Why wage-earners should direct windfall towards reducing debt, saving more
HOUSTON, Feb. 23, 2018 /PRNewswire/ — Last month, the IRS released guidelines requiring employers across the country to apply new federal tax withholding tables to paychecks by February 15th. The U.S. Treasury estimates 90% of all payroll employees will experience higher take-home pay as a result. The monthly increase for a single person earning $50,000 is about $200.
Financial counselors at Money Management International (MMI) say the announcement is good news for indebted working households — assuming they respond with a plan. Credit card, student loan, and auto lending have reached all-time national highs, while personal savings is just shy of its all-time low, according to the Federal Reserve. A survey conducted by Pollfish suggests many consumers intend to use the extra money to pay down debt, but the tax break may also compel them to spend more.
Counselors warn that financial inertia and projected interest-rate hikes could impede borrowers’ progress. Rising rates will increase minimum payments and the total cost of carrying debt, while curbing promotional-rate balance transfer offers. Without deliberate changes in spending, the propensity to consume could thwart financial improvement. MMI notes the tax break is not permanent and encourages employees to view the tax break as an opportunity to formulate – and fund – an achievable plan to improve their financial health.
Consumers can increase their confidence by learning about their financial options to safely and effectively reduce debt, increase savings, and live their best lives. “This is the perfect time to focus on financial goals and use these unexpected funds with intention,” said Jim Triggs, Senior Vice-President of Counseling at MMI. “Combining the increase in take-home pay with [a well-focused plan] can make life more affordable and reduce the anxiety of unmanageable debt.”
In addition to providing practical advice, MMI offers a debt management plan (DMP). The program allows clients to combine their monthly debt obligations into a single, fixed payment agreement with their existing creditors. As part of the DMP, credit card issuers agree to reduce interest rates, waive fees, and often lower the required payment. The DMP works much like a consolidation loan, but has the advantage of no credit score requirement, no collateral, and the option to cancel at any time.
Money Management International (MMI) is changing the way financial challenges are solved. MMI helps create, restore, and maintain a life of financial wellness through empowered choices. For 60 years, our clients have achieved financial confidence through nonprofit programs that educate, motivate, and liberate. MMI inspires action by delivering expert professional guidance and timely solutions that are aligned with our client’s goals. Experiencing a financial challenge? Find your solution 24/7 at 866.864.8995 and MoneyManagement.org.