Forget the Fed, Pay Off Your Credit Card Debt

The cost of everything keeps creeping up. And if you happen to have credit card debt, that’s about to get a bit more expensive too, thanks to a series of interest rate increases beginning this month.

With inflation at its highest rate since the early 1980s, the Federal Reserve is adjusting interest rates to hopefully restabilize the U.S. economy. In short, the Fed changes the federal funds rate, which alters the prime rate — that’s the rate banks charge customers with high credit ratings. Credit card issuers add onto the prime rate to set their interest rates, so when the prime rate goes up, so does what you’ll pay when you’re in debt.

Got all that? Great. Now forget what you just read and pay attention to this part: If you have significant credit card debt, it doesn’t really matter what the Fed is doing. Your credit card debt has always been, and will continue to be, expensive.

The true cost of credit card debt over time

If you have a $5,000 balance remaining on your credit card from month to month, and your interest rate is 16%, you’ll spend $800 in interest over the course of a year. If your interest rate increases to 16.25%, that translates to only an extra $13 in interest over a year.

Technically, that means it’s not so much a rate hike as it is a gentle uphill slope. But $800 was already a lot, and that’s without accounting for the fact that you’ll still need to spend additional money you might not be able to pay back. The bills don’t stop just because you’re in debt.

This is why squeezing a stress ball while watching the news isn’t helpful in this case. What is helpful is facing money issues head-on.

“The hardest part is ripping off the Band-Aid and really just adding up the numbers to see how much you owe,” says Akeiva Ellis, a certified financial planner and founder of The Bemused, a financial literacy brand for young adults. “But if you’re able to make it to that point, it’s really all about making a plan. Don’t let your debt overwhelm you. The sooner you can face the numbers and devise a plan to pay it down, the easier you’ll breathe.”

How you can pay less interest

Shop around for better deals

The average U.S. FICO score increased to 716 by August 2021, and that increase was more prevalent for those with lower credit scores. (FICO scores of 690 or higher are considered good credit.) “It may happen that when you applied for the account that you have, your credit score was lower,” says Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling. He recommends checking your credit report and score to see whether you’ve moved into a higher score range. If that’s the case, you may be able to negotiate a better interest rate on your credit card.

Consolidate your debts

That higher credit score might also make you eligible for a balance transfer credit card with a no-interest promotional period, or a lower-interest personal loan. These can both give you a reprieve from high interest, but note that it depends on the terms you can qualify for. And in the case of balance transfer cards, the interest rate will go right back up once the 0% period ends.

Revisit your budget

The more money you can apply toward your monthly credit card payment, the sooner you can get out of debt. But that’s easier said than done in a time of higher prices. “The interest rate hike doesn’t live in a vacuum,” McClary says. “Other things continue to happen that increase financial pressures on every American.” If you don’t know where to begin, McClary recommends getting budgeting help from a financial counselor or a nonprofit credit counseling agency. “Anything people can do to be proactive, they’ll thank themselves for later.”

Use a debt repayment method

This can help you stay organized and motivated, especially if you have multiple debts at the same time. Ellis suggests the debt avalanche repayment method, where you list your debts in order from highest to lowest interest rate, make minimum payments on all of them and apply any extra money in your budget to the highest-interest debt first. Once you pay that off, focus on the next debt on the list, and so on. “For most people, credit card debt is their most expensive debt,” Ellis says. “So it is something that usually I’d encourage people to focus on first.”

This article was written by NerdWallet and was originally published by The Associated Press. 

Sara Rathner writes for NerdWallet. Email: Twitter: @sarakrathner.

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How to Keep Your Tax Return From Getting Hung Up

The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

There may never be a good time to draw the IRS’ attention, but this year you really want to avoid extra scrutiny.

The IRS is so understaffed and overwhelmed that even a tiny mistake could delay your refund for months. A return that requires “manual processing” — basically, any action by an IRS employee — could join a massive queue that started building at the beginning of the pandemic and has yet to be resolved. If something goes wrong, good luck getting through to a human: The IRS answered about 1 in 10 calls last year, down from about 1 in 3 before the pandemic, according to the National Taxpayer Advocate.

To avoid tax hassles, the best approach is to be careful, thorough and digital when you file your return.

Don’t file a paper return or ask for a paper check

Let’s start with the basics: File electronically and request direct deposit of any refund you might be due, says April Walker, lead manager for tax practice and ethics with the American Institute of CPAs. If your income was $73,000 or less in 2021, you can use the IRS’ Free File tax preparation option.

If you file electronically, you can begin tracking the status of your refund on the IRS site within 24 hours, says CPA Lei Han, associate professor of accounting at Niagara University in Niagara Falls, New York. If you file a paper return, tracking typically won’t be available for four weeks, Han says.

Paper returns don’t just take longer to process, notes Kent Lugrand, president and chief executive of InTouch Credit Union in Plano, Texas. Paper returns are also much more likely to contain errors — either that a taxpayer made or that an IRS employee introduced while transferring the data from a paper return into the agency’s computer system. Electronic filing, by contrast, won’t let you file a return with many common mistakes such as mathematical errors or failing to sign your return. You have to fix those before you can submit the return, Lugrand says.

E-filing software may not detect other problems, such as incorrect Social Security, bank routing or bank account numbers, so check all numbers carefully, Walker recommends.

Make sure your numbers match

The IRS’ automated matching system looks for discrepancies between the income you report and forms filed by your employer and financial institutions. A mismatch can cause the agency to freeze your refund and trigger a notice demanding more information.

If you invest outside a retirement account, beware: Brokerages are notorious for sending out “preliminary” 1099-B forms — which track investors’ gains and losses — to meet the IRS mid-February deadline, and then sending corrected forms a month or so later. If you rely on the preliminary form, you may end up having to file an amended return, which would have to be manually processed and could delay your refund for months.

Sometimes the W-2 or 1099 forms you get contain errors. If that’s the case, try to get the error corrected and the form reissued before you file, Han recommends. Consider filing an extension if you need more time to get the issue resolved, she says.

Properly report child tax credit and stimulus payments

Your return also could be derailed by a mismatch between the child tax credit or stimulus payments you report versus what the IRS says you got last year, Walker says.

Taxpayers who received monthly child tax credit payments in 2021 will have to reconcile those payments with the amount for which they were actually eligible. The IRS based the payments on income data from a prior year, so some families may have received too much while others will qualify for additional money when they file their returns, Han says. In addition, eligible people who didn’t receive the third stimulus payment, or who qualified for more than they got, can claim the recovery rebate credit on this year’s tax return.

In January, the IRS began sending out notices to taxpayers who had received payments in 2021: Letter 6475 summarized how much stimulus money the taxpayer got, while Letter 6419 reported total advance child tax credit payments.

If you’re married and received the payments, you likely received two letters about the child tax payments — one for each spouse, Walker says. If your family has one child and received $300 a month for six months for a total of $1,800, for example, you typically would get two IRS letters, each reporting $900.

“Some people thought the second letter was a duplicate, and so they might have thrown it away,” Walker says.

If you’re missing any of this paperwork, don’t just rely on your memory or your bank records, Walker says. You can create an account on the IRS site and view IRS records to find the correct figures.

“If you just wing it on that number, it’s probably going to cause a delay,” Walker says.

​This article was written by NerdWallet and was originally published by The Associated Press.

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3 Steps to Breaking Unhealthy Financial Habits

Some bad habits affect our physical health, like smoking, nail biting or eating too much junk food. But others take a toll on our financial health.

How do you know if you have unhealthy financial habits, and what can you do to build better ones? Take these three steps.

1. Dig into your relationship with money

Relationships with money are complex. It isn’t always easy to identify financially unhealthy behavior. But there are some signs you can look for. Common problem areas include spending more money than you earn, neglecting to start an emergency fund and not saving for retirement.

Taking a financial health quiz can be a good first step toward detecting weak spots. However, our struggles don’t always reflect poor habits or decision-making. Many experts say it’s important to consider the role that systemic issues can play in shaping financial health.

“Not being able to get a living wage, not having medical insurance, having student loans in a career that you can’t find a job. The fact that there’s nowhere in this country that someone who is living on minimum wage can rent a two-bedroom apartment. Those are all systemic issues,” says Saundra Davis, founder of Sage Financial Solutions, a San Francisco Bay Area-based organization focused on providing financial services for low-wealth communities.

If you’re dealing with these kinds of systemic problems, focus on finding support. United Way’s 211 service can connect you with resources if you’re struggling to pay bills or afford basic needs.

On the other hand, if your income should be enough to cover your expenses but doesn’t, that’s when you should look at your behavior, Davis says. What choices are you regularly making, and what do you have the power to control?

Look for patterns. Maybe you shop online when you’re bored or upset. Or you ignore your debt because it’s overwhelming. Maybe you tend to spend windfalls instead of using the money intentionally because your family didn’t emphasize the importance of saving growing up.

Emotions and experiences can have a major impact on our money habits. That’s why it’s also possible to develop unhealthy habits if you’re in good financial shape. For example, a person who pays all their bills on time and has plenty of savings might still feel anxiety around spending or argue about money with a partner.

“Often there’s that history of financial scarcity and loss somewhere in their background that’s unresolved that leads them to not be able to fully connect with the fact that they’re actually financially secure now,” says Ed Coambs, a certified financial planner and financial therapist in Charlotte, North Carolina.

Once you better understand what’s behind your unhealthy habits, you can begin to repair them.

2. Set personal goals

Ask yourself, “Where are you trying to go? And where are you right now? And then how do you bridge that gap?” Davis says.

Setting financial goals can put you on the path toward healthier habits. Your goals can revolve around specific dollar amounts, such as becoming debt-free or saving three months’ worth of expenses in an emergency fund, Davis says. Or, the goal might be about changing your money mindset, such as becoming more thoughtful about your spending or getting comfortable discussing money with others.

Create a plan that supports your vision of financial health. Say you want to boost your emergency savings or make credit card payments on time. Automating those transactions can help. You can transfer a specific amount from your checking account to savings each month or set up minimum credit card payments through your issuer’s website.

Coambs suggests checking in on your finances once a month or every couple of months. Review your budget and behavior to determine whether you’re on track to reach your goals.

3. Lean on resources

Breaking financial habits can be challenging. But you don’t have to do it on your own. There are people and activities you can turn to, “whether it’s journaling or having a conversation with your partner or some other mode of helping yourself feel safe again around the topic of money,” Coambs says.

There are also many professionals who can offer guidance. A financial therapist, for example, can help you unpack your money relationships.

“All of us have a money history. And if your money history is one where there’s a lot of emotional pain and chaos connected with money, then oftentimes those issues in your past need to be treated much like any other type of trauma,” Coambs says.

You may also choose to work with a financial planner or seek free advice on managing your budget, credit or debt from a nonprofit credit counseling agency.

Along your journey to improving your financial habits, learn to advocate for yourself, Davis says. “What that can do is reduce or eliminate shame, about going to get help wherever you might need it. If that means public benefits, if that means family and friends, whatever that means to you,” she says.

This article was written by NerdWallet and was originally published by The Associated Press. 

Lauren Schwahn writes for NerdWallet. Email: Twitter: @lauren_schwahn.

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Another $400 in Free College Aid Could Be Coming Your Way

College students could see their Pell Grant award go up by as much as $400 for the coming academic year, thanks to the federal spending bill signed into law March 15.

Congress raised the annual Pell Grant limit to $6,895 for the 2022-23 academic year as a part of the 2022 federal budget. That’s the largest increase to the Pell Grant since 2009.

“The $400 increase to the maximum Pell Grant — the largest increase in 10 years — is a pivotal and much-needed investment in making college affordable for today’s students,” Mamie Voight, CEO and president of the Institute for Higher Education Policy, said in a statement. Nearly 7 million students receive Pell Grants each year, Voight said, and many are minority students.

Pell-eligible students who have already received financial aid award letters for the 2022-23 academic year will likely be sent revised letters, according to Karen McCarthy, the vice president of public policy and federal relations for the National Association of Student Financial Aid Administrators, or NASFAA. The increase will be reflected in any financial aid award letters that haven’t been sent yet.

More for Pell Grants, work-study and PSLF

The boost in funding will affect more than just the students receiving the maximum Pell Grant. The law expands eligibility and increases award amounts, according to McCarthy.

The federal budget also includes an increase in funding for the federal work-study program. Students could see higher award amounts, and more students could become eligible for work-study, but these changes are not guaranteed, according to McCarthy.

Although the final budget doesn’t contain as much support for students as the original proposal, it does increase higher education funding beyond Pell and work-study. Minority-serving institutions, or MSIs, will receive increased funding compared with last year’s budget, and programs intended to help disadvantaged students attain a higher education also will see a boost to funding.

Money is also being allocated to the Department of Education to further expand eligibility for Public Service Loan Forgiveness, or PSLF. The Department expanded eligibility for PSLF with a temporary waiver, which goes through October of this year; this funding will allow the program to include more borrowers whose previous payments had been ruled ineligible.

Submit the FAFSA to be eligible for aid

In order to be considered for any federal student aid, including the Pell Grant and work-study, you need to submit the Free Application for Federal Student Aid, or FAFSA. Submitting the FAFSA makes you eligible to receive grants, scholarships, loans, and other state-based aid.

Submit the FAFSA even if you’re just considering attaining a higher education. Doing so will give you an idea of how much aid you’ll receive if you end up enrolling; you’re not obligated to accept the aid if you decide not to go to college.

The Pell Grant, like scholarships and work-study, is a form of aid that you don’t have to repay. Eligibility for the grant is determined by your expected family contribution as well as the cost of attending the school you’re considering.

Take advantage of aid you don’t have to repay before accepting any federal loans or aid that you have to pay back. If you must use loans to pay for your education, exhaust all federal loans available to you before applying for private student loans.

Colin Beresford writes for NerdWallet. Email:

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Are You At Risk of Student Loan Default?

Student loan default starts the same way for everyone: a missed payment. Then, another. And another. Until nine total months — about 270 days — pass and your loan defaults.

Three months later, it gets much worse.

A debt collection agency now holds your debt, and you owe them the total balance of your loan along with late fees and collections costs. They can garnish your wages and withhold your tax refund. Your credit gets damaged, and you’re no longer eligible for financial aid. Meanwhile, interest grows on your loan balance.

A total of 26.6 million people are expected to resume student loan payments on May 2 after being paused since March 13, 2020, and government agencies, advocates and lawmakers worry that borrower default numbers could swell.

Concerned parties worry most about newer grads, students who didn’t finish their studies, and those who had missed payments before the payment suspension.

It will take several months to see if those borrowers — about half of student loan recipients — will default, says Michele Streeter, director of policy and advocacy for The Institute for College Access and Success, or TICAS, a not-for-profit higher education research organization.

“It may be a slow-rolling disaster,” she says.

Who is at risk for delinquency and default?

Most borrowers, however, are likely to avoid default, says Adam Looney, a nonresident senior fellow of economic studies at Brookings Institution.

“Most people who owe student loans are graduates, they may have advanced degrees and they have weathered the economic downturn better than every other American,” says Looney. “After two years of a payment pause, many borrowers are in very good economic shape and should be well prepared to begin making payments.”

But default can happen if your finances are shaky to begin with. About 90% of those who default entered college from a low-income background, according to federal data analyzed by TICAS.

It’s not that people who can afford to pay are choosing not to, says Streeter.

“These are people who are trying to find their way out of poverty through enrolling in college and they weren’t able to complete the program or it didn’t pay off in some way,” she says. “They have done all they can to break that cycle and something goes awry and they’re deeper and deeper into a hole.”

In a Jan. 27 report by the Government Accountability Office, the Education Department says about half of all borrowers are estimated to be at increased risk for payment delinquency, which is the first step that leads to default. Borrowers most at risk include those who:

  • Didn’t finish their program of study.
  • Were delinquent before the payment pause.
  • Started repaying their loans within the last three years.

Your ability to repay is what affects your likelihood of delinquency — not how much you owe. Those with graduate and parent PLUS loans, which are not capped, tend to have the highest balances. But Looney says the majority of those with high balances are less likely to default. Numerous federal data analyses show borrowers who defaulted typically have low balances and did not complete school.

There may be outliers such as those with graduate programs that lead to lower-paying jobs and parents reaching retirement age.

You can’t suddenly repay your debt if you don’t have the money to do so. But you can work with existing options to ease the burden — even if you’re unemployed.

How to avoid delinquency and default

If you can afford your monthly payment on a standard payment plan, stick with it. But if you can’t make your payments and are at risk of default, connect with your servicer to:

  • Seek a more affordable payment. Consider an income-driven repayment plan, which ties your monthly payment amount to a portion of your income and extends repayment to 20 years for undergraduate loans or 25 years if you have any graduate debt or parent PLUS loans. It’s possible that at the end of this repayment period, you could see the remainder of your debt forgiven, but it’s uncommon.
  • Enroll in automatic payments. If you were signed up for autopay before the payment pause, you must contact your servicer to confirm you want to restart automatic payments; it won’t happen without your consent.
  • Consider an additional pause. If you’re unemployed or need a short-term payment pause, consider an unemployment deferment or hardship forbearance. However, interest will continue to collect and increase your loan principal.

If you’re not getting the help you need from your servicer, contact the federal student loan ombudsman to escalate your issue. And report any mishandling of your loans to the Consumer Financial Protection Bureau, the Federal Student Aid feedback center, your state ombudsman or attorney general’s office.

What borrowers in default can do

The borrowers in the most precarious position are those whose loans were in default before the pandemic. The Education Department is conducting outreach to those borrowers but doesn’t have valid email addresses for at least 25% of them, according to the GAO report.

There’s an extra bit of leeway for borrowers in default: The Education Department has suspended collections activities through Nov. 1, 2022.

That means borrowers in default have more time to get their payments back in good standing. There are two main ways to do it.

The more challenging option is to repay the entire loan balance.

The other choice is to undergo student loan rehabilitation, but you can do that only once. First, borrowers must agree to a reasonable repayment amount — usually 15% of their discretionary income. Then, they must make nine voluntary payments on time during a 10-month period and, finally, enroll in an income-driven repayment plan once rehabilitation ends.

Anna Helhoski writes for NerdWallet. Email: Twitter: @AnnaHelhoski.

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Ready to Spend Like a College Graduate?

In just a couple of months, a new cohort of college graduates will leave behind their careers as students and start new ones as entry-level workers. And for many — regardless of age — that change brings a whole new financial landscape to navigate.

Gabby DelMonaco, a financial planning assistant in Silver Spring, Maryland, is set to graduate from college this spring. She began budgeting and covering her own living costs when she started college and feels financially prepared to leave school. But she’s not sure her classmates are all in the same position.

“I think a lot of people are just unaware of the reality of how much it really costs to live on your own,” says DelMonaco.

College graduation might mean you land a job and have more money to spend. It also might mean you now have to use that income to pay for living expenses like rent and groceries. And six months after school is over, you can also expect to start repaying any student loans you have.

As you think through how much your post-college lifestyle will cost, consider all of your expectations. Many expenses — from food and gas to rent and your first living room couch — are getting more costly due to inflation, making it a little bit more challenging to be a new graduate with limited income, says Andrea Clark, a certified financial planner in Fountain Hills, Arizona.

“You just have a better chance for financial success if you start out with a plan instead of starting out haphazardly,” Clark says. Most importantly, making a plan will keep you from living beyond what you can afford, Clark adds.

To do this, you can start by estimating the fixed costs you’ll need to cover and getting a handle on the money you have to work with.

Uncover your fixed costs

The first step in preparing your post-graduation budget is laying out your fixed costs, says Marcio Silveira, a CFP at the same firm as DelMonaco. These are expenses that you can’t forgo, such as housing and transportation costs, as well as any monthly debt repayments.

Pay attention to these costs because you can’t reduce them once you commit, says Silveira. If you have a job lined up with an employer that offers a 401(k) match — a benefit where your employer matches a set amount of your contributions to your retirement fund — try to build this into your fixed costs, Silveira adds.

Student loans are another fixed cost that you likely need to consider. Currently, 65% of college students graduate with student debt, according to the Education Data Initiative. If this is you, add your student loan payments into your monthly expenses if you can afford it, but if this won’t fit into your current budget, take advantage of any grace period offered to you.

Grace periods begin after you graduate, and during this time, you don’t have to pay your loans but interest will continue to accrue. A grace period may allow you to do other things with your money — move, pay off a credit card or buy cheap furniture — but you’ll always need to plan for its end.

Assess your financial situation and build healthy habits

Maybe you built a budget in college and didn’t always stick to it, or you made it through college with no budget at all. Either way, starting a budget now and tracking your spending can help build healthy habits so you’re ready once you start your post-college career.

“Start tracking, start knowing where you spend the money,” says Silveira, and if you commit to it, it can only take three months of spending within your budget to make it a habit.

If you have a job lined up for after you graduate, build a budget around your monthly take-home pay. And if you don’t yet have a job, consider how long you can continue covering your expenses. Doing so can give you an idea of what next step to take; this might be taking the first job offered to you or moving back in with relatives or roommates where you can minimize your expenses.

“I’ve heard so many people say … the best time to find a job is when you already have one, and I think that’s true,” says Clark. “You’re just a little bit more organized, you’re managing your time, you just look more employable if you’re already in a job. But having some sort of money coming in is just important.”

Clark adds that if your parents or guardians are still covering any of your expenses, such as insurance or a phone bill, ask them how much longer they plan on doing that. If you can avoid any surprises in your budget, it’ll help you keep your spending on track.

This article was written by NerdWallet and was originally published by The Associated Press. 

Colin Beresford writes for NerdWallet. Email:

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How to Put Your Tax Refund to Work for You

The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

If you’re eagerly anticipating a tax refund in the coming weeks, you have good reason to be optimistic: The IRS reports that about 77% of tax returns filed last year generated a refund, and the average refund was $2,815.

Even though what can feel like a gift from the government is actually a delayed receipt of your own money, the best use of those funds is not always apparent. This year the question is even more fraught, with many households facing increasing financial pressure from inflation, rising interest rates and expiring government assistance programs tied to the pandemic. Advance child tax credits, for example, which offered families monthly checks based on their income and number of dependents, have ended pending further congressional action.

“For many people, the advance child tax credits became a part of their budget, so you should consider saving your tax refund and using it to supplement your monthly budget going forward,” says Tommy Blackburn, a certified financial planner in Newport News, Virginia. “That can help with monthly cash flow,” he adds.

Another option is to adjust your withholding to every paycheck so you don’t pay more tax than you need to. But, Blackburn adds, some people prefer to receive a lump sum each year as a method of forced savings.

While your refund priorities depend on your particular situation, there’s room in almost every budget to spend at least some portion of your refund check on something fun, too. Here is a road map to help you decide what you should do with the money:

Save for the next emergency

“First, think about your near-term security,” suggests Vince Shorb, CEO of the Las Vegas-based National Financial Educators Council, which supports financial wellness educators. “There are a lot of things going on, from COVID to inflation. I want to make sure people have food on the table and gas to get to work,” in the event of an emergency like job loss or unexpected expense, he says. That means putting money into an emergency savings fund before any other priority, including paying off debt.

“With inflation, you want to save a little bit more than normal to plan for those crazy gas and food prices. We don’t know what will happen next,” says Scott Alan Turner, a CFP in Aledo, Texas. While financial experts often cite the goal of having three to six months of expenses tucked away, a more realistic goal can be saving $500 to $1,000, or at least half of your refund. Given rising prices, Turner says it’s better to save more if you can.

“If your industry is shrinking, you’ll need a larger emergency fund,” Shorb says, because it could take longer to find a new job if you lost your current one.

Unload high-interest debt

With interest rates widely expected to rise this year, credit card and other variable-rate debt would likely become more expensive, which makes using refund money to pay it off a smart move, says Mike Biggica, a CFP in San Francisco. He suggests paying off any debt that carries an interest rate of 6% or higher and also focusing on student loans, medical debt and anything else that carries a variable rate.

Maggie Klokkenga, a financial coach and CFP in Morton, Illinois, suggests using an online debt calculator to see how making extra debt payments can speed up the debt payoff process. That can help you decide whether to first pay off your smallest debts or larger, high-interest ones. “You can see how quickly you can have everything paid off,” she says.

Make room for other goals, too

If you already have your emergency fund and high-interest rate debt addressed, then Klokkenga suggests putting the refund cash in high-yield online savings accounts dedicated to different goals, such as a vacation to Cabo or retirement. “When it’s not in your checking account, it’s harder to get to and gives you a pause before you can get the money,” she says.

Increasing your contributions to existing retirement accounts such as a 401(k) is another solid option, Biggica says. “For folks who are not already maxing out their 401(k), that increase in contribution makes them feel more secure and responsible.”

In some cases, you can front-load your contributions, Biggica adds, which means you reach the annual contribution limit before the end of the year. As a result, your take-home pay will be higher by November or December, which offers flexibility to pay for end-of-year costs like holiday spending.

Splurge within limits

After taking care of emergency savings and debt payments, there might not be enough left from the refund to make a huge purchase like a car, but Turner suggests squeezing in something enjoyable. “Go out and celebrate with something frivolous and entertaining: a nice steak dinner, new designer jeans, concert tickets,” he suggests. His guideline: Plan to spend about 10% on fun. For the average refund recipient based on last year’s IRS numbers, that’s about $280.

It probably won’t fund a vacation, but it could significantly glow-up your weekend plans.

This article was written by NerdWallet and was originally published by The Associated Press. 

Kimberly Palmer writes for NerdWallet. Email: Twitter: @kimberlypalmer.

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Viral Savings Challenges That Pay Off

Among the different ways to trick yourself into saving, money-saving challenges are some of the most engaging.

They can help you feel connected to finances by requiring frequent check-ins and debunking feelings of inadequacy when it comes to saving. For Cristina Brown, a self-described savings-challenge designer and founder of the blog Happy Savings Co, money-saving challenges helped her go from spending to saving.

“I recognized the need to save money, and I thought that this would be a good way to kind of gamify it,” Brown says.

If saving for tomorrow seems out of reach, the right money challenge can generate excitement, push competitive buttons and potentially increase savings.

Viral challenges that can add up

Before starting a savings challenge, review your budget to trim unnecessary expenses. The amount of breathing room in your budget will determine the level of difficulty that’s possible for a challenge.

Assigning a goal to a challenge may also keep you motivated and consistent, whether it be saving for an emergency fund, a vacation or something else.

A few popular challenges to consider include:

Keep the change challenges

Beginner-friendly $1 and $5 savings challenges allow for passive saving, which takes less effort and adopts an out-of-sight approach. For a designated amount of time, both challenges involve putting aside denominations of these bills that are left over from cash transactions.

Ezekiel Waisel, a certified financial planner at SHP Financial, a financial planning firm, tried the $5 challenge in 2016 and saved about $300 in a year for a round-trip flight. “I don’t use a lot of cash, so the fact that I even saved that much was pretty surprising to me,” he says.

The 52-week challenge

This challenge hikes up the savings by $1 weekly and requires you to actively save by budgeting for each week. In the first week you save $1, in the second week $2, and so on until the 52nd week. The challenge can also be reversed to start saving $52 in the first week and work downward, as is Brown’s preference in 2022. Either way, the challenge can save $1,378 in a year, enough to cover an emergency or a large purchase.

“At the end of the year with holidays — even with all of our best efforts of setting up sinking funds for the holidays and stuff like that — things can still get pretty tight, so I reversed the order to save the bigger amounts at the beginning of the year,” says Brown. A sinking fund holds money that’s earmarked for a specific goal or expense.

The 100 envelope challenge

This potentially lucrative and difficult money-saving challenge requires numbering 100 envelopes from one to 100, shuffling them and drawing one randomly every day. The number on the envelope drawn determines the amount of cash that must be saved. Drawing high numbers consecutively can prove difficult, so this challenge is ideal for those with more cash flow. If completed, it saves up to $5,050, but don’t hold money in envelopes too long. Keep it safe by designating a day every other week or monthly to deposit savings into a high-interest bank account.

The weather Wednesday challenge

For thrill-seekers with enough cash flow, this challenge can offer big savings with less predictability. On every Wednesday, for a year, save cash or make a deposit into a savings account based on the temperature in your city. If it’s 50 degrees, for instance, save $50. The challenge gets harder as it gets warmer, so it’s best to start in the winter when it’s more manageable.

No spend challenge

It’s as straightforward as it sounds: You commit to only spend on essentials over a certain period to save big. Some people even clean out their pantries to lower their grocery bills. The level of difficulty is subjective for this challenge, but it’s likely more sustainable over a short term.

Customize your own challenge

Modify a popular challenge to fit your needs by shortening or extending deadlines or the cadence of saving. For instance, you could stretch the 100 envelope challenge over 100 weeks (about 2 years) instead of days, if that’s more achievable. Brown also creates her own challenges. In one such challenge, she seeks discounts at the grocery store to stash savings for future goals. She says she saved a total of $3,560.58 in 2021 by juggling multiple challenges each month.

Learn what motivates you

Mastering a savings challenge involves understanding your motivations. Consider whether you’re motivated by big or small deposits, randomness or predictability, cash or electronic deposits, or active versus passive saving. If you’re unsure, try a few money-saving challenges to learn what works. Passive savings challenges like keep the change can lay a solid foundation for bigger challenges and savings.

“I think passive is a great starting point, and once you get comfortable and consistent with passive saving, you can then add or switch to an active savings model,” Waisel says.

Finding the right challenge may require trial and error, but even as you experiment you’ll likely save money in the process.

This article was written by NerdWallet and was originally published by The Associated Press.

Melissa Lambarena writes for NerdWallet. Email: Twitter: @LissaLambarena.

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Balancing Hopes, Dreams and a Low-Paying College Major

Humanities majors are more than a punchline. Not everyone can or wants to be a STEM major, and the world would be a poorer place if they were.

To have great things to read, music that inspires, perspectives that challenge us — to have a sense of reward and meaning in life —  we must have students who pursue college degrees that don’t lead directly to a big paycheck.

That turns the pursuit of intellectual curiosity and artistic appreciation into a balancing act: the likelihood you’ll make a good living versus the debt you incur along the way.

“I encourage students to find this balance between what they like and what pays,” says Nicole Smith, research professor and chief economist at the Georgetown University Center for Education and the Workforce. “I’m not discounting how beneficial these positions are to our society as a whole, but if you can’t pay back your student loan, you’ll be in a serious state,” Smith says.

Liberal arts grads face longer odds compared with science, technology, engineering and mathematics degrees, but a well-chosen humanities major doesn’t have to be a vow of poverty.

How long does it take to recoup what you paid?

To assess the value of earning a specific degree at a specific institution, consider the concept of price-to-earnings premium, spearheaded by Michael Itzkowitz, senior fellow of higher education at Third Way, a center-left think tank.

It measures what you pay out of pocket, including loans, against the amount you’ll earn each year above the earnings of a typical high school graduate. The results show how quickly you can get a return on investment in your college major.

The majority of liberal arts degrees lead to a “pretty good ROI,” says Itzkowitz, but the specific program you graduate with and the type of degree you earn will affect individual outcomes.

The bachelor’s degree programs that allow graduates to recoup their costs within five years or less include what you’d expect: Registered nursing, electrical engineering and dental assistants all make the list.

Among the programs with no economic ROI at all: drama, fine arts and anthropology.

Itzkowitz says the majority of college programs enable students to recoup costs within 10 years or less. “College is still worth it the vast majority of the time,” he says.

Unfortunately, his research also found nearly one-quarter of all college programs of study show graduates failing to recoup their costs in the 20 years after graduation.

There are several tools that can help you compare data on costs, earnings and debt:

  • The College Scorecard, a data tool from the U.S. Department of Education.
  • An interactive map of price-to-earnings premiums from Third Way.
  • The Buyer Beware tool from the Georgetown Center for Education and the Workforce.

Of course, education and major aren’t the only predictors of income. Your wages will also be affected by where you live, your gender and race, whether you work in the public or private sector, and your experience level.

Should you get a graduate degree?

Your humanities degree could go much further if you get an advanced degree — generally, the more education you have, the greater your earnings, according to Bureau of Labor Statistics data.

But you should continue to weigh cost versus benefit since it’s also easier to rack up debt. A graduate degree may increase your earning potential, or it may just increase your debt.

For example, if you majored in liberal arts for your bachelor’s degree you can expect a median annual wage of $50,000, according to the Bureau of Labor Statistics.

But if you get a graduate degree in law, taking on more debt, you could earn a median of $126,930. A master’s of fine arts, on the other hand, is unlikely to yield higher earnings: The annual median wage is $42,000.

Your other options could include a minor in a field with higher earnings, an internship to get on-the-job experience or finding less-expensive graduate programs if your intended field requires it.

If you’re taking on additional student debt, remember that the federal government offers payment plans that tie the size of your payment to your income. Most private loans don’t.

What are your options if your earnings are low?

If you’re already working in a low-paying field and you have student loan debt, look at how you can lower payments or discharge your debt.

If you’re having trouble making payments, consider enrolling in an income-driven repayment plan, which ties payments to your monthly income. Your payment amounts will increase as your earnings do, too.

Those working in public sector fields should learn the ins and outs of public service loan forgiveness, a red-tape-laden process of getting your loans discharged after 10 years of payments on a qualifying payment plan while working full time in a qualifying field.

This article was written by NerdWallet and was originally published by The Associated Press. 

Anna Helhoski writes for NerdWallet. Email: Twitter: @AnnaHelhoski.

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Grimace-Free Ways to Learn Personal Finance

The online landscape is littered with horrible personal finance advice: teenagers promoting day trading strategies, “influencers” flogging questionable investment schemes and people with dubious credentials insisting you shouldn’t invest in a 401(k).

Outrageous statements and flashy graphics grab attention, but there’s also plenty of sound, factually correct money content out there — and some of it is even entertaining. So if you want to learn more about managing your finances while having at least a little fun, here are some ways to go about it.

Audio worth listening to

With podcasts, you have a wealth of options (sorry, I couldn’t resist). One to try is “Stacking Benjamins,” which a Fast Company article accurately describes as striking “a great balance of fun and functional.” Former financial advisor Joe Saul-Sehy and certified financial planner Josh Bannerman mix news, banter and education with the help of regular contributors Paula Pant and Len Penzo, plus a wide variety of guests. (Full disclosure: I’ve been a guest on “Stacking Benjamins,” among other podcasts, and I co-host “NerdWallet’s Smart Money Podcast.”)

Also, check out two public radio podcasts: “Planet Money,” which explains how the economy works, and “This Is Uncomfortable,” which describes itself as a podcast about life and how money messes with it. Public radio isn’t known for being a laugh a minute, but high production values and good storytelling will keep you engaged.

If you like learning by listening, the social media app Clubhouse also might be worth exploring. This voice-only app allows you to listen and often participate in live conversations about a seemingly infinite number of topics. Consider starting with the Personal Finance Club. (Clubhouse started as invitation-only, but now is open to all.)

Of course, as with all social media, proceed with caution. Having a lot of followers doesn’t mean someone is credible, honest or knowledgeable. Plenty of people pose as experts without the credentials or experience to actually be one. No one is required to disclose conflicts of interest, and your default assumption should be that what you’re hearing or seeing may not be in your best interest.

Information or advice shared on social media is not customized to your unique circumstances, says CFP Lazetta Rainey Braxton of Brooklyn, New York. Research the ideas to ensure they make sense for your situation, and consider consulting an appropriate expert such as a tax pro, CFP or attorney, Braxton says.

What to watch

Suppose you’re more of a visual learner. In that case, you’ll find many credentialed experts to follow on Instagram, including CFP Brittney Castro and certified financial education instructor Bola Sokunbi of “Clever Girl Finance.” But for sheer fun, it’s hard to beat Berna Anat, also known as “Hey Berna,” a financial educator whose professed goal is to make “financial literacy more funny, more accessible and more Brown for young people everywhere.”

Anat and several other worthy Instagram creators such as “The Financial Diet” and “His and Her Money” are also on YouTube – along with a bunch of finance and investing channels spouting sketchy advice (often interrupted by even sketchier commercials).

Be wary of creators who pretend that making vast sums is easy or who promote risky strategies, such as options trading or borrowing money to buy volatile assets such as cryptocurrency, especially if you’re new to investing.

Also, be skeptical of creators who aren’t transparent about their financial situations or strategies, says Nashville-based CFP Jeff Rose, a blogger at “Good Financial Cents,” who has hosted the Wealth Hacker channel on YouTube since 2011.

Many people claim to have spectacular financial success but are really trying to lure you into buying courses or other products that make money for them and are not in your best interest.

That’s especially true on TikTok, where videos often last mere seconds, and bold claims about instant wealth seem to be the norm. Even here, though, some people are creating substantive, entertaining money content. Two to check out include Humphrey Yang (@humphreytalks) and Delyanne Barros (@delyannethemoneycoach).

Kick it old school

If books are your bag, you won’t have to caffeinate yourself to get through the following personal finance tomes that lace their education with plenty of humor:

  • “Stacked: Your Super-Serious Guide to Modern Money Management,” by “Stacking Benjamins” host Saul-Sehy and co-author Emily Guy Birken.
  • “Bad With Money: The Imperfect Art of Getting Your Financial Sh*t Together,” by comedian and LGBTQ activist Gaby Dunn.
  • Any of the three books by Erin Lowry, including “Broke Millennial,” “Broke Millennial Takes On Investing” and “Broke Millennial Talks Money.”

One final recommendation: “The Richest Man in Babylon,” by George S. Clason. This slender book of parables isn’t funny, but it is entertaining, an easy read and amazingly relevant nearly 100 years after its first publication.

The ways we learn about money may change dramatically, but much of the best personal finance advice doesn’t.

This article was written by NerdWallet and was originally published by The Associated Press.

Liz Weston, CFP® writes for NerdWallet. Email: Twitter: @lizweston.

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