credits/deductions for 2004 & Financial Advice

MaryAnn_ALFebruary 5, 2004

I enjoy reading everyoneÂs posts and advice. I hope some of you can help me with mine.

I need some advice on what we should do this year that will help us at tax time next year. My only child will be finishing college in a couple months. Next year we wonÂt be able to claim the education credit or even claim her as a dependent because more than likely she will move out soon. IÂm afraid we will be paying dearly at tax time. I have started having a little more money taken out of my paycheck for taxes but not nearly enough. We donÂt have an IRA and seems like that would be one way to get a tax credit, but to be honest we really canÂt afford it. We have tightened our belts so much now, we can hardly breathe. Is there anything I might be overlooking.

Also, do you think there is a way we can generate more available cash. Our home will be paid for in 5 yrs. I really donÂt wonÂt to refinance since it is so close to being paid for. (But then again, we will lose that interest deduction when it is paid for.) We probably have $80,000 in equity. We owe about $18,000 on the house, about $8,000 on the car and about $5500 dollars of CC debt. Seems like the rest of our money goes to insurances (cars, health, life) When my child finishes school, hopefully she will find a full time job and some of the insurance money will be freed up. In the meantime, my husband is wanting to build a garage estimated at $2,500 and borrow the money at either 8% or 11% interest. They wonÂt give him a secured loan on his truck because it is too old.

Could he use a HELOC for such a small amount? What about consolidating the CC debt? IÂve heard pros and cons about using HELOC to pay off CC debt. And no, IÂm not very disciplined but IÂm learning and much better than I once was!

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dstanek

I believe that you can get home equity loans in relatively small amounts. But, depending on the interest you are paying on your car loan and credit card debt, refinancing might make sense, assuming that you would be disciplined about not incurring additional credit card debt. You might wind up saving money by refinancing the $18,000 plus the car and credit card debt -- perhaps a 15 year rather than a 30 year mortgage (I have heard that some people are doing 10-year mortgages).

Good luck.

    Bookmark   February 12, 2004 at 9:09PM
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joyfulguy

What interest rates ae you paying on car loan and credit card debt?

Is credit card debt on only one card, or one type of card?

As dstanek asked - if you make a larger loan on your home and pay off the credit card debts, possibly much of the car loan (if it can be paid off early) - do you have the will power to absolutely not allow yourselves to go out and run up more bills on the credit cards?

You may well be paying somehing like 25% or more on debts carried on store-issued cards and something like 15 - 18% on regular credit card balances owing.

It would help if you can get a HELOC for something like 6 - 8% to pay off those credit card debts.

But if you do - try to pay off that loan reasonably quickly - if you don't run up more debts, the saving due to lower interest rate will mean that you can pay the debts earlier - if you persist in paying the same monthly amounts as you are now.

Hope you can work things out to your advantage.

ole joyful

P.S. If a young couple with no money feel that they need a new chestfield and buy one for $1,000. putting it on credit card - if it's a store card charging 25%, they'll be paying $250. per year interest on the debt, before they pay off one single dollar on the debt.

They can fish up a used chesterfield in good order easily for not more than that $250. interest that they'll pay on the fancy new one (well - not too fancy, at $1,000.).

oj

    Bookmark   February 13, 2004 at 6:46AM
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MaryAnn_AL

My car loan is 4.9% and the CC is 13%. I wouldn't want to refinance the car because I commute about 100 miles a day. The car is only 4 years old and has close to 100,000 miles. I've only owned it 2 of those years and have put 60,000 miles on it.I plan on keeping it for a long time but at the rate I put miles on it, it won't last that long and I would still be making payments on a car I might not even have anymore.

I've heard people on here talking about transferring the cc to a newer lower interest card. I get alot of offers in the mail and usually toss them in the trash. But I received one a few weeks ago that claimed 3.99% for life as long as you didn't default. I always pay on time and my credit is very good. Even if I transferred to one with temporary low interest I could always transfer again I suppose. I would really like to get it paid off as I'm planning for retirement in a few more years.

    Bookmark   February 13, 2004 at 9:53AM
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wnlbutterfly

If you do your taxes at a tax office, they can generally give you an estimate on how much your taxes will be next year when you lose the exemption and education credits for your daughter. If you did them at home, take and do a practice set (for this year is okay), and remove your daughter and the education credit and see what the difference will be...that will give you a heads up on what to expect next year.

You could change your W-4 withholdings at work. We recommend that highly as the tables have been reduced the past couple years and less is being withheld even if you haven't changed anything. It does NOT have to match your 1040, even married people can put on their W-4 "married but withholding at the single rate" and 0 dependents. That will the the highest rate withheld. THEN if that isn't enough, you can add extra to be taken out...if it's for Federal just write $10 on the additional withholding, if it's for state, be sure and write that down "MY STATE" and the amount. Here we have a big problem with our state not withholding enough and people that get money back from Federal end up owing state (ALL THE TIME!).

IRA's could be a good way to decrease your taxes too. But I understand it's not always possible to come up with the extra money to sink into it. Recently had a client that had $2,000 due IRS, so he asked about an IRA, we got it worked out so that he put that $2,000 he would have paid IRS (Federal), into an IRA, he ended up with a refund coming back on his taxes. This way, he was still keeping his money. SO that is also something to think of during tax time.

Otherwise you are correct...when couples lose their dependents, you don't have a lot of tax benefits anymore to use. One good thing this year is that the married filing joint deduction has gone up $1,700 more than previous years, so that helps a smidge.

I hope that helps with the tax question part. It pays to plan ahead like this so you aren't standing there on April 15th with a huge bill due. Laura

    Bookmark   March 21, 2004 at 10:42AM
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joyfulguy

MaryAnn AL,

I don't know whether you saw it, but when those low introductory rate cards were discussed here a while ago, some suggested that if you transfer a balance owing to such a card, that you should do no more buying using that card.

The reason being that they will likely require that your total payments go toward paying off the transferred amount until it is paid in full. So, if you transferred $5,000. and your monthly required payment were $250., after 20 months (plus a few for the interest fee in the interim), you'd have paid off the full amount transferred.

Suppose that you'd bought $2,000. worth of goods using the card in the meantime. That amount would have been having interest rate charged at their usual rate for the time that you'd been carrying it - and would continue to do so until it were paid in full.

So, actually, you'd transferred your debt from the low interest rate to a high rate.

But, if you don't charge any new purchases on that card, you'll have enjoyed the lower introductory rate for the full amount transferred, at least until the introductory period is over, but avoided incurring more debt at higher rate.

By the way - don't foget: they call them "credit" cards, claiming that they allow you to use your good credit.

Yeah, right.

But they are really a "debt" card.

If you don't owe any money, you are debt-free.

Then, if you buy something, using your so-called "credit" card ...

... at that moment - you are in *debt*.

And you continue to be in *debt* until the "credit" card balance (owing) is paid in full. Plus interest.

A rose, by any other name ...

... still has thorns.

ole joyful

    Bookmark   March 27, 2004 at 8:06PM
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