years of school and regret it. Of course there may be others who look back at how little they spent and wish they had let themselves have a little more fun.

When considering how much total educational debt you are willing to accumulate, consider two rules:

  • Borrow as little as you can. This is in bold, because I think of this as the “golden rule” about student debt. This rule applies in virtually every situation, and is above any other rules.
  • Avoid borrowing more (total) than your expected first year’s salary. This is a commonly accepted “rule of thumb.” Example: if you hope to start out as a civil engineer making $60,000, then $60,000 should be the MAXIMUM you are willing to borrow for your education.
    Notice: this doesn’t mean you should go ahead and spend extra because “you can afford” to borrow $60,000. The golden rule is above all other rules – no matter what, it is wise to borrow as little as you can.

Tomorrow – the last in our series “College Students and Money.” Do you think the subject of credit cards will come up?

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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College Students and Money: It’s only a pizza…

This is the third in a series this week about financial decisions during the student years. Yesterday’s post focused on student loans. Today we’ll take a look at one factor that affects how much students end up borrowing.

As mentioned yesterday, one of the best things you can do to minimize the pain of paying back your student loans is to borrow as little as possible. When planning for college expenses, many students logically focus on room and board, tuition, and books. It’s important to also plan for another group of expenses I’ll call “discretionary spending.” As the name indicates, these are expenses that the student can choose, but are not essential to their education. This category includes clothes and non-essential transportation, but probably the biggest components are food and fun — from spring break, to a fraternity dance, to ordering Chinese food, and more.

Note: food (whether eating out or ordering in) is often a big component of a typical student’s budget — even students who have a meal plan. Ordering pizza to share with roommates doesn’t seem like a big deal. Not surprisingly, though, expenses that on their own “aren’t a big deal” can become a big deal when they happen frequently. Paying for 1/3 of a pizza one time is only a few dollars; if pizza night is twice a week for the whole school year, that can really add up.

Many students separate their discretionary spending from their school spending – I’ve heard students explain that the only money they spend for fun is the money they earn at their job. They believe their fun spending is completely separate from their student loans. In most cases, however, the truth is that every dollar they spend increases the amount they borrow. If they spend $50 (of their wages) on weekend fun, that means that in the long run they end up borrowing $50 more than they would have otherwise. If they hadn’t spent that money, they could have borrowed $50 less. 

I am definitely not suggesting that students shouldn’t have fun. It is perfectly okay – even important – to spend some money on fun activities with friends – that’s a wonderful part of the college experience. I do suggest, however, that students who decide on a limit for their discretionary spending (and stick within that limit) will benefit in two ways: 

  • They will accumulate less total college debt; and 
  • They will learn valuable “adulting” skills: planning ahead, deciding on priorities, and recognizing trade-offs (e.g. if I spend this money today, then I won’t have it for homecoming next weekend). 

How much should students’ discretionary spending be? I can’t answer that. Parents can’t (and shouldn’t try to) answer that. At the beginning, even the student may not know what to plan for. I’d encourage students to keep track of their spending for the first several weeks, then look that over. Based on that information, they can make an informed decision about how much they will allow for discretionary spending. Deciding on a limit also helps us resist peer pressure. Many students spend more than they want to spend, simply because they are pulled into their friends’ or roommates’ plans. Those activities are fun, but if there are no limits, the financial toll is substantial.

Realistic projection of discretionary spending will give more realistic projections when you use the Your Financial Path to Graduation tool from the Consumer Financial Protection Bureau. Tomorrow, we’ll share an example of how discretionary spending plays out over time. For today, I leave you with these reflections that relate not only to college life but to all phases of life:

  • Having fun and having a healthy social life is a very important part of life. It is not, however, necessary to spend a lot of money to enjoy social activities.
  • Friends who push you to spend more than you feel comfortable with may not be the ideal friends.
  • You may find that if you stick to a limit on your discretionary spending, your friends will be grateful too!

This is the third in a series on planning for financial decision-making in college or trade school. Tomorrow – an example. Friday – a quick look at three other important topics.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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College Students and Money: What’s a Parent to Do?

This is the first of a series of posts on college students and money that will run this week – check back each day for more ideas and information.

In the next couple of weeks, thousands of American parents will be sending their young adult children off to college or other training. I remember well the combination of excitement and fear that involved.  In the midst of all that excitement, I encourage parents to have some conversations with their young adult child about money.

In those conversations, I suggest parents avoid “telling” their child what to do. Students are of age, and are testing their wings as independent adults; attempts to control them may backfire and cause them to assert their independence by going the opposite direction.  

Instead, it may be more productive to open a discussion with a question like, “What are your thoughts about how much money you’ll spend apart from tuition, books and school supplies?” That gives them a chance to share their thoughts first, before you give your opinion. In fact, it may be best if you never share your opinion. Instead, you can help them anticipate the situations they’ll face and be aware of consequences of extra spending.

Talking about money with your children early and often is an important way to prepare them for the financial decisions they will encounter as young adults. Being prepared for those practical challenges will make it easier for students to succeed academically and socially during their college years. Ideally, those financial conversations begin in grade school, but if that didn’t happen in your family, don’t fret. Now is as good a time as any. And remember – the conversation doesn’t stop when they arrive at school. You will have plenty of opportunities to discuss these issues throughout the weeks and months ahead.

As you check in with your student during their college years, I encourage you to be intentional about creating opportunities for your student to share financial questions, challenges, decisions, and successes. Note that the goal is to create opportunities for them to share, rather than to simply pry into their finances. A helpful article from the University of Minnesota Extension suggests some excellent strategies:

  • Ask “what” and “how” questions that don’t mention money at first, but lead to a discussion about budgeting, smart shopping, and planning ahead. For example, ask “What kind of meals do you eat at school?” or “How do you find time to study and still see your friends?”
  • Share a topical news story or Facebook post. For example, say “I saw a Facebook post about a college student who used Kickstarter to pay off student loans. How does that work?”
  • Teach each other. Have your child show you how to download and use a mobile banking app such as mint.com while you explain the content. Source: University of Minnesota

Watch this week for more practical posts on helping students succeed financially during college. Up next: Let’s be smart about student loans. Later this week: credit cards and more!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Rising Food Prices – Yikes!

Food prices are rising – it’s more noticeable this year than in other recent years. On top of that, many households who receive food assistance (formerly known as Food Stamps) will very soon stop receiving extra benefits that have been available due to COVID. All this makes it more important than ever to be smart with your food dollars.

Spend Smart. Eat Smart.®” from ISU Extension and Outreach can help! This website and app offers information, tools, recipes, how-to videos, a blog and more, all designed to help people eat healthy while not spending a fortune. It’s very practical, with tools and videos focused on planning your meals so you can plan your shopping, ways to save time and money when shopping, organizing your kitchen to make cooking easier, and so much more.

One of the things I like about the website is that all of their recipes have been tested by average home cooks, to make sure the instructions are easy to understand. Recipes also avoid obscure ingredients that you might buy and never use again, or that you might even have trouble finding in a Midwest grocery store.

An added bonus is a focus on health, including tips and tools for building exercise and activity into your life and even some basic workout and stretching videos for use at home. It’s all very practical for the average individual.

When money is tight, often the first place people look to cut costs is with food. Spend Smart. Eat Smart® can help you cut costs without sacrificing nutrition or flavor, and can make your life easier, as well.  Check it out today!

P.S. Find the Spend Smart. Eat Smart app by searching “spend smart eat smart” in your app store.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Child Tax Credit Update: Non-Filers Tool

Over the next few weeks we expect to see several updates about how to access the special 2021 Child Tax Credit described in last week’s post. Reminder of what makes the 2021 credit “special:” 1) it is bigger; 2) part of it is payable in monthly advance payments beginning in mid-July; and 3) it’s available even to people who don’t file taxes and/or who don’t have income!

Today the IRS announced a new “Non-Filer Sign-Up Tool” for those who did not and will not file in 2019 or 2020.

For most households, the IRS will base the monthly advance payments on information from 2019 or 2020 tax returns. But what about people who did not file and do not NEED to file for either 2019 or 2020? Today the IRS announced a new “Non-Filer Sign-Up Tool” to help make sure those folks receive their payments. This allows parents/guardians to enter information about the people in their household, AND to enter direct deposit information so they receive their tax credit payments speedily.

Please share this information with those who need it!!

A couple of notes:

  • If you filed a 2019 or 2020 tax return, you don’t need to take any action.
  • If you used the “non-filers tool” LAST year (2020) to receive your Economic Stimulus Payment, you don’t need to take any action.
  • In the coming weeks the IRS will be adding two more tools: 1) an interactive tool to help you find out if you are eligible for the expanded Child Tax Credit; and 2) a Child Tax Credit Update Portal, where you can add children born in 2021 or make updates that matter, including changes to your address or bank information.
  • A non-profit organization has launched a consumer-friendly informational website that may be useful at https://www.getctc.org/en. I recommend sharing it widely!

Source: https://www.irs.gov/newsroom/irs-unveils-online-tool-to-help-low-income-families-register-for-monthly-child-tax-credit-payments
For more information: https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Excited for your Tax Refund?

Tax refund season is an exciting time for many families, because the tax refund is often the biggest financial event of the year. If your family is expecting a sizable refund this year, now is a good time to plan for how you will use that money.

Before making specific plans, I encourage you to think about this: the tax refund is a once-a-year event. That means it’s smart to think about the whole year’s worth of possible uses for that money. It’s a good idea because that reminds you to consider whether you’ll want to set aside some of it for things like…

  • Back to school costs
  • Winter coats for next winter
  • 2021 birthdays and holiday expenses
  • Summer day care costs when children are out of school
  • Car repair needs that might arise (or new tires)

If you think through possible expenses for the year ahead, you will be glad you did. It will help you reduce your overall stress load, since you’ll know you have a head start on meeting some of those needs. Of course I understand that if you have past-due bills right now, you’ll probably need to use your tax refund to catch up on those. I also understand that providing something special for yourself and your family right now may be important – whether that be a new piece of furniture or a trip to a restaurant. Only you can sort through all your options and decide on your highest priorities, but your plans will be stronger when you consider the whole year.

Keeping the whole year in mind as you think about your tax refund makes sense, doesn’t it? It’s just like when you get paid weekly or monthly, and you think about the whole week or the whole month before spending. Your tax refund may not be enough to cover all your special needs for the year ahead, but it sure can help.

Important Note: The IRS announced last week that it will not start processing tax returns until February 12. Why? Because the new law passed in the last week of December made several changes, and they need to make sure their computers have those changes programmed in. Result? Chances are your tax refund will be a little slower this year. No refunds will be issued at all until about a week after February 12. Build that delay into your plans.

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Tax Law worth knowing: EITC “Look Back”

If a mention of tax law causes your eyes to roll back in your head, I ask you to snap out of it for a minute, because this one is important to ordinary households. It’s new (and temporary) — part of the new COVID relief bill enacted this past week, and it will be huge for many workers who have been unemployed or had reduced earnings in 2020.

The Earned Income Credit is a powerful tool for helping working families with lower wages. The amount you receive depends on your earned income. Higher earnings (up to a point) means higher EITC.

2019 EITC Chart: Married Couple with 2 children

Here’s a 2019 example: A married couple with 2 children and with earned income between $14,550 and $22,400, was eligible for an earned income tax credit of $5,828 in 2019. That’s an extra $5,828 added to their tax refund. If their income was below $14,550 then their EITC was lower, but even if they only earned a small amount from work, they would receive some EITC. If their income was higher than $22,400 the amount of EITC gradually dropped, but they would still receive some EITC even if their income was as high as $52,400.

Suppose: a married couple with 2 children earned $25,000 in 2019, and received an EITC of $5,785. However, in March of 2020 they were laid off. They did receive unemployment, but that is not earned income. Their actual earnings from work in 2020 was only $5,000, which made them eligible for EITC of $2,010. That’s a loss of over $3,700, in a year when they were already struggling. The “look-back” provision in the new relief bill allows them to receive EITC (and also the Child Tax Credit) based on their 2019 earned income if it would be more beneficial.

By contrast, imagine a married couple with two children who had earned income of $60,000 in 2019. Their income was too high for EITC in 2019. However due to furloughs, their earned income in 2020 was only $40,000. They will be eligible for EITC in 2020 based on their 2020 earnings (assuming they meet other eligibility rules). When calculating EITC and CTC, taxpayers can choose to use either 2019 or 2020 income figures, depending which is better for them.

Tax law worth knowing!

Source: Kitces.com

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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Money Guidance via Podcast

graduates

Targeting those in college or planning for college, the U.S. Consumer Financial Protection Bureau recently launched a podcast called Financial inTuition. The six episodes currently available are divided into two categories: three episodes focused on student loans, and three on basic money management skills with a focus on issues faced by students.

Each episode includes an interview with either an expert or a consumer with first-hand experience. It’s always helpful to learn from other people’s experience!

The podcast is available free wherever you get your podcasts, OR directly from the CFPB website. It is part of a broader set of resources targeting students and young adults on topics like paying for college (including information about student loans and the GI Bill), and money management information for economically-vulnerable consumers (which includes most young adults just starting out) on topics like building credit access and finding money to save. They also provide materials for both youth educators and adult educators.

Check out these resources for yourself OR share them with someone you care about!

Barb Wollan

Barb Wollan's goal as a Family Finance program specialist with Iowa State University Extension and Outreach is to help people use their money according to THEIR priorities. She provides information and tools, and then encourages folks to focus on what they control: their own decisions about what to do with the money they have.

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