If you are out and around and in any of the stores, you don’t need a calendar to know that it is “back to school” time again. The stores are crowded, there are sales everywhere, and the retailers are smiling. It is the time when I have traditionally included some money-saving back-to-school tips in this column, but I think that Americans have really educated themselves in this area. Also, with social media, these days, even first-time families with school-aged children can learn the “tricks of the trade” pretty quickly and easily. In addition, there are more helpful websites than ever, like realsimple.com.
OK, I guess I can’t resist just a few of my favorite tips after doing some updated research.
It goes without saying that you should do an inventory of what you have, before you do anything else. Then, set a budget, and stick to it. Use cash as much as possible, especially when you are shopping with your children, and use this time as a perfect opportunity to discuss “wants” and “needs” with your children (what logo items can they do without). Beyond that, consider shopping for deals all year long, since some of them may be better than the August deals. Also, concentrate on finding the really good deals on those big-ticket items, like backpacks and computers. The deals on pens and paper are everywhere. Use Facebook, Twitter, the websites of your favorite retailers, and flyers to find those deals and coupons.
Also, visit giftcards.com to see if you can score some gift cards at a discount for the deals you found. In addition, don’t forget about consignment stores, and, after watching my 7-year-old grandson, INVEST IN A GOOD BACKPACK THAT WILL LAST.
In the last two columns we laid out some everyday money-saving tips for college students, with the promise of additional ones in the future after some input from current college students. With the college students all back to school by the end of this coming week, there are two more college-related issues that I would like to quickly address.
First, for any student or parent unsubsidized undergraduate or graduate student loan, if it is financially possible, make payments of at least the interest while the student is in school, even if the loan is in deferment. Obviously, it would be better to make payments on any high-interest credit card debt before making payments on a lower-interest student loan. In addition, it makes sense to also first build up an adequate emergency savings account. Also, if there is no penalty for doing it, consider making even small principal payments.
A recent USA Today piece set out this example. Six months after graduation, a $10,000 unsubsidized loan, taken out by a freshman, at 7 percent interest, will have a balance of $13,690, because of the accrued and unpaid interest. If the student had paid just $75 per month on the loan over those four and one half years, the balance would be $8,950.
It is really like every other kind of debt, including a mortgage or a car loan. If there is no penalty for paying the principal early, any additional payments that you make, that are applied to principal, will reduce the overall interest you will pay. In the above example, the student paid $700 less in interest than would otherwise have been required.
Second, make sure that you work with your tax preparer to ensure that, if you are paying higher education costs, you are taking advantage of any and all federal and state income tax breaks, whether they are tax credits or deductions. When I was on vacation in Charleston, I read an article in the Post and Courier that had this shocking statistic. According to Sallie Mae, fewer than one half of middle-income families with children in college, and just over a third of lower-income families, take advantage of the important federal tax breaks that they may be eligible for.
It can be complicated, but your tax professional, and the IRS website, are important resources that can help you determine which of three federal income tax breaks that you may be eligible to claim, and which one is the best for your circumstances, since they cannot be combined. Very much oversimplified, The American Opportunity Tax Credit can be worth up to $2,500 per student, for up to four years, for tuition, fees and books. The Lifetime Learning Credit, depending upon income, can be worth up to $2,500 per tax return, for 20 percent of eligible expenses, primarily tuition. This credit can also be claimed for eligible non-degree studies to acquire or improve job skills. Last, there may eligible tax deductions for up to $4,000 in qualifying expenses.
There may also be deductions and credits available to you on your New York State income tax return.
John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program.