Take control of your money: What you need to watch out for in your mid-year review

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Biden increased child tax credit payments under his American Rescue Plan. Here’s the latest on how much you’ll get and when you’ll get the payments. USA TODAY

Midyear is often a good time to review your financial outlook and behaviors.

That’s especially true right now as the economy shifts from pandemic lockdowns to a more normal business environment. Change is afoot, involving new tax wrinkles, expiring federal support programs and shifting budgeting pressures.

Here are some important recent financial trends and developments to consider.

Watch for child tax-credit updates

If you’re one of the 36 million families who might be eligible for child tax credits, look for a letter arriving from the Internal Revenue Service on how the program has changed. New features, for 2021 only, include an expanded credit amount and advance monthly payments that start in July.

The letters are going to families who might be eligible based on information they provided in their 2019 or 2020 federal income-tax returns or who registered for a stimulus payment. Most recipients won’t need to take any action.

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Half the credits will be paid this year, in advance. The rest will need to be claimed on 2021 tax returns. Eligible families will begin receiving advance payments, either by direct deposit or check, starting in July and continuing over the five remaining months of 2021. 

The American Rescue Plan raised the maximum tax credit for 2021 to $3,600 per qualifying child under age six and to $3,000 for those between ages six and 17. (Previously, the credit was worth up to $2,000 per child and 17-year-olds were excluded.) The advance payments that start in July will be for up to $300 per month for each qualifying child under six and up to $250 a month for children ages six to 17.

The maximum amount is available to those with income at or below $75,000 (singles), $112,500 (heads of household) or $150,000 (married couples filing jointly).

Beware auto-sticker shock

This has become an expensive year to buy a car or truck. Vehicle inventories have dropped, partly because of supply-chain glitches that idled auto-manufacturing plants. The result is a market in which sellers have less incentive to negotiate.

“The rule of thumb that nobody pays ‘sticker price’ for a new car has fallen by the wayside as dealers stick to the manufacturer’s suggested retail price (MSRP),” said Jack Gillis, executive director of the Consumer Federation of America, in a prepared statement. Dealers are even charging prices above sticker for certain popular vehicles in short supply, he added.

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His top suggestion for consumers is to wait, if possible, for pricing pressures to ease, possibly later in the year. Other tips include avoiding fancy upgrades and skipping extras such as floor mats, luggage racks and fabric treatments that often can be purchased later, for less.

Gillis also recommends shopping around for loans in advance and declining extended warranties or service contracts that might not be needed and often aren’t worth the cost.

Review online shopping habits

Online shopping has become more prevalent than ever, thanks partly to store closings mandated by the COVID-19 outbreak and transportation difficulties for some. Despite the many benefits of buying using a computer or cellphone, now might be a good time to review your spending habits.

Roughly two in five Americans say online shopping has made it harder to stick to a budget, and more than half said they have increased their spending since the pandemic began, according to a poll conducted for the American Institute of CPAs.

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Among tips offered by the accounting group, consumers should try to avoid the tendency to shop out of boredom, and they should be wary of making impulse purchases. Rather, follow a “cooling off” period by putting selections in an online cart for maybe a day before completing a transaction, the group suggests.

While you’re at it, change online passwords regularly, and consider deleting merchant accounts that you no longer use. Account hacks and retail security breaches remain hazards if criminals can gain access to your personal information.

Prepare for a bill-payment squeeze

Most consumers have stayed out of serious financial trouble lately, thanks to stimulus payments, loan-forbearance programs and other relief. But many of those measures have expired or will in the coming months.

Enhanced federal unemployment benefits end in September (and already have in about half of all states), and so, too, for forbearance programs on student loans and mortgages, said Kate Bulger of Money Management International. Eviction moratoriums expire at the end of July, after having been extended one extra month, yet about one in five renters is behind on rent payments, she added.

Meanwhile, a lot of people have kept borrowing using credit cards and other means. The typical stressed consumer served by Money Management International, a nonprofit financial counseling and education group, now has about $7,000 more in debt than before the pandemic broke. “Payment shock is coming,” Bulger said in a recent webinar.

If you’re facing financial stress, it’s critical to recognize that the government-support programs are ending and to seek help if needed. Michael Sullivan, a financial consultant at Take Charge America, a nonprofit credit counseling and debt management agency in Phoenix, suggests prioritizing your bills if you can’t pay everything at once. He suggests first making rent or mortgage payments, then using additional cash to pay bills for auto loans, utilities, insurance premiums and, finally, credit cards.

Consider shopping for a new bank

Breaking up with a bank isn’t easy to do. Chances are, you have set up bill-paying options with your current institution or have paychecks, Social Security benefits or other income deposited automatically. Maybe you also have mortgage, credit card, auto or other loans with the company. All this can take time to switch over, but it’s still wise to look around occasionally for better deals in terms of interest rates, yields and fees.

Between 2011 and 2020, consumers paid $345.1 billion in bank fees while collecting $231 billion in interest, according to a MagnifyMoney study. That’s an average fee of $53.79 per account last year, compared with just $44.48 in interest earnings.

Fees, interest rates and yields are generally competitive, but better deals sometimes arise. For example, Ally Bank on June 2 said it was eliminating all overdraft fees, with no restrictions. Others might follow suit.

“More than 80% of overdraft fees are paid by consumers living paycheck to paycheck or with consistently low balances,” said Ally CEO Jeffrey Brown in a prepared statement. These fees disproportionately hit African-American and Latino customers.

While you’re at it, you also might want to comparison shop for other financial services such as homeowners and auto insurance. Also, check to see if you’re adequately insured to repair or rebuild a home, should the need arise, given how much lumber and other materials have risen in price lately.

Reach Wiles at russ.wiles@arizonarepublic.com.

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