How The Hell Do U.S. Taxes Work? Are They Unfair?

Note: If you don’t care about the history of income tax in the US go ahead and skip to the progressive tax model section below.

So every year around April, every working person has to deal with the stress of filing their taxes. And every year people see how much money is taken by Uncle Sam. You look at the tax brackets and you run the math real quick but that doesn’t seem to add up. So whats going on with our tax system and why is it so complicated? Well like all policy and laws in place today there is a long and rich history behind how things came to be.

History of US Taxation: “The only sure things in life are death and taxes” right? Today we think of income tax as inevitable as Thanos. Thanos’ name is even derived from the Greek god of death, Thanatos. So income taxes have always has been and always will be right? But in reality income tax isn’t as absolute as Thanos or that saying leads up to be. Income tax didn’t exist for the most part before 1913. There was a brief 11 year period during the Civil War were income tax existed in US history. During the Civil War, the North needed more funds to support the war effort; thus, congress passed a bill call the Revenue Act of 1861, which taxed income above $800 at 3%. The following year congress got the taste for money and enacted the Revenue Act of 1862, which taxed incomes of above $600 at 3% and taxed incomes above $10000 at 5%. This is the first example of a progressive tax, which we will get more into later on. Now at this point, you are probably thinking to yourself, even with inflation and such small incomes, 3% and 5% is nothing in terms of income tax. Well you are correct, but just think about the context of this for people in the US at the time. Our country was basically found the principle of fighting against the taxation tyranny of Great Britain. Throughout the infancy of the US, funding the government was a constant struggle since taxes were so vilified just after the revolution. However, 85 years into the American experiment, the Federal government started taking your money from you!?This must have been unthinkable to the populous of the day. So much so, that once the Civil War ended and the government didn’t the money anymore, the Revenue Acts were then repealed in 1872.

Its hard to imagine but throughout the 243 years of the existence of the States, more than half of that has been income tax free. It wasn’t till 1913 with the ratification of the 16th Amendment to the Constitution that the Federal government gained the legal power to collect a tax on incomes. This is what allowed for income taxation to become what we know today as inevitable.

So with the passage of the 16th Amendment, congress wasted no time and passed the Revenue Act of 1913, which taxed incomes above $3000 at 1% and taxed incomes above $500000 at 6%. In 1918, the highest tax rate was then raised to 77% for incomes above $1000000, to again help fund another war, in this case World War 1. So pretty drastic changes in taxation rates for income, but for the vast majority of the population you effective had a flat tax rate at 1%. The taxation rates fluctuated over time for the next hundred years, and I don’t want to just recite numbers to you and a graph I think would be far more concise. See Figure 1 below for a graph of income tax rates overtime.

Source: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States

Income Tax Models: As you can see in the graph, income tax on average has more or less been roughly the same since about the 1950 for most Americans, but lets get more granular about the income taxation rates. Below is a Table of the current income tax rates for various incomes, lets break down what this Table actually means.

Source: https://taxfoundation.org/2019-tax-brackets/

Progressive Tax Model: I am only focusing on Federal taxes and not state. Lets say you are single making about $50000 a year, so looking at the tax brackets that would put you in the 22% income tax bracket obviously, right? It doesn’t actually, the US tax code works on a progressive tax model, which means the income you make is taxed through the various brackets. So your first $9699 is taxed at 10% then your $9700 to $39474 is taxed at 12%, then your last $39475 to $50000 is taxed at that dredged 22% on paper. But that is not the whole story, you have your standard deduction to your income when you file taxes. What that basically means is that you take your income and subtract $12200 from your gross income of $50000 to have a total taxable income of $37800, which is awesome since that means that you are not even taxed at 22% at all. So what is your effective average income tax rate, ($9699)(10%) = $969.9 and $37800-$9699 = $28101 and ($28101)(12%) = $3372.12. For a total of $4342.02. For a effective tax rate of ($4342.02/$50000)(100) = 8.64%. So with that sweet, sweet deduction right off the top of your income you are effectively paying less than the lowest possible tax bracket.

Another example of effective tax rate for income of $100000 a year or $87800 after the standard deduction would be ($9699)(10%) = $969.9, ($29775)(12%) = $3573, ($44725)(22%) = $9839.5, and ($3600)(24%) = $864. For a total of $15246.2 taxed and effective tax rate of ($15246.2/$100000)(100) = 15.25%. This is almost double the tax burden by percentage then the person making $50000 but still far less then what the Table leads you to believe.

This effective tax rate vs tax brackets I think is what confuses a lot of people on their tax filing. Just know that just because your income is in 22% bracket, doesn’t mean you are gonna have to pay that, and your effective tax rate can be much much lower. Either way though, with the standard tax deduction and the progressive taxation, this model at its core gradually taxes more with the more money you make. Thus, higher earners have more tax burden, while lighting the burden on lower earners, which some (high earners) think is by definition unfair, which they are correct. The progressive model is step up to tax people more as their income raises, the numbers don’t lie. However, a counter point is that since high earner typically have more disposal income they can better afford the larger burden instead of punishing lower income earners who have much less disposal money. Regardless of your opinions on the matter this is the reality of the US tax code, and beyond the super rich taking advantage of certain loop-holes there is no fighting it.

Flat Tax/Regressive Model: That’s progressive tax model, there is also a flat tax where no matter your income everyone gets taxed the same, lets say like 10% across the board. So no matter your income or tax deductions would be taxed the same rate. Lets assume everything else is the same in our tax code and go by a flat tax.

Lets use the same incomes as in the progressive model. For some one who is single making $50000 a year with a $12200 standard deduction means a taxable income of $37800 a year. So taxed at 10%, the math would be much simpler to just ($37800)(10%) = $3780 for a effective tax of ($3780/$50000)(100) = 7.56%. For someone earning a $100000 year, I am going to skip through the math here and it means an a total taxed amount of $8780 and an effective tax rate of 8.78%. So for lower to average American earners this reduces their tax burden slightly about 1.08% at 50k a year but at higher earners it significantly reduces their tax burden by almost half. So this tax system definitely benefit higher earners more, its not unfair exactly either since it even reduces the tax burden of lower earners as well slightly. Even if we look at someone making like $25000 range lets run the numbers on how the flat tax versus progressive effects them. So at $25000 minus the $12200 deduction with the flat tax model that is a taxable income of $12800 at 10% is $1280 income tax, and a effective tax rate of $1280/$25000 = 5.12%. With the progressive model its $969.9 + $372.12 = $1342.02 for effective tax of $1342.02/$25000 = 5.36%. So looking at it this want you might be thinking, “Why aren’t we doing a flat tax? It seems better for everyone.” Everyone benefits to some degree and is objectively more fair, however, something that must be considered is the amount of revenue the Federal government would lose out on. So in this very specific example of a flat tax it is objectively more fair then progressive, however if the amount of revenue collected by the government has to be match in the flat tax model then the story changes drastically. A flat tax that gets up to 15% or higher would start to be come a regressive tax model and starts to become extremely unfair to low earners, and even relatively high earners as well. So with someone earning $50K at 15% flat tax that’s an effective tax rate of 11.34%, you would have to make at least 85K a year to effectively begin to be taxed less overall then in the progressive model. At 85k a year at 15% flat tax that’s an effective tax of 12.85% and with the progressive its about 13.03%. The majority of Americans do not make 85K a year according to Figure 2 below.

Source: https://www.statista.com/statistics/203183/percentage-distribution-of-household-income-in-the-us/

As you can see the percentage of households that make less than $75000 a year even is about 57.3%. So over half the populations would be punished for making less, and effectively the less you make the more you will be punished. So even though a flat tax can be objectively fair in specific situations, in reality the amount of money the US would need to collect in taxes would most likely never allow for a flat to tax be something that is viable in the US. And an implementation of a flat tax most likely result in a regressive tax model if all over aspects of the tax code remind the same, where the super ultra rich and mega corporations continue to dodge trillions of dollars in their tax burden. Basically, before a flat tax could ever be proposed in the US, many tax code loop-holes would have to closed in order to keep the tax rate low enough to have it make sense for the US population overall. I will probably do another blog post about tax codes that allow for these loop-holes to be taken advantage of by the super rich.

So even though our current tax code is not fair, there is no arguing that, it is far more fair then the alternative of a flat tax above 10%.

TL;DR: Its not fair, the more you make the more you are taxed. But a flat tax would most likely end up screwing over the poor more since the amount of money needed to fund the US government is a good bit of money. And the super rich top percent of the 1% don’t think its fair they have to pay any in taxes so a flat tax would most likely get lobbied into a horrific situation for poor people and the country overall. Fix those loop-hole damn it!

401K vs Roth 401k IRA vs Roth IRA. Who is number one?

So here the situation. You just started a new job straight out of college that offers a 401k and Roth 401k and you have no idea what the difference is or which is best for you. Or you are thinking about opening your own retirement account and aren’t sure what the difference between an IRA and Roth IRA. Well you are in luck, this blog will give you a run down on all the differences and similarities of each one of these. I will also give you examples of how each one can benefit you the most in a given socioeconomic situation. Lets get into it. And find out who is number one.

Side note: Do not focus on trying to save for retirement while you have large debts like student loan debt or large car payment or something along those lines. A mortgage does not qualify, it is perfectly fine to have a fix rate mortgage and focus most of your money on retirement. But focus on getting rid of bad debt first before going hard into retirement. You only have so much money and trying to pay off student loan debt and trying put 15% towards retirement will only slow your progress on both fronts.

401k and IRA: Lets start off with some history on the 401k since post people don’t talk about that very much. A 401k is a employee sponsored retirement plan. The reason it has a silly name and isn’t just called a employee retirement plan or something along those lines is because the tax code that was written for this retirement plan is 401k so they used that. But along with this new tax code that put the 401k in place, it also put into place individual retirement accounts (IRA) that are not tied to your employer. The 401k and its non-employer sponsored counter part, IRA have only been around for about 40 to 50 years, they were both first put into place in the tax code in the 1970s. Both allow you to put per-taxed money into an account and invest it into the stock market and have it grow tax free for a period of time. Since the money you are putting away is per-tax this lowers your tax burden lightly, meaning you play less in taxes throughout the year. The money you are putting in cannot be touched until you reach a minimum age to pull your money out at 59 1/2. Now at this point, you might wonder why does it must to be by then? Why can’t I just pull the money out before then? Well Congress didn’t think the masses could be trusted enough to know not to pull money from this retirement account so they made it so you will have to pay a 10% fee on any early withdraws. At 59 1/2 you can pull money out of that account and you will be taxed on it based on whatever tax bracket you are in at the time of taking the money out without any fees. For both the 401k and IRA accounts you need to aware of this since the money you are putting into this account is basically locked up till you are 59 1/2 unless you pay a 10%, with very few exceptions. Some of the exceptions are that you become legally disabled, laid off when you are 55 years ago, have medical expenses that exceed 7.5% of your adjusted gross income, or if you have a divorce and are court ordered to pay your spouse. None of these situations are desirable obviously. So for all intensive purposes just think that you are putting money away for 20, 30, or 40 years that you can’t touche. Another age to be aware of for these retirement accounts is age 70 1/2. Once you reach that age, you have to start pulling the money out. Another consideration for 70 1/2 is if whatever reason you decide at that very young age that now is the time to start saving for retirement using a IRA or 401k. Well… I am sorry to inform you that you cannot.

With that out of the way, lets talk about contribution limits for the IRA and 401k retirement plans. If you are just making tons and tons of money and want to put $50000 towards your retirement for the year, unfortunately that is impossible. For the 401k the maximum you can contribute in a year as of 2019 is $19000 and the maximum for the IRA is $6000 for people under age 50. If are you 50 or older you can contribute $25000 and $7000 to the 401k and IRA respectively, up to age 70 1/2. Now you financial wizards and math ninjas might be thinking to yourselves, “by god! what if I have two IRAs or two 401ks then I can double that contribution limit and be a billionaire wizard ninja.” I hate to be the barer of bad news but you can have two 401ks or IRAs but the limit of $19000 and $6000 will not change. You will just end up splitting your money and have a balance cut in half for your investments to compound on lowering your growth potential. That being said, there is nothing stopping you from having a 401k with your employer and have an IRA to effectively increase your contribution limit to $25000. That is pretty much all there is to 401ks and IRAs, lets get into the mysterious Roth accounts.

401k Roth and Roth IRA: The IRA and 401k were implemented in the 1970s, but in 1997, a senator from Delaware speared a new type of retirement account that came to be known as the Roth IRA. Named after him William Roth. Four years later in 2001, the Roth 401k was introduced as an employer sponsored retirement plan. Similar to the traditional 401k and IRA you put money into an account and invest that money into the stock market and there are similar contribution limits but that is about where the similarities end.

These Roth retirement accounts function quite differently, first and foremost is the money you are contributing is post-tax money and grow tax free period. There are no, I repeat no taxes that need to be paid by the time you start pulling money from the account at 59 1/2. Now the astute among you might be wondering, “well if its post tax money, then I won’t be taxed again for pulling it out before 59 1/2 right? oh but won’t I get hit with a 10% penalty for pulling money out early?” Not necessarily, the total amount of money that you have contributed to the account in post-tax money can be pulled out at any time with no fees or taxes. However, any amount of growth/earnings you have had in your money since investing it will be hit with taxes and a penalty if you were to withdraw that. For example, if you have put $10000 into either Roth retirement accounts and lets say you have had your money grow to $10500 after some period of time but you want to withdraw money for something and you pull $10000 out. That money is just yours, no taxes no penalty, you just pull it out like a saving account. However the second you go over that $10000 in withdraws then you will be taxed and are hit with a penalty on all the money that exceeded the $10000.

When it comes to contribution limits, these are identical to the traditional retirement accounts, $19000 and $6000 for Roth employee sponsored and Roth IRA respectively. Likewise, you can have both a Roth employee sponsored and a Roth IRA to increase your total allowable contributions each year and you can even mix and match between the traditional accounts and Roth accounts. You can have an employer sponsored 401k and a Roth IRA, or vice versa. The only difference here for the Roth is that you don’t have to start pulling money out of the account by age 70 1/2 and you can even open a Roth IRA after the age of 70 1/2.

What is right for you: So you just started a new job and these are the retirement plans they throw at you and maybe some benefits person quickly just said something along the lines of per-tax and post-tax and 401k something. They give you this very brief explanation that leaves you with more questions then answers and then they give you a deadline to make your decision by only a couple days or maybe even right there on the spot. But Luckily, you have read the explanation up above and have a good understanding of what each is and their features but you are still not sure what is best for you. Is it best to have the per-tax money maybe save a little on taxes or is it better to just be taxed now and put that money in place to grow tax free indefinitely? Well I am going to run through some situation where which account makes the most sense to do and when a mix is best. I am going to only focus on federal income tax in these scenarios since state income tax is so varied and in some states non-existent. I am also only doing single filing status to keep these examples simple and relatable as most people file as single, but these concepts are also universal for the most part. See Table 1 for a reference of federal income tax brackets. Keep in mind here that just because you make over $40000 a year, you won’t be taxed at 22% on the entire $40000. Only the the amount over $39475 will be taxed at 22%, then the amount from $9700 to $39474 is taxed at 12% and 0 to $9700 is taxes at 10%.

Employer Match: If your employer offers any kind of contribution match towards your 401k or Roth 401k ALWAYS ALWAYS TAKE IT! Contribute the minimum percentage to get the full match no matter your situation. This could mean a Roth IRA is best for you with your income bracket but your employer offers a 3% match lets say in a 401k. Take It! Always always take it! Then contribute to the Roth IRA as much as possible. This might sound like no duh to some people, but I had 37 year old co-worker who was contributing 0.5% to their 401k when our employer match up to 6%! It is literally free money! Always Take it! I cannot stress that enough.

Scenario One: You make about $35000 a year and you are new to the workforce and presumably will be making more later in life. In this scenario you are basically in the lowest income tax bracket possible but at the same time you make enough to likely have an employer that offers a retirement. At your income, you would be taxed at 12%. And lets say your employer offers both a traditional 401k and a Roth version, which do you choose? Well you should go for the Roth, the taxes you are paying now will pretty likely be less than when you retire. Another reason to do this is because no one knows what tax rates will be in the future, the taxes rates could very well be higher so taking advantage of this incredibly low income tax will insulate you from paying more in the future. In my opinion, I think taxes will without a doubt be higher in 30 years time. So if this was me in this situation I would definitely go for the Roth. But again, no one knows for sure, that’s just my thoughts on the matter. Regardless of future tax rates, just going off of the 2019 brackets you are paying almost as little income tax as possible so you may as well take advantage of that. Later on in your career if you get into a high income tax bracket then considering a traditional IRA would be a good idea. But we will get more into that in later scenarios

However, another variation of this scenario is maybe your employer only offers a traditional 401k. So in this situation take the 401k and put like 1% or 2% towards it but put the loin’s-share of your retirement money into a Roth IRA for the same reasons as stated above. This way are taking advantage of that awesome income take rate of 12% and you have a 401k set up for potentially utilizing later in your career.

Scenario Two: You are someone who is in their early to mid-career making about $45000 a year. So your income tax would be 22%, 10% more than scenario one, that’s quite a significant increase in tax burden. So if you notice, your income is only a little bit higher than the threshold between 12% and 22%, you are only about $5600 over the line. So in a situations where you can lower your taxable income enough to duck under into a lower taxes bracket is where you want to take that traditional employer 401k or IRA and calculate how much you would need to put away each month to break into that 12% bracket. In this example, it would be about 12.44% of your income but lets just say 12.5% since most retirement accounts only allow for half percent increments. So that would just barely put you into the 12% bracket, lowering your tax burden significantly, this is a monumental difference. With the much lower tax burden you may even have enough extra money laying around to put a small amount (1% to 2% or more) towards a Roth IRA at again that sweet, sweet 12% income tax level. If you are someone in a situation similar to this where you can lower yourself to the 12% income bracket, absolutely do it! If your income is around this amount and you end up staying at that position for a few years you will be killing it. Plus, if you are in your mid to late 20s or early 30s doing this, you will be a millionaire come retirement without question.

Scenario Three: You are someone who is single and in their early to mid-career making about $60000 a year. So your income tax is 22% and getting that down low enough to break into the 12% bracket is all but impossible. So there is no clear answer here, but I recommend you ask yourself where you want to be at retirement. Do think you will be making more than $60000 when you retire or will be making less? This scenario applies to me. So for me, I plan to be making more by the time I reach retirement age and plan to have other sources of income like rentals and dividend stocks. So in this case I would recommend the Roth IRA or Roth 401k if your employer offers it. The reason being, is again we do not know what the tax brackets will look like 20 to 30 years. Also, regardless of that if my income is higher that would more than likely lead to an increase in taxes. So I plan to hedge my bets on this income tax bracket and let my invests grown unabated for 30 years and have no other taxes I can be hit with in the future. And if I ever run into a situation where I need a lot of money out of nowhere I can take from this account without having to pay any taxes or penalty on the principal balance. Ideally, you would also have an emergency fun of about 6 months worth of expenses to cover any unforeseen emergencies, but if you don’t or are in the process of building one when something happens at least you can cover it if all unless fails. That being said, I recommend you have at least $1000 in an emergency fund just to be safe before you do anything related to saving for retirement or paying off student loans.

However, if you are someone who thinks they will be making less than what you are now. Then going with the 401k is probably the better option, since you will be in a lower tax bracket and will have potentially dodged 10% (assuming 2019 tax brackets) worth of income tax on a sum of money in the hundreds of thousands or even millions. But again there is no guarantee that will be the case. Either way, if you think the 401k or Roth 401k is better no matter the path you take as long as you are saving 15 to 20% of your income you will be set for retirement. And again you can always put money toward a mix of accounts to hedge your bets that way.

Scenario Four: When you break into the 24% income bracket, things become less drastic in terms of lowing your tax percentage, since the most you could possibly lower it is to 22% if any at all. However, you need to start more seriously consider that you might not be making more than what you are currently when you retire. So if you are making lets say $102000 a year. You could probably put enough towards a traditional employer sponsored retirement with that level of income to still drop you into the 22% bracket, which you should definitely do. Its not nearly as significant as dropping 10% as before but who in the world would want to pay more in taxes if you don’t have to. Likewise, even with a uncertain tax bracket future making more than this a year while retired would be difficult to do, not impossible by anymore but much less likely for most people even with other sources of income. So focusing on maxing out your 401k each year should be more first priority, then max out your IRA. Maybe having a Roth IRA instead of a traditional IRA would be a good idea just to have a nice mix of tax deferred money sources.

If you are making significantly more than this a year, most likely going all traditional would be the best bet, unless you are just setting up an empire of other income sources that would keep you at this tax bracket or take you to even crazier heights. In that case, the Roth would be the best option.

Scenario Five: If you are in the 32% tax bracket or up, all the principles laid out in the previous scenarios apply, however the 401k become more and more likely to be your best friend since making much more than that while retired becomes less and less likely. And any change in the tax brackets are likely to be inconsequential if you go from making $250000 a year to $150000 in retirement. When picking a retirement plan, it can really be boiled down to: Do you think you will be making more in the future? If so, Roth is your friend. If not, then 401k all the way.

Who is Number One: Smitty Werbenjagermanjensen. He was number one!

TL;DR: A 401k is an employer sponsored per-tax money retirement account with a limit of $19000 per year. Roth is the same thing just post-tax money. IRA stands for individual retirement account, not the Irish Republican Army. Roth IRA however, does stand for Roth’s Irish Republican Army and they only accept post-tax money for their war effort with a limit of $6000 a year just like the regular IRA. For the love of Plutus (Greek god of wealth) take the damn employer match! Its free money damn it! If you make less than $39475 go with a Roth account without a doubt. If you make more than that: Ask yourself if you think you will be making more or less in retirement? If yes, Roth is your guy. If no, the 401k and the traditional Irish Republican Army is for you. Smitty Werbenjagermanjensen. He was number one!

Steps to Repay Your Student Loans in Under a Year

I am going to walk you through how I was able to paid off my $14300 of student loan debt in nine months. The steps I took years in advance of my graduation date and the steps I took after I graduated that allowed me to accomplish this. As well as some tips I considered but did not utilize myself since it wasn’t the best for me. If you have already graduated and from college then feel free to skip to tip five as the first four aren’t as relevant to you.

Tip One: If you are not sure if you even want to go to college or just want to start working to build a secure financial status with a trade or other higher paying job that doesn’t need a degree then please so. You do not need a degree to be financially secure and get to that elusive FIRE. I cannot stress this one enough for young people, don’t think you have to go to college just because your parents, friends, and community thinks you have to. That is a myth that has been fabricated, there are multiple paths someone can take that doesn’t involve college to be a well adjusted intelligent and capable adult. Unlike abstinence sexual education, abstaining from college is a 100% effective method of controlling the spread of student loan debt.

Tip Two: If you do decide higher education then attend community college. I went to a community college straight out of high school to figure out what I wanted to do with myself and school. This did wonders for me financially and mentally in the long run. It allowed me to think about what I might enjoy studying and doing as career. I was by no means ready to catapult myself into a 4 year school right out of high school. Had I gone to a 4 year, it would have been a disaster and wasted thousands upon thousands of dollars and maybe resulted in me dropping out. That being said, while I was attending community college I did hate it and did not even think about how this saved me from screwing up at a 4 year for significantly more cost. Either way, after about a year I finally figured out I want to do something in chemistry, and got into a cheap school with a low cost of living as well. 

Tip Three: The third tip comes from a piece of advice I got from my organic chemistry lab professor. Each lab recitation was at 8:30 in the morning and each one was packed full of so much information it was hard to keep up, but at the end of each one she would give a small piece of advice. Multiple stood out to me and I still remember them, but one completely altered my life path. One recitation she told us how when people are in university they are so focused on the here and now. What exam or paper was due that week or if they were a proactive student maybe they thought about what was due two weeks ahead of time. But either way, students and especially STEM students were so busy that they would forget to actually work towards gaining experience for the career that they were going to school for in the first place. So she urged us find the time to look for internships or shadowing opportunities or whatever else was out there. She knew we were all crazy busy and pressed for time as it was but that we needed to try and distinguish ourselves from everyone else who had our degree. This propelled me to start applying to summer internships in the area and I got an internship in laboratory based food safety. It paid $11 an hour but the experience was worth far more. As the internship came to a close, I was hired onto a permanent position with benefits and got a raise to $12.65 an hour. I Stayed at that position through the rest of my undergrad. I was only able to work part time so it wasn’t a ton of money but it covered my rent and some expenses. My parents made up the difference, which I’m very fortunate to have had. All of this reduced the amount I would have to borrow to pay for school. Not only that but it gave me practical work experience in my degree field and has paid me dividends to this day. I am endlessly thankful for those little advice pieces my professor gave me, those few words changed my life. The sequence of events in this tip are what most led to me getting the job after I graduated that really kicked my loan repayment into high gear.

Tip Four: Keeping with the principle from tip three. The four months leading up to my graduation, I went on a application spree. All the free time I could find, I would spend looking up jobs, applying to them, and reevaluating my resume. Of the hundreds of applications I sent off, I heard back from few and even few had good news. Till about one month before graduation, I got an interview with a major company. There was still no guarantee that I would get that job so I continued applying straight through graduation. It was starting to get discouraging not having more leads, but I had my food safety job to fall back on if all unless fails. Finally, in mid July a month after I graduated I got a call from that major company I interviewed with and was offered the job as a research technician at $59000 a year. I accepted on the spot and was ecstatic. I went from earning $12.97 an hour to $28.37 that’s over a 118% increase in pay. I had to relocate for the job, and they offered a very generous relocation package. The base amount of relocation money was $5000 no questions asked, but if you had your receipts for travel or shipping expenses among other things the amount would increase. I got almost $6000 before taxes, and after paying all the moving expenses I had about $3500 left over which I immediately threw at my highest interest and balance loan.

Tip Five: I had two loans between the $14300. One was $5500 subsidized at a interest rate of 3.860% and didn’t start accruing interest till 6 months after I graduated. The other was $7500 un-subsidized for a total of $13000. The un-subsidized loan started accruing interest at 4.660% immediately while I was in school still. So by the time I started to be able to pay, there was already about $1300 worth of interest I had to pay off first before I could even touche the principle. That being said, if you have a un-subsidized loan and can make tiny payments while in school definitely make the payments. It will save thousands of dollars when you graduate and have a higher income to pay the loan down more effectively. I did not realized my loan was un-subsidized till about my last year in undergrad even so, I didn’t make any payments till after I had graduated. I thought my budget was so tight I could not afford the payments. But that was a silly notion, I could have gave up some small things and been able to pay the un-subsidized loan down to avoid the compound interest. Similarly, another tip I could have used to pay slightly less overall when I was in the process of paying off the loan was to slit-up my payments per month. What I mean is, on average I was putting $1600 a month towards the loans as one massive lump sum each month. So that meant more time for the interest to compound on the loans. The way it works is each day your loan accrues a fraction of the annual interest rate. You can calculate your daily interest by simply taking your interest Rate/365. For example, say I have the $7500 loan with the 4.660% interest rate annually. That means each day the interest rate is 0.0128% compounding on the $7500. If I spent a full year to pay that off with payments of $640.89 a month I would pay $190.66 in interest over the year. However, if I take that same amount each month and cut it in half for biweekly payments of $320.44, that would be $168.73 in interest for the year. This would save you $21.92 in most one year by just cutting your normal payments in half. $21.92 isn’t a life changing amount but who in the world would want to pay more on their loans if they don’t have to and it requires no extra money each month and only slightly more effort. Also, the $7500 is a pretty small amount when compared to the average student loan debt people have, so obviously the higher the amount or higher the interest rate or longer the period of time would greatly increase the amount of saving you could have. I highly recommend you play around with this biweekly vs monthly payment methods calculator here and see how much you can save over the course of a loan.

Tip Six: After I got a new credit card there was a promotion that you could do a balance transfer with no interest on the transfer for a year. However, there was a 3% fee associated with amount you transferred that is applied immediately to the amount transferred. So for me I knew I would pay down this loan much faster than a year plus the interest would be less still since the principle would be dropping over time. Lets use our previous example. So say I have a $10000 limit on the card and did a balance transfer of $7500 to cover that higher interest rate loan of 4.660% that would mean I would pay $225 on the balance transfer instead of $190.66 or $168.73 (monthly vs biweekly) annually in interest. So for me this didn’t make much sense to try and take advantage of this, but if you are someone who will take longer than a year and or have much high loan amount and or a interest in 5% to 6%ish range or higher than this might be an option worth considering. Just keep in mind though if you do, do this you absolutely must pay off that balance transfer within a year since the interest rates on credit cards are significantly higher like in 26% to 30% range. So you have to think about this one carefully, whatever amount you do for the balance transfer can you realistically pay that off within a year while making small payments towards your loans still to avoid interest from compounding. This is the question you must answer first and make sure you use the payment calculator to see if this actually saves you money, but chances are this isn’t the best option for you. A similar but more universally better option for most people I think can be found in tip seven.

Tip Seven: Similar to the credit card balance transfer, you could take out a personal loan. The advantages of this can be that the personal loan you qualify for is at a lower interest rate than your student loans and like your student loans the interest would accrue over the year instead of all upfront. Another advantage of this is the loan isn’t required to be repaid in a year and is less stressful. Another option is to consolidate your students loans and refinance them to a lower interest rate through a variety of different outlets. A quick google search should provide a wealth of resources for student loan refinancing.

Tip Eight: Similar to tip six. If you get a new credit card and it has no interest charged for carrying a balance on the card you can use that to supplement your expenses and income a bit to free up your money and put more towards the loan. However, you must pay off whatever balance you are carrying before the year is up to avoid crazy high credit card interest again. This tip is most useful for someone who is close to paying off their loan or has calculated the rate they would reduce their loan balance would be greater than if they were just paying like normal and can afford the larger credit card payment by the end of the year. This will take clever planning, discipline, and budgeting for someone to execute effectively but can be a easy low risk method to pay off the loans quicker. Likewise, reduction in lifestyle expenses can go a long way in freeing up money to go towards the loan at zero risk. Giving up starbucks and making your lunch everyday and eating out less and other small luxuries will obviously give you more money to wipe out the loan.

Tip Nine: Another option if your loan amount is quite large is to consider being a public servant and paying the minimum amount on the loan for ten years to qualify for student loan debt forgiveness. If this is the best path for you then ignore all the other tips and look up student loan forgiveness and how to qualify and apply.

Tip Ten: This one most people aren’t going to like and think is dumb but hear me out. If you work at job where you barely make enough to pay rent and buy groceries and have next to nothing left over. Then you have to consider getting a higher paying job or pickup side jobs to increase your income. You need to have at least some descent amount of disposable income to be able to put that towards your loans and if you have basically none and cannot cut cost anywhere then you need to consider this option seriously.

TL,DR: (1) College absence is 100% effect in preventing Student Loan Debts (SLDS) (2) Community is a great show and community college is just like it (3) Mentors are the greatest and internships get you jobs (4) Applying to jobs before graduating gets you the monies and the honeys. (5) Look at your loans before getting them, split the monthly payments into biweekly payments and save that doe. (6) Credit cards are good if used responsibly. (7) Refinance that shit. (8) Leverage your debt to have more spending power. (9) Serve the people and all your problems will go away. (10) Increase your money.