What to Do if Your Student Loan Cancellation Application Is Denied

This post is the last of a week-long series of articles about how to qualify to get student loans canceled.

By Lynnette Khalfani-Cox, The Money Coach

I’ve already warned you about how difficult it can be to get a student loan discharged. Unfortunately, part of what makes it tough is that for most discharges, the ultimate authority on the matter is the holder of your loan.

The loan holder has the final power to say yes or no to your request for a discharge and you don’t have the right to appeal the decision to the Department of Education, except in two instances: with false certification and forged signature discharges on FFEL and direct student loans.

Ask for a Review
If your claim for a discharge for these types of loans is rejected, you can take your case to the department and ask officials there to review your denial.

Other than that, your best bet in handling a rejected application, if you truly feel you have a valid and worthy claim, is to be persistent in your pursuit of a discharge and to provide as much documentation to your lender as possible in support of your case. This may mean making multiple financial disclosures about your personal situation, explaining your argument time and time again to different people at your lender’s office, or writing letters to supervisors or an ombudsman within a bank or lending institution.

Since the ultimate decision rests with the lender, that’s the place you have to target your efforts.

Get Tips from Loanholders
You should also try to find people who’ve been successful in getting the type of discharge you’re seeking. Ask them for tips and tricks they learned along the way. That firsthand advice from someone who’s been through what you have—and received a hard-fought discharge—could be just the prescription you need to turn a rejection into an approval.

For more information on paying off your student loans, check out my book Zero Debt for College Grads: From Student Loans to Financial Freedom. Get the book now at Amazon.com.

Student Loan Cancellations In Bankruptcy Are Rare – But Possible

This post is part of week-long a series of articles about how to qualify to get student loans canceled.

By Lynnette Khalfani-Cox, The Money Coach

Under federal law, as of October 8, 1998, you can no longer discharge student loan debt in a bankruptcy proceeding. As with most laws, however, there are loopholes and exceptions to the rule.

In this case, it is technically legally possible to have your student loans discharged when you file for bankruptcy protection, but as a practical matter it is very, very difficult to get a judge to sign off on it.

To have your student loans cancelled via bankruptcy, you have to prove to a judge that repaying your educational debt would cause you a substantial and undue hardship as defined by case law in your jurisdiction.

Historically, most judges have been loathe to allow students to get rid of their student loans in bankruptcy court. Each claim is assessed on a case-by-case basis, and student loan discharges via bankruptcy are highly rare, even among those who’ve tried to demonstrate severe financial hardships.

This post is an excerpt from my book Zero Debt for College Grads: From Student Loans to Financial Freedom. Get the book now at Amazon.com.

4 Tips for Tackling Credit Card Debt and Raising Your FICO Score

By Lynnette Khalfani-Cox, The Money Coach

The average American family owes $8,000 in credit card debt, according to the American Bankers Association. All together American consumers were carrying $2.564 trillion in total debt in January 2009, up 1.2% from December, reports the Federal Reserve.

We are a nation in deep debt, but there are some strategies you can take to help yourself out of your own personal debt. Here are four tips for tackling credit card debt that will help raise your credit score.

1. Use tax refund to pay debt. If you’re expecting a tax refund, apply it to pay down your credit card debt. It was money you didn’t have the day before so don’t use it on luxuries. If your refund can pay off any one of your credits cards in full, pay it off. It will be one less bill you’ll have to worry about. Paying off a card will also help raise your available credit, which, believe it or not, helps to raise your credit score.
2. Don’t close any accounts. Even if you pay them off in full, even if they have a high interest rate, you still want to leave your accounts open. When you close out accounts, you hurt your FICO credit scores in two ways. First, you decrease your available credit, which is used as a criteria in calculating your credit score. Also, you decrease the “average age” of your accounts, and cut off that past credit history. Remember, the longer a credit history you have, the more it works in your favor. 15% of your credit score is based on the length of your credit history.
3. Hide your cards. Just because you leave an account open, that doesn’t mean you have to use the card to help your credit score. An open account is not the same as an active account. To avoid the temptation of using a credit card, put the card in the freezer, store it in a hiding place that’s hard and inconvenient to access, or go ahead and cut it up if you absolutely must. (I typically don‘t recommend cutting up cards as a general strategy, because the problem isn’t the cards, the problem is us, and our ability to control our spending!)
4. Choose card to pay off first. I know this is going to sound like financial heresy, but there’s a huge problem with the age-old advice of “pay off high-interest rate debt first.” This strategy doesn’t work for most people, especially if your interest rates aren’t that high or if it will take only a small amount of money to pay off a different card and years to pay off the card with the highest interest rate. The best strategy for knowing which card to tackle first is to know what’s really bugging you about your cards. Is it high balances, the sheer number of cards or the compounded interest rates? Tackle the source of your pain first so that psychologically you feel as if you’re making a dent on your debt so that you don’t just stop making payments, which could hurt your credit score even more.

To help you better choose which card to pay off first for yourself, see “Day 25 Pick a Proper Debt Payoff Strategy” in my book “Zero Debt: The Ultimate Guide to Financial Freedom.”

Need Extra Money Now? Tip: Claim the Advance Earned Income Tax Credit Today

By Lynnette Khalfani-Cox, The Money Coach

One special feature of the earned income tax credit is that you can get it sooner, rather than later. If you expect to qualify in 2009 for the earned income tax credit and you have at least one dependent child, you can request part of that credit right now under the “Advance EITC Program.”

Here’s how it works. You fill out a Form W-5, which is called the Earned Income Credit Advance Payment Certificate. (Get a Form W-5 from your employer, or download a copy from: http://www.irs.gov/pub/irs-pdf/fw5.pdf.) Soon after you complete the W-5, you will begin receiving advance EITC payments through your employer. The EITC payments are added to your regularly scheduled paychecks.  If you are self-employed, you cannot qualify for the advance payment.

In 2009, the maximum advance EITC payment amount you can receive through your employer is $1,826. Once tax season rolls around next year, you can still claim the earned income tax credit and receive the balance of any money that may be due you, above and beyond the $1,826 that was added to your pay over the course of this tax year.

To be eligible for the advance earned income credit payment, all four of the following must be true:

• You (and your spouse, if filing a joint return) have a valid Social Security Number
• You expect to have at least one qualifying child, and to be able to claim the earned income credit using that child
• You expect that your 2009 earned income and adjusted gross income will be less than $35,463 (or $38,583 if married filing jointly), with one qualifying child. Or you expect to have two or more qualifying children, and you expect your 2009 income will be less than $40,295 (or $43,415 if married filing jointly).
• You expect to be able to claim the EIC for 2009

The W-5 form is very short, easy to fill out, and will likely take you just one minute to complete.

On the W-5, you simply print or type your full name and social security number. Then you answer “Yes” or “No” to two questions, and check a box indicating your tax filing status (i.e. single, head of household, qualifying widow(er), or married filing jointly). At the bottom of the form, you sign and date the W-5, and that’s it.

Financial Tips for Stay-at-Home Moms

By Lynnette Khalfani-Cox, The Money Coach

Stay-at-Home Moms are very valuable. If the typical American stay-at-home mom got paid, she’d earn more than $116,000 a year for her work, according to a Salary.com survey. A SAHM (or dad) can even use a tool to personalize her own salary. But regardless of how much value a mom actually adds to her family, it is important to take mom’s contributions seriously and be prepared financially. If you’re a stay-at-home mom, here are five financial tips to help protect you and your family:

1. Get a life insurance policy on yourself.

Many people think that only working individuals need life insurance; but that’s a mistake. You want life insurance because if something should happen to you – heaven forbid – the cost of replacing all the services and things you provide for the kids would be enormous. Consider this: You’re essentially the children’s full-time doctor, chauffeur, a teacher to them, their daycare provider and more. If you weren’t around, your husband would have to pay for all these services, or cut back on them, and you don’t want your kids to be short-changed.

2. Plan for a pink slip – even if you’re sure your spouse won’t get one.

While your family may currently be able to get by on just your husband’s income, you must think about how you all would fare if your spouse, by some misfortune, lost his job. Not only would it be financially daunting to make ends meet, but it could also cause marital problems too. PayPal’s 2009 Can’t Buy Me Love survey found nearly half of all couples surveyed in the U.S. said they were arguing more about money amid the recession. Needless to say, it didn’t help that many people have recently been downsized, had their hours cut, or seen their pay slashed. Avoid potential money battles by establishing a budget together, eliminating debt, and building up an emergency cash cushion. You’ll never regret being prepared for a “worse case” scenario.

3. Open at least one credit card – and a separate account – in your own name.

Don’t make the mistake that many stay-at-home moms make by allowing all the family’s credit to be held solely in their husband’s name. Some women are simply added as “authorized users” on credit accounts. It’s better for your personal credit rating to be listed as a co-signer on an account, or to have one or two credit cards in your own name. This also protects you in the event of divorce (you won’t have to apply for new credit, and get “inquiries” on your credit file, which can hurt your credit rating). A credit card account in your name can even prevent hassles in the event of a spouse’s death. Additionally, opening a separate checking account will help you to achieve financial harmony with your mate. You’ll both have a bit of financial autonomy, and you will avoid common money spats over spending because neither one of you will have to account for or “get permission” to make routine purchases. Just be sure to set a limit on how much each of you can spend independently. For example, you might say: “We’ll check in with each other if we want to buy anything over $300.”

4. Stop secret spending.

Plenty of stay at home moms engage in “secret spending,” where they make purchases and hide them from their partners. Working women do it too. But the typical stay at home mom has more opportunity to stash clothes, purses, shoes and other merchandise while her husband isn’t around. Secret spending – whether you’re splurging on yourself on buying stuff for the kids — can easily get out of hand and cause you to rack up big credit card bills. Moreover, if your spouse finds out about your hidden items (and don’t think he won’t ever look in the back of your closet, or notice items with tags still hanging on them), he’ll wonder what other secrets you’ve been keeping from him. Don’t erode your husband’s trust. That could put you on the fast-track to divorce court.

5. Don’t rationalize irrational spending.

Some stay at home moms who go on spending binges or frequently make impulse purchases often justify their constant spending by rationalizing about all the money they’ve allegedly saved. Some women resort to the old “but it was 25% off!” as their rationale for buying something that their spouse later questions. In many cases, it’s an item that they didn’t need or simply couldn’t afford – even with a 25% discount. Other times, stay at home moms think it’s OK to spend excessive amounts of money based on the illogical argument that they’ve already saved money by not going to work, and therefore are not having lunches with colleagues, not commuting, etc.

You May Be One of Millions Eligible to Claim Free Money — the Earned Income Tax Credit

By Lynnette Khalfani-Cox, The Money Coach

Would you like to receive a no-strings-attached check for hundreds or even thousands of dollars from the federal government this tax season? If you can answer “Yes” to 10 short questions, you may qualify for a huge financial windfall, compliments of Uncle Sam.

The free money in question is the Earned Income Tax Credit, also known as the EITC. The EITC is a refundable tax credit ranging from $438 to $4,824 and designed to supplement wages for low-to-moderate income workers. But don’t be fooled by the term “low-income,” because it doesn’t just apply to blue-collar employees or those earning small salaries. Tens of millions of individuals and families previously classified as “middle class” – including many white-collar workers – are now considered “low income” because they lost a job, took a pay cut, or worked fewer hours last year.

Since the EITC is a tax credit, not a deduction, if you claim the EITC you can slash the taxes you owe to zero, and even get lots of money back from the government.

The IRS reports that the average EITC refund is about $2,000. The exact refund you receive depends on your income, marital status and family size. To get a refund from the EITC you must file a tax refund, even if you don’t owe any taxes.

In 2008, 24 million taxpayers used the EITC program to claim more than $48 billion. Unfortunately, 25% of taxpayers who are eligible for the earned income credit fail to claim it, according to the IRS. Some people miss out on the EITC because the rules can be complicated. Others simply aren’t aware that they qualify for this hefty benefit.

You don’t have to remain in the dark, however, about the earned income credit. Check back tomorrow, I’ll post a 10-question quiz that let’s you see if you qualify. You can also get help with the EITC by using the new EITC Assistant, available in English and Spanish on the IRS website: http://www.irs.gov/eitc.

Valentine’s Day Tips #9 and #10 for Love and Money

 By Lynnette Khalfani-Cox, The Money Coach            

This is the last entry of 5 sets of “Valentine’s Day Tips for Love and Money” geared to help you achieve financial harmony in your relationship. Read the first set here, the second here, the third here and the fourth here. 

9. Retirement happens.  Plan Accordingly. Given the current financial crisis, younger generations are worried most about not having enough to live the way they want to, while those over 45 worry more about having resources for old age and retirement.  The under-45 crowd could learn a lot from its elders.  There’s no time like the present to start saving for retirement, especially for couples.  Sit down together and evaluate your respective 401K plans, then make your collective contributions to the plan that offers the best benefits – higher employee matching, for example —instead of each contributing blindly to your separate accounts. If you have maxed out the matching options under one 401K, and still have extra funds to put toward retirement, then consider other investment options, such as the other spouse’s retirement plan if employee-matching is available there. Free money in the way of matching, tax credits, tax deductions, tax-deferred savings, should typically win out over those that don’t offer such benefits .

10. It’s OK to have some financial independence, too. While it’s imperative to plan your financial future together, many couples still want their own money to spend as they like. In fact, over half of all couples keep some sort of separate bank accounts.  The smartest solution is to keep joint bank accounts to pay household bills but also separate checking accounts for personal spending.  Just make sure to agree on how much each of you contributes to your joint accounts — take into consideration what you earn. 

 

 

Valentine’s Day Tips #7 and #8 for Love and Money

By Lynnette Khalfani-Cox, The Money Coach

This is the fourth of 5 sets of “Valentine’s Day Tips for Love and Money.” Read the first set here, the second here and the third here. Come back tomorrow for the final of the 10 tips to help you achieve financial harmony in your relationship.

7. The first date is awkward enough – the first check doesn’t have to be. For those on a first date this Valentine’s Day, be sure to manage expectations about who pays the check before the waiter comes looking inquisitively at the two of you. In a PayPal study, men were more likely to say that they should pay for the first date, but women were more likely to say that the bill should be paid equally or through some split not based on gender.  Agreeing in advance on a payment plan that pleases everyone could eliminate some of the check-dividing awkwardness, which could even increase the likelihood of a “Date #2.”

8. Don’t stop giving gifts to each other, no matter how tight your budgets get. When times are stressful and budgets are tight, it’s all the more important to be open and expressive in your relationship.   If you’re cash-strapped, the best advice is to invest in thoughtful gifts that don’t cost a dime; they’re usually the ones with the most meaning. This Valentine’s Day, bring out some old movies or photo albums and make it a date night.  The one rule: no talking about money.  But, if you can’t bear to skip the gift — for Valentine’s Day, an upcoming birthday or a holiday — remember that there are options other than credit. Look into layaway plan at your local retailer, or try another option like Bill Me Later, which gives you 90 days to pay with promotional financing, all without using a credit card.

Valentine’s Day Tips #5 and #6 for Love and Money

By Lynnette Khalfani-Cox, The Money Coach       

  

This is the third of 5 sets of “Valentine’s Day Tips for Love and Money.” Read the first set here and the second here. Come back each week day this week for more tips to help you achieve financial harmony in your relationship.

5. In love and money, old stereotypes about men and women die hard. More than one-third of the women surveyed by PayPal said they share primary income responsibility with their partners, but only about a quarter of men said the same.  What gives?  Is he understating her contributions or overstating his own?

Don’t let stereotypical disconnects between women and men’s money-making abilities wreak havoc on your relationship.  Talk to each other about the contributions you each make to the shared bottom line: be clear and be honest. Make sure you’re on the same page in your financial planning and always resist the urge to be competitive. 

6. Stop secret spending; it isn’t sexy. More than one in ten of PayPal’s respondents admit to hiding purchases from their partners.  Why all the secrets?  Even if you don’t always agree on each other’s spending habits, you can at least agree that any purchase over a certain amount ($200, for example) will be discussed in advance.  Such easy relationship guidelines can go a long way in creating financial harmony. One out of ten couples have ended a relationship due at least in part to financial issues.  Curb your secret spending habits before you join their ranks. 

Valentine’s Day Tips #3 and #4 for Love and Money

By Lynnette Khalfani-Cox, The Money Coach       

  

This is the second of 5 sets of “Valentine’s Day Tips for Love and Money.” Read the first set here and come back each week day this week for more tips to help you achieve financial harmony in your relationship.

3. Get to know each other’s money personalities.  For the third year in a row, money is the leading reason American couples fight; notably, however, half of the time couples didn’t have their first fight about money until after they were engaged or married.  While it’s always best to talk about your financial values as early as possible in a new relationship, remember that it’s never too late to get to know each other’s money personalities. If you’re saving for a vacation to Hawaii but he won’t take a day off until you have enough to retire there, don’t despair:  there is always a middle ground.  Identify each of your best spending habits and agree to meet halfway, each adopting what’s best about the other. (To discover your own money personality, as well as your partner’s, take my Money Personality Quiz, available under the “Free Info” section at www.TheMoneyCoach.net).  

4. Make a plan for getting out of debt together.  If the current recession has taught us anything, it’s that “debt” is a dirtier word than anyone had imagined, and yet over half of American couples enter relationships with debt. Now more than ever it’s time to get serious about money management and debt elimination. Sit down with your partner and make a realistic plan for getting out of debt together, then stick to it no matter what.

 If you need professional help, contact a trustworthy non-profit agency like the National Foundation for Debt Management  (www.NFDM.org or 866-409-6336).