Tax Brackets

One of the only tax-related concepts that I find people misunderstand more than the tax returns themselves are the tax brackets. People usually don’t understand how our progressive tax system works. I’ll admit, it is quite confusing, at least in the beginning. To make things more complicated, the tax brackets change constantly based on new tax laws such as tax relief laws or tax increase laws (you can guess which one makes them go up and which one makes them go down).

So what is a progressive tax system? Basically, the more money you make, the more you pay. But wait, there’s more. Not only do you pay more, you also pay a larger share of your income. As an example, if you make $1,000 and pay 10% you would pay $100 in taxes.  If someone else made $10,000 and paid 10% they would pay $1,000. Both of you paid 10% in taxes, but the person who made more paid more. That is a flat-tax system. Now if the second person had to pay 20% because they made more money, they would pay $2,000 in taxes (20% x $10,000). You see, not only did they pay more ($2,000 compared to $100) but they also paid a larger share of their income (20% compared to just 10%). That is a simple example of the progressive tax system. As you’ll see, it is slightly more complex than that.

An important point to remember is that different amounts of your income are taxed differently at each bracket. In other words, if you are in the 33% tax bracket it does not mean that you pay 33% taxes on all of your income. If you are in the 33% tax bracket, your marginal tax rate is 33%. You will pay 33% on each additional dollar you make. The first portion of your income was taxed at just 10%. Look at the example below, based on the 2007 tax rates for a single filer.

For this example, we’ll assume the taxpayer has $40,000 in taxable income.  As you can see, this taxpayer would be in the 25% tax bracket.  To calculate the tax liability, take the first $7,825 x 10% = $782.50.  The next $24,025 x 15% = $3,603.75 and the last $8,150 x 25% = $2,037.50.  So, this person’s tax liability is $782.50 + $3,603.75 + $2,037.50 = $6,423.75.

As you can see, they are not paying 25% of all of their income, just the portion that is greater than $31,850. If they were to earn $1 more, they would pay 25 cents in tax on that dollar. If they were to get a $1 tax deduction, they would pay 25 cents less in taxes.

Of course, you also pay other taxes as well from your income. Most people pay a state tax. Also, we pay Social Security tax and Medicare tax. Your employer normally takes these “payroll” taxes directly out of your paycheck. Social Security and Medicare combine for 15.3%. However, your employer pays 7.65% and you pay 7.65%. Your employer may also take other non-tax payments out of your paycheck including your 401(k), health insurance, life insurance, etc.

Minimizing Taxes

 Perhaps your biggest concern is minimizing your tax burden. The details of how the system works may not be as important as making sure you don’t pay any more than you absolutely have to. In order to minimize what you pay in taxes, you have to first understand the three basic ways of paying less, credits, deductions, and deferrals.

A tax credit is a dollar for dollar reduction in the amount of taxes you will have to pay. For instance, a $100 tax credit reduces your total tax contribution by $100. That’s simple enough. A tax deduction reduces your total taxable income by the amount of the deduction. Another way to look at it is that a deduction reduces your tax contribution by the amount of your tax bracket. For example, if you are in the 25% tax bracket and you get a $100 deduction, you will save $25.00 ($100 x 25%) in taxes. As you can see, you want to make sure you claim all of the credits that you are eligible to take.

Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h and The Graduate’s Guide to Life and Money. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership, and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them. You can learn more at www.ExtraCreditBook.com or www.TheGraduatesGuide.com.

I am 21 years old. I had a checking account with a local bank. I had an overdraft protection amount of $400. This was my first checking account and I didn’t know that there was an overdraft protection. They bank paid my overdrafts in the amount of $400. I never heard anything from the bank so I thought I had the money in my account.

Anyway, I closed my account out. Then, a few weeks later I received a letter from TransWorld Systems. This is a collection agency. I told them that I would pay $50 a month, because that was all I could pay. I told them that I didn’t have a job. They told me to go borrow the money and that I had to pay them $168 right now and to pay the rest off within two months. They said they wouldn’t accept my $50 a month and that if I sent it they would send it back. I told them that I was willing to pay this debt but I only had so much money.

If I send them $50 and they accept it, do they have to accept it the rest of the time?

Thanks for your answer,
Terry L.

Dear Terry,

They will accept your money! The collection agency may inform you that it is not an “acceptable payment arrangement,” but they will cash your check and credit your account.

I would not let them bully you into paying something that you cannot afford. The debt is not a huge amount and if you pay $50 a month, you will be paid off in less than a year.

They will probably not sue you, because it is not worth it. First of all, you are paying the money every month; they want to sue people who are not paying. And second, the account is less than $1,000. Most collection agencies will not sue for less than this.

Continue making your payments every month and request that they only contact you by mail.

Legally, they must abide, and then you will not have to deal with the phone calls.

Melissa Douros Dovco Collection Solutions, Inc.

As the owner of Dovco Collection Solutions, Inc., Melissa Douros uses her eight years of being a collections specialists to offer advice and answer questions pertaining to debt collection. With running her own successful collection agency, she seeks to keep debt collectors accountable for their actions and in line with the law.

Do YOU have a question for Melissa? Email her at melissa@dovcocs.com

Are you in debt? Try PayOff Live, the revolutionary new debt payment software. Pay off your debts in less than half the time! Take the Young Money Challenge and get six months free.

I typed “tuition help” into Google and was a little surprised when an ad for SeekingArrangements.com popped up. This site is site for Sugar Babies, Sugar Daddies & even Sugar Mommies.

According to the site a Sugar Baby is: “Attractive, ambitious & young. Sugar Babes are college students, aspiring actresses or someone just starting out. You seek a generous Benefactor to pamper, mentor and take care of you—perhaps to help you financially?”

Also according to the site, a Sugar Daddy is: “Rich and successful. Single or married, you have no time for games. You are looking to mentor or spoil someone special—perhaps a “personal secretary”? secret lover? student? or a mistress for an extra-marital affair?”

Read the rest on YoungMoneyTalks.com

Pursuing a college degree online makes sense.
Distance learning has been around longer than you might imagine; online college is just one type of distance learning that has become very popular in the past few years. You have probably seen the ads for University of Phoenix.  Founded in 1976, it is a private accredited university offering a variety of options for earning college degrees at all levels including an online doctorate.

Whether public or private, an increasing number of colleges and universities are offering classes online. The internet allows colleges to offer classes to a greater number of students; thus, increasing their revenue.  Students benefit also, online classes give them the flexibility and tuition and fees are often lower, not to mention the savings on commuting and campus housing.

Many types of college degrees can be earned online.
Whether you’re pursuing a two-year degree from a community college or technical school or a Bachelor’s or Master’s degree, or even a PhD from a private, public or state university, there’s probably a program to meet your needs.  A continuum of options is available to educate yourself via your home computer.

Some courses are considered hybrids as a significant portion is online, but they have a classroom component to them; other classes are completely computer-based.  Some degrees can be pursued without ever setting foot onto a college campus; these are typically programs that require less hands-on training and are more conducive to online learning. But, degrees in music performance, physical education or teaching, for example, require brick-and-mortar settings for performance, internships or student teaching.

Know what you are getting into and know yourself.
Before pursuing some or all of your college education online you must be comfortable on the computer and have the right equipment (internet access and a compatible web browser). You must be organized, disciplined and a self starter.  Remember that college isn’t just about the classroom; a lot of college learning comes from social interactions. If you don’t require the social life of being on campus or the face-to-face interaction with your professors and classmates, then online education may be perfect for you.

First, you need to find out which courses and which degrees can be pursued online.  Be sure to read the fine print on eligibility for your specific situation.  And, expect to work at least as hard as you would in a traditional classroom setting.  Online college is definitely not for lazy people.

Accreditation matters.
Colleges and universities choose to be accredited; accreditation is not a requirement.  In the United States, there are regional agencies that govern and regulate the college accreditation process.
There are many reasons to choose an accredited college or university.  You are likely to get a better education. Your degree will have more credibility and clout in the job market.  And, perhaps most important, financial aid, loans, grants and scholarships are available to those enrolled only in accredited programs. Make sure your school of choice is accredited.

“Accreditation mills” are counterfeit accrediting agencies; “diploma mills” sell bogus pieces of paper that can be purchased without doing any of the work that goes into earning a legitimate college degree.  Again, do your research before enrolling in any of these programs or colleges.  Time and money are precious—don’t waste either of them.

Show me the money.
There is scholarship and grant money available for online education.  Some programs are unique to online programs while others are available for classroom and online college classes. The Perkins Loan and Pell Grant, both of which are part of Federal Financial Aid programs, are available for students at two-year or four-year colleges whether online or in a traditional classroom setting.

Some scholarships and free money is specific to your state or your college or university. Unique to University of Phoenix is the First Chance Program. Since 2006, this scholarship has been available to a selected group of “in need” students enrolled in Bachelor’s and Master’s Degree programs.  It’s funded by a combined effort of various non-profit groups.

Helping Outstanding Pupils Educationally, (the HOPE Program) is available in many states including Georgia, Tennessee and Illinois.  It is not a scholarship but rather is a tax credit for online programs in two or four year colleges.

Online college education may be the right choice for you.  Be sure you’re enrolled in an accredited school and an accredited program, and seek out one of the many scholarship programs for which you may be eligible.

Interested in going to school online? Get information about going to school online.

Learn to Fill out the Basic Tax Form

Now it’s time to get our hands dirty. Let’s talk about actually filling out a tax return. So what form do you choose, 1040, 1040A, 1040EZ? The basic form for individual taxpayers is the Form 1040. The other forms are just variations, some are easier and some are harder. For now, unless you are self-employed, you can ignore all of the other tax return forms. If you are self-employed you will be using a Schedule C in addition to your 1040.

The easiest Form is cleverly titled Form 1040EZ (see, even the IRS can have a little fun). Certain restrictions limit who can use this form, but essentially it is for people who make less than a certain amount of income and have limited deductions. The Form 1040A is more complicated, but only a little. There are not as many restrictions on this form as the 1040EZ, but there is still an income limit, a smaller lists of credits that can be taken and a select list of income sources (such as wages, pensions, etc.). For most recent graduates, the 1040EZ or the 1040A will be the most appropriate. The longest form is the regular Form 1040.  It is definitely the most complicated of the three, but there are no restrictions on who can use this form. If you are going to take itemized deductions (such as mortgage interest), or if you make above a certain amount of income, you must use this form.

Now you have to decide if you are filing as single, married filing jointly, married filing separately or head of household. If you are single and you have a child and you meet certain other criteria, you may be able to file as head of household. This is by far the most lucrative status, as far as taxes are concerned. If you are single and you have no children or you do not meet the requirements for head of household, you must file as single. If you are married, you must decide whether to file separately or file jointly. Joint filers simply add their incomes together and use the married filing jointly column on the tax tables to determine their tax. Taxpayers who are married filing separately simply fill out two separate tax returns, one for each spouse.

Of course, if you file married filing separately you cannot both claim the same deductions. For example, if you have one child, you can’t file separately and each claim the same child as a deduction. It almost always costs more in taxes to file as married filing separately. Sometimes if you have large medical expenses or some other type of similar deduction that has an income floor, it may pay you to file separately. Also, if one spouse makes more than twice what the other makes, it may pay to file separately. In many cases if a couple is separated, but are not yet divorced, they will each file separately. If you are unsure which way you should file, fill out the tax return both ways and see which way costs the least amount in taxes. You can always switch the following year if necessary.

Before you fill in your income, let’s define a few key words.

 Total Income – Also called Gross Income, includes all of your income from your job, small business investments, interest or dividends received, etc.
 Adjusted Gross Income (AGI) – Total Income, minus certain deductions, such as 401(k) or IRA contributions. Your AGI is used to determine your eligibility for certain credits and deductions.
 Taxable Income – AGI minus certain other deductions and personal exemptions. Your Taxable Income is used to calculate your tax liability or Total Tax. You look up your Taxable Income on the tax tables to see what you owe.

Okay, so you have to fill in your Total Income. You should at least be happy for a moment as you see how much you made for the year (until you start wondering where it all went). From here you will take out your deductions and calculate your AGI. Now you get to take your personal exemptions, which includes yourself, your spouse (if you are married filing jointly) and your children (pets do not count). For a brief moment it actually feels like getting married and having children were good ideas (financially speaking, of course).

Your next calculation will tell you what your Taxable Income is. If you compare this number to your Total Income you will definitely feel somewhat relieved. Refer to the tables in your taxpayer instructions and see how much tax you should have paid for the year.

Essentially you look and see which column to use (single, head of household, etc.) and follow that column down until you find the range that has your taxable income. Find your taxable income on the table (it will be within a range) and line it up with your filing selection and see what your taxes owed will be. Write this amount in the Tax Owed box and subtract that amount from what you paid. If what you paid is a bigger number than what your liability is, you will get a refund! If it is smaller, you will owe. It is really that simple.

I would recommend using a spreadsheet if possible, or at least a calculator. A spreadsheet is better because you can see exactly what you entered, which is important if you make a mistake somewhere.

A word of caution: If you owe tax dollars, do not pay with a credit card. I repeat, do not pay your taxes with a credit card. Even if you always pay your card off at the end of each month you are still losing out. If you remember from the credit card chapter credit companies receive a small percentage of each transaction. The IRS will not allow them to receive this percentage, which means you will have to pay it. Essentially you will have to pay an additional 2% on your taxes. It might not seem like much, but money is money. And it is doing you a whole lot better in your pocket than in some bank’s vault. If you owe $500 in taxes, you will pay an additional $10. That’s $10 that you could use for something better. Just have the money taken directly out of your checking account or send a check.

Deductions, Credits and Deferrals

So, what’s the difference between a deduction, a credit, and a deferral? Well, they are all three completely different, but they have one thing in common. They all reduce your current tax bill. Next to earning less money, the only way to pay less in taxes (legitimately) is to use one of these three tax items.

Deductions

Tax deductions are a great benefit. For instance, if you are eligible to take a deduction for business travel, it can help offset the amount of taxable income. You save an amount equal to your marginal tax rate times the amount of your deduction. For instance, if you have a $500 deduction and you are in the 25% tax bracket, you will save $125 (500 x .25 = 125). Deductions actually reduce your taxable income. If you made $40,000 and you have a $500 deduction, you will be taxed on $39,500 of income. Let’s say on $40,000 your tax liability would be $5,000. Then, your tax liability, after the $500 deduction would be $4,875, since you are only taxed on $39,500.

The most common deduction is the standard deduction (discussed earlier). If you choose to itemize your deductions, the most common is the mortgage interest deduction. You can also deduct certain business expenses, as well as medical expenses, interest paid on student loans, taxes paid, certain charitable contributions, certain job expenses, losses from theft or destruction, and many other miscellaneous expenses. They are all restricted based on certain IRS rules. For more information refer to IRS Publication 17.

Credits

Credits are even better than deductions. A credit actually reduces your tax liability dollar for dollar. For instance, using the above example, if you made $40,000, your tax liability would be $5,000. If you can take a $500 tax credit, your taxable income would still be $40,000, but your tax liability would only be $4,500 ($5,000 - $500 = $4,500), because a credit directly reduces your tax liability, not just your taxable income!
Some of the common credits include the Child and Dependant Care Credit, Child Tax Credit, Earned Income Credit, and the Adoption Credit. For more information on credits, see IRS Publication 17.

Deferrals

Deferrals are very similar to deductions. They operate in the same way, by offsetting your taxable income. The most common type of deferral is by contributing to an IRA or 401(k) retirement account. Using the above example again, if you made $40,000, and contributed $2,000 to your 401(k), your taxable income would be $38,000, and your tax liability would be reduced by $500 ($2,000 x .25 = $500). Your total tax liability would be $4,500, instead of $5,000. The reason it is called a deferral is because you will pay taxes on this income when it is distributed from your retirement account years from now. In other words you are deferring these taxes until later.

Explore the filing options, including electronic filing and paid preparers

Perhaps some of you noticed that your parents paid someone else to handle their taxes. Maybe math just isn’t your thing, and you’d rather have someone else do the calculations for you. Before you pay someone else, consider your other options. You could purchase tax software, which is very easy to use, or you could prepare your taxes yourself.

Assuming that your taxes are not very complicated, you could just file them yourself. What do I mean by not very complicated? Well, let’s say that you just graduated from college, you do not have any investments, other than your 401(k) at work, you did not inherit any money this year and you do not receive any money from a trust (wouldn’t that be nice).

If that sounds like you then there is no reason to pay someone else to do your taxes. You can complete them in less than one hour. All you will need will be your W-2 (if you had more than one job then you should have a W-2 from each employer), a statement that says how much interest you paid in student loans, if you have any (Sallie Mae borrowers can log onto their website and print a form that states how much they paid in interest) and your bank account statement that shows how much interest you earned this year. Other than that you will fill in a few extra lines on your return (personal exemption, standard deduction amount, etc.) and you are done. If you’re lucky, you’ll be getting a refund.

If you have a somewhat more complicated tax return, you may want to buy a tax preparation software program such as TurboTax or TaxCut. Once you install the program (either one) you will be asked questions, such as “Did you have medical expenses this year?” As you go through answering the questions, the software will fill in your tax forms for you. The next thing you know, you’ll have a completed tax return with the option to e-file or to print the return and file by mail.

I suggest using e-file only if you can send in for the rebate, so that it does not cost anything. Otherwise just print and send in the return by mail. If you e-file, and you are eligible for a refund, it will be deposited in your account in about 10 days. If you send your payment by mail, and request a direct deposit, it may take an additional five to seven business days. If you mail the payment and ask for a check to be sent, it could take about one full month before you get your refund. Most states also allow the state tax return to be electronically filed on the state website. You do not need any software, as the data can be input directly onto the website.

If you are still uncomfortable, and you would prefer to have a professional look at your taxes, you have several options available. Whatever you decide, this will be the most expensive option. Of course, if your preparer helps you find deductions or credits that you would have missed on your own, it may actually pay you to hire a professional to do your taxes. You are probably wondering what type of professional you should use and how much you should pay.

First, let me tell you that the more work you do on your own; the more it will save you. Most professionals charge by the hour, which means if you have all of your receipts and paperwork organized and ready, you will save money. If your tax preparer has to call you up or have you come back to the office several times to deliver more tax relevant documents, you will be wasting your own time and your own money.

With that said, let’s consider your options. If you have a relatively simple return then you could use a chain preparer such as H&R Block or you could use an independent tax preparer. If your return is more complicated, you could use a trusted independent preparer or an accountant. If it is really complicated, such as business income or difficult issues that deal with estate and inheritance taxes, then I would recommend an attorney, an accountant or an enrolled agent. An enrolled agent is certified by the IRS (by passing certain exams) and is allowed to represent you during an audit (not that you should need one).

Whatever you decide, there are a few things I need to warn you about. Many of the chain tax preparers will try to persuade you to take your refund with you the day they file your taxes, either by a refund anticipation loan, or some other “product.” This really is a waste of money. After all, you will be getting your refund in about a week to 10 days if you file electronically and have your money direct deposited. You are basically paying them to let you borrow your own money for a few days… and you are paying them quite well. They try to feed on the fact that any money coming back to you is “unexpected” or “unbudgeted” income. They figure, and unfortunately they are right in many cases, that a person who is expecting a refund doesn’t consider that the fees they paid cost anything because they are still getting money back. If you are due a $250 refund and they charge you $25 to pay you $225 right away, you may just be happy you got $225. Don’t be “swindled” out of your other $25. Just thank them kindly and wait until the money shows up in your bank a few days later. Then buy yourself a steak dinner or something; it’s your $25.
Also, avoid any type of loan where they pay your tax bill (assuming you owe), if at all possible. Keep in mind that you have until April 15th to pay the money owed, no matter when you file your return. Also, if you are in bad financial shape, consider an offer in compromise. This is not for everybody, but there may be circumstances where you just can’t come up with the taxes owed. Refer to IRS Form 656. Contact the IRS at 1-800-829-1040. Borrowing money to pay your taxes is just a double strike against your finances. Taxes are bad enough without paying extra fees or interest charges on top of what you already owe.

Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h and The Graduate’s Guide to Life and Money. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership, and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them. You can learn more at www.ExtraCreditBook.com or www.TheGraduatesGuide.com.

1. Consider gifting personal property
Consider making year-end charitable contributions of personal property such as automobiles, clothing and furniture.  Be sure to obtain receipts for your contributions which may be required to verify your donation.

2. Maximize flexible spending
Take maximum advantage of your flexible spending account: Check your balance.  If cash is left in your account consider such items as having your teeth cleaned, buying new glasses, or having Lasik eye surgery.  If cash is left in a child-care account, consider giving your care giver a year-end bonus.  Be creative.  For a detailed listing of qualified medical expenses visit http://www.irs.gov/pub/irs-pdf/p502.pdf.

3. Consider deferring income
If your taxable income is nearing a higher bracket, consider deferring income to the extent permissible  until next year.

4. Consider deferring income
If your taxable income is nearing a higher bracket, consider deferring income to the extent permissible  until next year.

5. Time income and expenses
Accelerate your income and defer deductions to next year to take advantage of your lower tax bracket this year.  Use this strategy if you expect your income to increase in the upcoming years.

6. Confirm tax withholding
Review with your accountant to determine if enough money has been withheld from your paycheck to meet your tax liability for 2009.  Consider increasing the amount withheld from pay late in the year.

7. Review casualty losses
Did you incur any property damage or loss for which you did not receive an insurance reimbursement?  If so, you may be eligible for a deduction on your taxes.

8. Consider delaying minor medical procedures
If your income is too high to permit a medical deduction this year, then consider delaying minor medical procedures until next year when you may be able to deduct them.

9. Deduct medical premiums
Self-employed individuals can deduct up to 100% of their medical premiums.  However, this special deduction cannot be claimed by self-employed individuals who are eligible to participate in a health plan that is subsidized by either their employer or their spouse’s employer.  Nor can the deduction exceed earned income derived from self-employment.

10. Take advantage of the low-income savers tax credit
You may be eligible for a tax credit if you earned a low income this year and made contributions to a qualified retirement plan or an IRA.  You may be able to take a credit of up to $1,000 if you’re single, or $2,000 if you’re married filing jointly.  This credit can reduce the federal income tax you pay dollar for dollar.

Matthew Brandeburg, CFP® has six years of financial planning experience and runs his own business, Bridgeway Financial Group, LLC, based in Columbus, OH.

I recently signed up for a gym membership. I go to the gym daily and have been going for the last nine months. I signed up for a two-year agreement and started a month-to-month payment plan of $20.

In April, my debit card number was changed due to an identity theft tissue. Forgetting to update my information with the Gym’s finance company, I got a rude awakening: my account is now in collections. I still go to the gym daily and I never received a bill, a notice, a reminder, a phone, nothing—until my account was in collections. Now, the collection agency is asking for the remainder of my two year agreement upfront, plus collections fees. The only good thing is, I still have access to the gym and would continue to have access to the gym but it could cost me a bit more.

After talking with the owner about the issue, he “agreed” to contact the collections company. He said his hands were tied and that he could do nothing. I wanted to check for myself and I asked the collections agency if the owner had the authority to take my account out of this state, they said absolutely the gym has that power. In fact, the collection agency said this is common practice with the gyms. Therefore, I don’t think he ever really contacted them.

Now, is it legal to never tell someone their account is about to go into collections or to notify them before this happens? FYI, my contract does state that if the contract signer is late that the gym could collect the entire balance of the contract.

Thanks for any help,

Chris R.

Dear Chris,

It’s too bad that you are caught up in this! Especially, because you are willing to make your payments in a timely fashion and remain a customer. Did you try bringing in the identity theft information to show the owner?

The owner can always remove a collection account due to “error,” which seems to be this case. But in this economy, people are trying to make as much money as possible. The gym probably has not only a lack of people paying memberships they have signed up for, but also fewer new contracts. If he thinks he can get money out of you sooner, a lot of times people will try.

The answer to your question is no, unfortunately, there is no law that requires creditors to notify you in the event that an account is being considered for collection. If you are up for it, I would go back and talk to the gym owner about the situation. Try to call him on his bluff.

Melissa Douros Dovco Collection Solutions, Inc.

As the owner of Dovco Collection Solutions, Inc., Melissa Douros uses her eight years of being a collections specialists to offer advice and answer questions pertaining to debt collection. With running her own successful collection agency, she seeks to keep debt collectors accountable for their actions and in line with the law.

Do YOU have a question for Melissa? Email her at melissa@dovcocs.

Are you in debt? Try PayOff Live, the revolutionary new debt payment software. Pay off your debts in less than half the time! Take the Young Money Challenge and get six months free.

Sometimes it feels like you can’t win: either you borrow money to go to school and start your life in debt or you don’t go to school and make less money throughout your lifetime. Few students can afford to pay for college without some form of help or education financing. In 2007-08, the average student loan debt among graduating seniors was $23,186. Graduate students borrow even more, according to FinAid.org, “The median additional debt is $25,000 for a Master’s degree, $52,000 for a doctoral degree and more than $118,500 for a professional degree.”

At these prices you might be wondering if it’s even worth it.

A report from the Commerce Department’s Census Bureau says that a college master’s degree is worth $1.3 million more in lifetime earnings than a high school diploma. Over an adult’s working life, high school graduates can expect to earn $1.2 million; $2.1 million with a bachelor’s degree; $2.5 million with a master’s degree; $3.4 million with a doctoral degree, and $4.4 million with a professional degree.

The Project on Student Debt found that “the percentage of all undergraduates with private loans has risen dramatically, from 5 percent in 2003-04 to 14 percent in 2007-08, and the number of private loan borrowers increased from approximately 935,000 to 2,046,000.” Fifteen billion in private loans was borrowed in 2007-08.

Many adults still haven’t paid back their student loans. Sara Kellerman, who just turned thirty, says, “I paid off two small private student loans from undergrad but have been deferring my undergraduate federal student loans for about 10 years, due to graduate school and then economic hardship. I wonder if I’ll ever be able to pay on them, much less pay them off. I currently have forbearance while waiting to be approved for one of the new income-sensitive repayment programs.”

How can you pay off your student loans?
PayOff Live is a new web-based application that uses complex algorithms to help people get out of debt quickly and easily. PayOff Live Founder Adam Miller says, “The typical time to pay off a student loan is roughly 15 years. Using PayOff Live the student should have his or her student loan paid off in full in three to five years—saving him or her 10 to 12 years of payments, interest, and the ability to increase their cash flow and pay down other debt.”

PayOff Live uses whatever money you have coming in. You don’t need a steady paycheck or set income to use it. Adam says, “Even if a student receives irregular income from their parents they can still use PayOff Live. There is no time like the present to take a proactive approach to finances; using PayOff Live will help students create a budget and understand where their money is going.

PayOff Live algorithms utilize strategic principles that determine exactly when additional funds should be applied to your debt. This timing allows your money—which typically sits stagnant in your checking account—to be leveraged, potentially saving you thousands of dollars in interest on your debt.”

It seems too good to be true. But, according to Susan Miller, “I used PayOff Live to pay off my student loans. The $10 a month that I paid to use PayOff Live was well worth the amount of time, interest, and stress I saved by paying off my student loans so quickly.”

If it seems too good to be true you can try it for yourself. Take the Young Money Challenge and get two months of PayOff Live for free.

For Spring 2009 graduates, November marks the end of the six month deferment period for student aid. And while the full payment of student loans may seem daunting, a few simple and timely steps, along with knowledge of your options, can make for an easier journey.

Think of it as your repayment roadmap from PNC Bank, N.A., one of the nation’s top student lenders.

Find the Right Route

How long you take to pay your loans will impact the amount of money you pay back overall. An aggressive approach will probably save you the most money in the long run, but what is important is finding the option below that best fits your funds and lifestyle.

Standard Repayment–Generally a fixed monthly payment of at least $50 over a period of up to ten years.

Extended Repayment* - Reduce your monthly payment by extending the repayment term for a period of up to 25 years.

Graduated Repayment – Payments start low and increase over time. This may be the right choice if you currently have limited income but expect higher earnings in the future.

Income Based Repayment (IBR) – Payments are based on income and family size - usually, 10 percent of your income or lower – and adjustable annually. A new repayment option as of July 1, 2009, you may qualify if your loan payments exceed 15 percent of your income.

Loan Forgiveness - Those working in certain fields, such as public service, government or non-profit, may be eligible for loan forgiveness. Check with your state or U.S. Department of Education to see if you are eligible.

Lighten the Load

Always pay your higher interest or variable rate loans first. Wherever possible, pay down your principal to slow the build-up of interest. This can usually be accomplished with a written request.

Be sure to check if you lender offers incentives for good repayment habits. For example, PNC offers a quarter percent interest rate deduction for taking advantage of automatic payments.

If you are still in school, start repaying interest on unsubsidized loans now to save on interest expenses later. Think about opening an interest-bearing savings account and depositing the amount of your student loan interest accumulation on a quarterly basis to pay off at graduation.

Leave Breadcrumbs

What your lender doesn’t know can end up costing you…a lot.

Your lender is available to help make your loans manageable and to help you avoid default. If you are going back to school, are unemployed or are just going through a tough time, you may be eligible for deferment, so it is important to stay in touch with your lender and to alert them to any changes in your employment or contact information.

Before you embark on the road to repayment, it is important to sit down and map out the best strategy for you. In a world of GPS and navigation systems, let your lender, financial aid office and knowledge of the options available help you chart a course that will meet your needs every step of the way.

For more information, visit www.pnconcampus.com or call 1-888-762-1001.

This was prepared for general information purposes only and is not intended as legal or tax advice or recommendations. Any reliance upon this information is solely and exclusively at your own risk.

• Available for example if you received a FFELP (Stafford Loan) after Oct. 7 1998 and have more than $30,000 in eligible loans outstanding.

By Thomas Lustig, manager of Education Lending for PNC Bank
PNC Bank, National Association. Member FDIC

Are you in debt? Try PayOff Live! PayOff Live is a revolutionary web-based application that can help you get out of debt in a third of the time. Take the Young Money Challenge and get six months free.