When I heard the concept “education debt relief”, I was all ears.  It’s not just homeowners that are catching a break with loan modifications. New government programs allow students or former students to benefit from programs that do not require that the borrowers negotiate with their lenders.

The federal government is making federal student loan payments more affordable with two programs, the Income Based Repayment (IBR) plans and the Public Service Loan Forgiveness program.

• The goal of the Income Based Repayment plan is to modify your loan so that it approximates 10% of your total income. And if you have not paid off your debt in 25 years, it is forgiven. For a college graduate just starting out, this could be a major advantage.

• Your payments may be even lower under the Public Service Loan Forgiveness program and you only have to wait ten years to have your debt forgiven. This program is for full time, at least 30 hours per week, employees of a governmental entity or a non-profit.

What determines if you qualify?

• The type of debt – needs to be direct and guaranteed by United States government for loans made to the students. Sorry parents — PLUS loans are not included in the program.

• How do I know if I qualify? – The easiest way is to check the IBR calculators at http://www.ibrinfo.org/.

• The factors are: the poverty level for your state, your Adjusted Gross Income, your family size, and the amount of debt.

You apply directly through your lender. So you might need to research who is actually servicing your loan. Go to http://www.nslds.ed.gov/nslds_SA/.

If you’re making less than the poverty level, or may be still looking for that first job while living at home, you may not have to make any payment. The cap is set at 15% of the amount that your AGI exceeds 150% of the poverty level.

If you are already begun working at a non-profit, you will be credited for work after October 1, 2007. And, sorry, these repayment plans are for debt incurred before the program began in July 1, 2009. Future debt will not qualify at this time.

So who is paying the subsidized interest? How does it work? The federal government makes up the difference for the first three years, and then it’s rolled into the loan. If you still owe it after the respective 10/25 years, then it once again is paid by the federal government when the remainder of the loan is forgiven.

What are the tax effects? Right now, the debt forgiven is taxable. There is a bill, US. House of Representatives, H.R. 2492 that will make the debt forgiveness a non-taxable event.

Learn more about Celeste and her services.

I hope one of these plans will be of use to you or a student close to you. If you or your children don’t benefit from these programs, there are still plenty of reasons for us to talk. I can advise you on how to save for education, reposition your portfolio to prepare for paying for your children’s college expenses and the choices around when and who should pick up the expenses. I am available for complimentary initial meetings to see if the services I offer are a good match for the services you need.

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Today, I use the same technique except that I ask my clients to use bank accounts instead of envelopes:

Together we determine how much they need to place in their bill paying account for their regular, ongoing expenses.

We schedule when and how much they pay for the bills that are fixed and ongoing.

They make a regular payment to a money market account, out of which they will pay their large, infrequent expenses.  This account also includes savings for the unexpected but inevitable bills such as auto service and repair expenses.

Ideally their savings occurs before they even receive their paycheck, to assure that they pay themselves first.

The habit that I want to break is the unconscious habit of transferring money from savings to checking when no thought is given as to why the transfer is necessary.  Since most couples have TWO individuals, each with their own set of beliefs about money, along with TWO different types of spending habits, the improved communication facilitates more amicable relationships, brighter financial futures, and produces better financial planning clients.

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Most financial advisors do an annual budget yet people pay their bills once or twice a month.  In reality, the amount that they spend each month varies.  There are expenses that are infrequent which are not planned, like new brakes and tires, as well as infrequent expenses that can be planned, like private school tuition or Christmas gifts and travel.  Unfortunately most people don’t plan for those “bumps” in their spending and often times those expenses are the rocket fuel for their credit card balances.  So what to do?

First, be sure to take the extra steps necessary to capture the infrequent spending that tends to fall off your budget radar:

• Start first with a good budget template that prompts you to remember ALL your spending.  Contact me directly if you‘d like to see what I forward to my new clients to complete.
• Go through your credit card and checking accounts statements to look for the months with higher spending.
• Ideally, you will create a schedule by month for infrequent expenses.

Second, you need to get the money that pays for these large and infrequent expenses out of your checking account.  Otherwise it’s “available balance” as in AVAILABLE to spend.  When you’re uncertain whether to make a purchase do you consult your checking account balance?  If so, do you really know what you need for each week of the month by memory?  Probably not.  So I suggest the following:

• Figure out what you need for each period of time that you pay bills, weekly or twice a month.  Write the amount down and keep it accessible and easy to retrieve.
• Calculate what you need each week for the groceries, gas, and lunches etc.
• Begin setting money aside for your infrequent expenses; get that money out of your checking account.  Send it to a money market account dedicated for this purpose.

With the benefit of more detailed spending data, and better saving habits your budget stands a better chance of survival.  I will talk more about budgets and other steps you need to take in my next blog posts.  For today, these recommendations are a great start on making you more financially secure.

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Most of my communication is by email for business so the land line really had a high cost per call.  It also drove me a little nuts that I would miss to many calls when the called rolled to voice mail so quickly.  AT&T had been able to offer any assistance.  What a surprise.

So, let’s summarize:  Paying too much for minimal usage – dissatisfaction with the voice mail – no caller I.D. and expensive long distance – (4) monthly bills.

SOLUTION:  A friend suggested a VOIP (VOICE OVER INTERNET PROTOCOL) phone line which costs only $30.00 per month for unlimited domestic long distance, caller I.D and voice mail.  I get the voice mail messages emailed to my computer as well.

• For those of you not ready to give up a land line it’s a great compromise.
• And for those of you, who do a lot of long distance calling, it’s simple and there are no additional charges for long distance.  And you don’t need to convince anyone why THEY need to start using their computer to call you or receive your calls.

Estimated Monthly Savings:  $30 minimum

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Here are some of the areas that he suggested I consider changing:

Lower Deductible – As a financial planner reducing the deductible is my first suggestion to have my clients change reduce premium.  My recollection was that my agent had said that the premium savings was not sufficient to lower the deductible.  Reconsidering I thought “How crazy is that t I have a $1,000 deductible for my homeowner’s policy that I hope to never sue and a $5,000 deductible for my medical policy that I use every year.”

Savings:  $628 per six months

Decline Collision Coverage - O.K. may be I was in denial here.  I love my car and it is almost ten years old.  I swear it looks like it’s just three years old.  I may drive this  car another five years and that doesn’t mean that it would make sense to repair it rather than replace it.

Savings:  $140 per six months

Premium Option Endorsement – This coverage sounds like a boondoggle to me.  And it wasn’t.  It offers the very important building ordinance upgrade.  Since my home is 50 years old I LIKE this feature.

Retain:  $98 per six months

Medical Payment Coverage – Stafford suggestion that I add coverage that will pay the medical bills for my passengers in case of an accident.  While most of my friends have medical coverage it seemed that I would want my friends who were in the car with me to not have to worry about the deductibles, co-insurance and that may be that might save a friendship.

Add:  $5 per six months

As part of a comprehensive financial plan I will review the adequacy of your insurance coverage, from life and disability to your umbrella policy.  Associates like Stafford are invaluable in that they provide the current market pricing information.  If you just want a policy comparison, to include policy features  and not just premium comparison, contact Stafford directly at (415) 262-1460 #471 or stafford.jacobs@hubinternational.com.

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First, I should let you know that I consider insurance protection for the catastrophic.  I like the high deductible plans that cover my preventive care 100%.   And I do my own cost containment by always starting with my Albany acupuncturist who seems to fix just about any symptom, that’s not structurally related, under the sun.  It’s not covered by health insurance and I typically get out the door for $65 including the Rx.

So while my premium had been $163 in the not too long distant past, it went up to $205 with a rate increase.  And then I knew I would have an increase due to age change I decided t o shop.  Ultimately I decided it was worth the increase cost to lower the deductible and stay with the same company.  I would lose some coverage but overall the plan was a better value.

And I requested a change in policy.  Since it was a lower deductible, the insurance company took it upon themselves to rate the “new” policy now was $274.  At this point, I was annoyed as I did not think the rating was reasonable.  So I had them reinstate the higher deductible and began the process to have the rating reviewed and removed which eventually did happen.  Ultimately I ended up with a “reasonable” premium of $219.

My point is how quickly the premium went up 68%.  And I wondered if most people would have the assistance of a good health insurance agent and nurse practitioner to help them fight the rating and to design a more affordable policy.

My suggestion is that you review health insurance premiums that you pay and ALL your options.  May be being covered as a spouse is not the best value?  May be a good agent can help with plan design to meet your needs?  May be another company will offer a better value for your age or plan design.  Need some referrals or suggestions?

SAVINGS:  $55 per month

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As a result of having been married, I knew that those same questions were in the middle of a lot of marriages and relationships.  In my search for meaningful work, I realized that I had found “my work” in budgeting and financial planning.  I could make a difference in people’s lives.  Yes, I considered for a short time being a couples counselor.  And I realized that I empathize WAY too much and my clients would probably end up handing ME the Kleenex box.

So while I am here for you when it’s time for you to put together your budget or make a plan for your financial future, this blog is meant to give tips on how to save and, may be, include some techniques on how to work out the bumps in your cash flow.   The emphasis is on how to save money as, frankly, that’s just plain fun.  I will start with some of my own experiences and share those of my clients and others.  Thanks for checking in and if you have a question or an idea, let’s DISCUSS IT!

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