How Maximizing Tax Cut Can Help Taxpayers Lower Debt
If you're like most folks, you like to dream of all the things you could afford if you finally got that pay raise. But what if I told you that you've already gotten your raise - and you're blowing it?
Thanks to a tax bill signed by President Obama in December, the majority of Americans will pony up just 4.2 percent of our paychecks for Social Security instead of the typical 6.2 percent. In other words, most of us will get a paycheck boost of $1,000 on average this year. But since that amount is spread over a year's worth of paychecks, it will likely go unnoticed by many wage earners - and therefore won't be used as efficiently as it could be, say Chicago bankruptcy attorneys.
Let's say you and your spouse both earn $50,000 a year. With the tax cut, you each get an additional $1,000 this year - not a fortune, but nothing to sneeze at, either. Broken down by biweekly paycheck, however, it comes down to just $38 each. And as we all know, it's not hard to blow that amount on some impulse buys at the grocery store, a single family dinner out, or a solitary piece of clothing.
Because small raises aren't especially noticeable, it's all too easy to fritter them away. But by making decisions about the way you'll handle your tax cut now, in January, you can set a path for the rest of the year. If you're in debt, consider setting aside the amount of the increase in each paycheck, and put it towards your balance. If you're paying 20% on a $5,000 credit card balance, that's $1,000 a year in interest. But apply that $1,000 over the course of this year, and now you're paying just $800 in interest. Apply your spouse's debt, and it drops to $600. And don't forget, not only are you paying less interest, but you're closer to being able to pay off your debt--which means zero interest, not to mention improved credit and an easier time paying your other bills.
Of course it would be nice to blow the money on little indulgences here and there. But think of it this way: Would you rather spend it on things that won't matter just a few months from now, or on something that could improve your financial situation well into the future? If you prefer the latter, consider signing up for one of our free community financial workshops for tips on lowering debt and managing your finances. And for information about lowering major debt with bankruptcy, try a free personal debt analysis with a Chicago bankruptcy attorney.