Paying for college and clearing debts are the two most common financial goals that feature prominently in most people’s list of objectives. Although, it might get difficult to meet these objectives, here are a few plans that you can draw up for meeting both these goals.
To get out of debt you must start with your credit-cared expenses. If you find it difficult to clear your credit-card dues every month, maybe it is time to either consolidate or to shed of a part of that debt.
Suppose your outstanding credit-card dues amount to $3, 000 at a 16 % rate of interest, along with a car loan of $10, 000 at 9%. To get off of both these debts, you will have to pay around $1,147 monthly. However, if you own a home with some equity, then you can borrow a sum of $13,000 at 9% on home-equity loan and retire the other bills. What happens now is that your cost of paying off this loan would stand at around $1,137 a month, which is slightly lower as you can opt out of paying a higher interest on the credit card.
Moreover, considering the fact that the interest on most of the home-equity loans can be deducted, one can reduce the taxable income by almost $642 that year, roughly a $212 saving opportunity for those within the 33 percent federal tax norms. In effect, the government helps you in paying off your dues.
Of course, the strategy is moot if you keep on charging new items to your credit cards.
Paying for college can get really arduous for a lot of students and even their families. Just the cost of tuition and boarding can total up to $30, 000 per annum and this figure would easily reach $80,000 with the new batch of students entering college.
Many students qualify for both federal and private financial aid that could be either in the form of a scholarship, loan or both. A lot of students also take up part time jobs to pay off their dues. If you want your kids to graduate without any burden of debts hanging on their heads, there are a number of saving vehicles you can avail of.
Most states are now offering the so-called 529 Plans, where the contributions are put into pre-selected mutual funds and the money grows tax-free every year. Also, no tax has to be paid on the amount withdrawn to pay for tuition.
Another option is the “Coverdell Education Savings Account” where you can put around $2,000 per year after deducting the tax amount in either a bank account or any other investment option and the earning you garner on one of these accounts is completely tax-free; however, it has to be only utilized for paying the tuition fee.
It’s amazing, when calculated correctly, how far these minor plans can take you. For example, if today, you decide to put around $2,000 into a Coverdell account that earns 8%, every year without fail. After just 18 years, you would end up accumulating more than $80,000.