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How can I make some extra cash, I am living paycheck to paycheck

By Lynnette Khalfani-Cox, The Money Coach

If are living paycheck to paycheck and need some extra cash, there are lots of ways to raise money. Here are a few of them.

Sell Stuff You Don’t Want, Need or Use

Are there pants, sweaters, dresses or suits in your closet that you haven’t worn in a month of Sundays? That clothing would be far more valuable in the hands of someone less fortunate than you. Here’s a case where you can do well by doing good. Donate unused or unwanted clothing, electronics and other household goods to charity – and get a tax deduction for your generosity. Alternatively, you could have a garage sale and instantly pocket the cash, then use the money toward vanquishing your credit card debt. In addition to clothes, you can sell unwanted or unused toys, furniture, appliances, and other household items.

Turn a Hobby Into Cash

Whether you turn a hobby into a cash-making business, sell new or used products online, or stuff envelopes for another business, the key is for it to be a no-cost or low-cost venture that can be operated exclusively from the privacy of your own home. Why these characteristics? For starters, you don’t have the money to buy tons of products. You also don’t want to have to hire anybody or lease space. You want to keep all the money you earn, right?

Adjust Your Withholdings at Work

If you’re getting a big income tax refund from the government each year, you are squandering a precious financial opportunity. Currently, the IRS reports that the typical tax refund check tops $2,500. For those of you who routinely receive tax refunds, instead of giving the government an interest-free loan, get your money now. Go to your HR office at work and adjust your W-4 withholdings so that your employer takes less money out of your paycheck. This way, you’ll have more money coming in every pay period, and you can use that extra money to knock down your debts. Check out IRS publications 505 and 919 at www.irs.gov to learn how to properly adjust your withholdings so that you don’t take out too much money and end up owing taxes.

Get a Second Job

I realize that most people already work really hard, and might even be covering for recently laid-off co-workers, but if you can fathom the idea, consider getting a second job or part-time work, even if just for three months. This may seem like a burden, but trust me, this option can work wonders. Having additional income can not only provide you with money to eliminate credit card debt, it can also help you build an emergency savings fund – hopefully before you’ll ever actually need to tap it.

Squeeze money from your residence

Whether you rent or own, getting a roommate or housemate is another way to generate income. If you can tolerate having an extra person around, you’ll likely find takers willing to lease out a spare bedroom or space in your attic or basement, especially given the high rate of people being put out of their homes these days due to foreclosure or inability to get a mortgage for their on place. Taking in a roommate will provide you with extra cash to pay toward your debts. However, before forging ahead if you are a renter, be sure you’re not violating any clauses in your rental contract by letting someone else live with you.

Leverage The Internet To Spend Less

Many of us routinely may too much for goods and services that we could get for far less money, if only we’d take the time to comparison shop. Thankfully, with the power of the Internet, you can easily cut your spending and apply the savings to your debt by comparison shopping online. Here’s what to do: Come up with a list of at least five things you can do to curb your spending. Also think about major categories of spending where you’d like to be able reduce your costs. Then visit the financial website http://www.lowermybills.com, which helps you comparison shop to save money in 18 categories of household bills, ranging from home equity loans to auto insurance to long-distance telephone service. They do the hunting for you to make recommendations about where you could be saving money. But don’t rely exclusively on leveraging the Internet. Consider this area a unique challenge. Get creative about your finances. Look at ways you can save money by shopping around or by modifying some of your spending habits, whether it’s checking out books from the library instead of buying them at a bookstore, or using a movie service like Netflix instead of going to the movies.

Whatever cost savings you achieve – including doing things like clipping coupons or canceling unnecessary magazine subscriptions – make sure you apply that “extra” money to your debts, save it, or spend it in a positive way, as opposed to just blowing the money.

How to pay off your credit card debt (askthemoneycoach.com)
New Credit Scoring Rules to Make Qualifying for Loans Tougher in 2011 (askthemoneycoach.com)

Should I Get Married Even Though My Girlfriend Has a Lot of Debt?

Author: The Money Coach

I have a reader who had a question about marrying into debt, and this is what he wrote me saying: “My girlfriend owes the IRS about $20,000 and has outstanding student loans for about $6,000. She makes six figures, but she spends about 30% of her paycheck on family members in need. So even though she makes a good living compared to everybody else, she essentially live paycheck‑to‑paycheck.”

He went on to say, “I am unemployed and looking for a job. Even when I get a job, paying at least $60,000 annually, living here in L.A. is quite expensive.” Then he gets to his question: “Is this pretty much a bad way to start a marriage?”

Well, I had a lot of thoughts when I got this email. The first thing, though, is that obviously a marriage is both an emotional commitment, a partnership between two people who love each other, but that it’s also a financial partnership as well.

I don’t think that we should shy away from discussing money issues and the extent to which they might play a role in our relationship. So this person is correct to raise the issue about money before he enters into marriage.

The answer, though, is probably not what he is expecting in terms of whether or not this is a bad way to start a marriage. I don’t think it’s a bad way to start a marriage just because you have debt. It would be a bad way to start a marriage if you both didn’t collectively agree on how to pay off the debt or how to handle your finances going forward. Those are the only two issues that could get in the way of having a successful, financially harmonious marriage.

I’m concerned about the question being so much about her problems and her situation and her alleged shortcomings. The person emphasized that she owes the IRS $20,000, she has student loans of $6,000, she makes six figures but she spends 30% on her family members, she essentially lives paycheck‑to‑paycheck.

Then when it came to his own situation, he said, “Oh, I’m unemployed and I’m looking for a job.” Well, you have to think that at least she has a job. So the right mindset isn’t to be overly critical about what she’s doing with her money. It’s perhaps to get her in alignment to understand that spending 30% of your income on family members is not a good thing and obviously needs to be adjusted.

But at the very least, recognize your own financial situation and your own ability to contribute financially to the relationship. Consider whether or not she’s thinking this is a bad way to start a marriage with you because you’re not employed at all.

Now you suggested that when you get a job, you’re going to be making at least $60, 000. Well, there’s certainly no guarantee that that’s the case. Yes, living in Los Angeles is very expensive, as is living in, say, the Northeast part of the country as well.

Overall, my advice would be don’t let your girlfriend’s existing obligations ‑ her $20,000 in IRS debt, her $6,000 in student loan debt, or the fact that she spends 30% of her paycheck on family members ‑ be the reason that you try to move forward or not move forward with the marriage.

If it turns out that after some serious discussions you find out that she is perennially unwilling to handle her affairs in a more positive way, then of course, yes, you should think about whether or not that’s something you want to be committed to in the long run. By the same token, be realistic and honest about your own situation. Put yourself in her situation. She may be saying, “Huh, this guy is unemployed and doesn’t even have a job. Should I marry him?”

Now, again, I would tell her just because he doesn’t have a job right now doesn’t mean that you shouldn’t marry him, because presumably he will get a job in the future. The idea here is to emphasize communication, understanding, and getting on the same page financially.

Lynnette Khalfani-Cox on The Daily Drum WHUR 96.3 Howard University Radio (askthemoneycoach.com)
Are There Any Programs That Can Help Pay Off My Student Loans? (askthemoneycoach.com)

I Cannot Afford to Pay My Estimated Quarterly Taxes. What Should I Do?

Author: The Money Coach

Q: I am Going Through a Very Acrimonious Divorce and Paying Through the Nose. I am a Private Practice Epsychologist. I Usually Had No Problem Paying Estimated Taxes, But Can’t Make Ends Meet Anymore. My Ex Refused to Sign the Joint Return Last Year Which Cost me $20K. I’m Afraid That Every Year I’ll Get Further Behind B/C of the Inability to Pay Estimated Quarterly Taxes. I Can’t Even Function With the Money I Have. What Should I Do?

A: I’m sorry to hear about your bitter divorce and the financial problems you’ve been experiencing. I sympatize with you on both fronts – having been through both ordeals myself. Moreover, I also know from firsthand experience – as an entrepreneur too – how difficult it is to pay those dreaded estimated quarterly taxes.

As you may know, as a self-employed individual you are obligated under the law to pay federal income tax, along with Medicare and Social Security taxes, more commonly called self-employment tax. How much you pay in federal taxes is based on your adjusted gross income. The current rate for self-employment tax is 15.3% on the first $106,800 you earn. Of course, you also have to factor in any required state and local taxes, depending on where you live.

The deadlines for filing and paying your quarterly estimated taxes are: April 15, June 15, September 15 and January 15 (or the next business if those days fall on a Saturday, Sunday or legal holiday).

If you can’t pay your quarterly taxes, don’t make the mistake of not filing at all or ignoring your situation. That will just worsen the problem. A failture to file taxes and pay what you on on time could result in late penalties and interest of 25% or more.

So if you simply don’t have the money, try one of these options:

1) Request an extension of time to pay
Extensions are usually granted for 30 to 120 days. You still get socked with penalties and interest, but they’re usually less than what you pay in an installment plan.

2) Ask for an installment agreement
With an installment agreement, you request a payment plan with the IRS for the most recent tax year. You can get a payment plan for as long as 24 months and not have it impact your credit rating, in terms of the IRS putting a lien against you or reporting you as delinquent to the credit bureaus. If you owe $25,000 or less, just go online to the IRS website and fill out the Online Payment Agreement.

3) Consider a loan to pay your tax bill
A bank loan or home equity loan (if you can get either) will carry a much lower interest rate than paying the IRS off over time under and installment agreement.

4) Ask the IRS about an offer in compromise
The IRS usually only grants these when:
a) a person can show that they have severe economic hardship; or
b) it’s doubtful that the taxpayer could pay what’s owed over the time the IRS has to collect the debt

Start by asking your accountant for which path he/she would recommend, since that individual is likely to be very familiar with your situation. Or, if you don’t use a CPA, call the IRS directly at 800-829-1040.

Can I offer a settlement to a collection agency over a student loan in default?

Author: The Money Coach

Q: I am at Month 11 of a Student Loan Rehabilitation Program for a Defaulted Loan of About $80,000. I Have Made 10 On Time Monthly Payments of $550. My Parents Will Help Me Offer a Lump Sum Payment to Settle This Debt. I Am Looking at Offering $30,000 to $40,000. The Collection Agency Wants $50,000. What Should I Know To Negotiate a Fair Sum?

A: Frankly, I wasn’t aware that student loan companies or loan servicers were willing at all to “negotiate” lump sum settlements for student loan debts. Frankly, why do they have to, considering the power they wield over debtors? They can report your deliquency to the credit bureaus, they can garnish your wages, they can take tax refund checks, and student loans have no statute of limitations, meaning that creditors can chase you down for this debt until you retire. And even then, they can snatch any pension or social security check you might get. On top of all this, you can’t even wipe out student loans in bankruptcy court. With all this leverage, I’m shocked that some company has entertained the idea of a lump sum settlement.

To be honest, I don’t think you should do a “settlement” because of the many drawbacks to settling a debt. In a nutshell, when you settle a debt, your credit takes a hit, because the obligation gets reported as a settlement or partial payment. Any reporting to the credit bureau that shows you didn’t pay as agreed will lower your credit score. And isn’t that one of the benefits you’re getting from going through loan rehabilitation? Rehabbing a student loan wipes your negative credit history out in terms of past due student loans that were reported to the credit bureaus. Settlements will put some black marks back on your credit records.

Additionally, when you negotiate a settlement with any financial company or government agency, they send you a 1099-C. This reports the amount of debt canceled or forgiven. That “forgiven” amount is considered gross income and is taxable by the government. So if you do get a settlement for, say, $40,000 on that $80,000 in student loan debt, the other $40,000 that is purportedly wiped out in the settlement agreement is taxable at your ordinary income tax rate. If you’re in the 25% rate, that means you’ll be stuck with a $10,000 tax bill.

Finally, I’m just suspect about this whole deal. What recourse would you have if you fork over tens of thousands of dollars to a company and then they say “Sorry, but we never had a deal.” You can reduce this risk, of course, by getting an agreement in writing upfront. But my point is that the student loan company, or collection agency, could probably rightfully show a judge (if it got that far) that you did, in fact, owe $80,000. There’s certainly no law that
requires them to reduce or settle your debt. Then you’d be on the hook for the remaining balance — even after thinking you had a properly agreed-upon “settlement” deal.

I think a better strategy, especially since you have supportive parents, is to let your parents help you make a hefty lump sum payment, but to bite the bullet and pay the $80,000 that you owe. Let’s say you pay $40,000 in a lump sum. All of that money should go toward your principal balance. That will knock out a huge amount of interest charges – more than $15,000 in interest, according to the financial calculator at www.FinAid.org. Visit that site and play around a bit with various loan repayment options. At first glance, it may sound foolish to pay $80,000 when you think you can possibly pay $40,000. But look at it this way: that $40,000 lump sum settlement will really be $55,000, when you factor in taxes. Now take a look at the hit to your credit for the next seven years.

In my opinion it’s worth it to pay the other $25,000 to preserve your credit. If you can keep a good credit rating, you’ll probably save way more than that “extra” $25,000 if you have to get other loans, like a mortgage, credit cards, auto loan or other student loans.

Ask The Money Coach

Posts Tagged ‘IRS’

How can I make some extra cash, I am living paycheck to paycheck

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Ask The Money Coach

Posts Tagged ‘IRS’

How can I make some extra cash, I am living paycheck to paycheck

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Should I Get Married Even Though My Girlfriend Has a Lot of Debt?

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I Cannot Afford to Pay My Estimated Quarterly Taxes. What Should I Do?

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