Credit Cards: A Necessary Evil!

This email popped up from the Credit Card Insider team just as I was having a conversation about summer jobs with my 19 year old. They asked me if I would be interested in writing a post about advising college students/ fresh graduates about credit cards & good practice.

Now, both my teens will tell you that I absolutely love advising, only, they don’t seem to agree on the term used, I think they would rather call it “lecturing” and immediately turn their ears off. (How is that humanly possible, anyway?) Naturally, I immediately shot back an answer to the email, “Serendipitous!” I said, “I would love to.”

If you are a recent college graduate and are trying to stare down a humongous college loan balance or if you are still in college, and you receive a lovely (and tempting) welcome letter from a credit card company every other day, or you are one of those lucky ducks whose parents paid for college but are out on your own now, here are my thoughts.

Get A Job:

Really, get a job- any job! If it’s a job at your college library, stacking books or if it is at a local fast food joint, or if someone is looking for a tutor in a subject you are rock at- take it! Getting a job & holding it down is a self-esteem booster like none other. And having money trickle into your bank account? That’s an awesome feeling, as long as you remember that this first job is not going to be your career for the rest of your life! We have a trio of brothers in our neighborhood who mow our lawn for $30 a pop or $250 for the whole season, and I believe they have 45 homes on their route.

Get A Credit Card:

     

     It’s truly scary how important your “credit” is these days. Even your landlord or your cell phone company will check your credit score to determine your eligibility. The best time to start building credit is while you are still in school. How is your credit score determined? Many things go into that but your credit history is most important. The best way to acquire credit history is to get a credit card.

    How To Get A Credit Card:

     

     Can you ask your parents to be authorized user on your credit card? If yes, you should. If they cannot or will not, and there is no one else with a proven credit history who can be an authorized user on your credit card, apply on your own. You can apply for a credit card on your own only if you have proof of income. If you do have a job, it is better to apply for a student credit card, as these may have lower credit requirements and low limits. When you get the card, use it very, very sparingly.  Don’t ever carry a balance, this way you will never pay a penny in interest but will build a credit history. The Credit Card Insider has some great tips for students applying for credit cards here. 

   

     Be Responsible About Your Credit: 

     Like I said earlier, do get a card but use it sparingly and always pay off the balance from month to month. If you do this for at least a year, you are on your way to building a good credit score. This means you will have to be responsible and know what your balance on your card is, do not exceed the spending limit and I can’t say this enough, pay off the balance every month. If you exceed your limit or take cash out on a credit card, be aware of the fees involved and that you will have to pay the fees in addition to the balance. Don’t forget, pay all your other bills on time as well.

Be Aware of Annual Fees:

The only time paying annual fees on a credit card makes sense is when you cannot get a   credit card otherwise. If there is an annual fee and a high interest rate on the card, it would be better not to get the card. Get a credit card that have rewards for spending but don’t charge you a dime.

Protect Your Identity:

     

     Do not give your Social Security Number and other private information on an un-secure website or in the open to an unknown person. Make sure the person you are talking to is indeed the authorized representative of the card company.

Do not apply for many credit cards at the same time. This will actually lower your credit   score or worse even raise a red flag. Do not agree to be a co-signer on a card for a friend/ room-mate. If the friend/ room-mate is not responsible about their credit, you will be at risk.

 It seems like it was just yesterday that my husband & I were proud owners of our first credit card which we had to get in order to establish our credit history. But we have come a long way now and I am proud to share these tips with you to get you started on your path to good credit history. 

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As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxsolutionsllc.com.

What Has Jeeves Got To Do With Taxes?

If you know Jeeves, he is the fictional character in the series of humorous (read rib-tickling funny) short stories by P.G. Wodehouse. Jeeves is a very, very capable valet who gets his employer, Wooster out of many a sticky situation. 

My father introduced me to P.G.Wodehouse's books and there was no turning me back after that. The brilliant comic genius' writing has kept me enthralled through long train rides, boring summer afternoons, quick breaks in the midst of grueling exams, you get the drift! 

Now we may not all be able to afford a Jeeves in our lives, but a very common trend these days is to hire a nanny or an "au pair" if one has small kids. Considering the sky-rocketing day-care costs for young children, this does not seem such a luxury anymore. 

Did you know that a nanny/ au pair is considered a Household Employee? A nanny is not an independent contractor because you are telling them what they will do and how they will do things. 

Read more about independent contractors in my post here. 

You Have A Household Employee If:

You hired someone to do household work and that worker is your employee. This work can be part-time or full-time; you could have hired the person directly or through an agency; and you could pay him/ her hourly/ daily/ weekly or by job. 

You have to make sure the person who is your employee is legally allowed to work in the U.S. 

What Is Household Work:

Some examples of household work cover babysitting, care-taking, house-cleaning, drivers, health-aides, house-keeping, maids, nannies, private nurses or yard workers. 

Employment Taxes For The Household Employee:

You may have to withhold social security, medicare taxes, federal unemployment tax and state taxes. But you do not have to withhold federal income tax on such employee. 

Household Employer's Checklist:

1. ID Numbers: You will need federal & state ID numbers to report the taxes withheld. 

2. Payroll Information: The employee's gross pay determines the taxes to be withheld, the pay period determines when the taxes are paid in to the government. 

3. Forms: You have to provide the household employee with a Form W-2 by the end of January of the next year. And the taxes paid can be reported on Schedule H attached to your Form 1040. 

4. Employee's Information: You will have to collect their Social Security Number or ITIN on a Form W-4. And if need be their Form I-9 with proper identification. 

The Internal Revenue Service expects that a family with a household employer can expect to spend 50-55 hours per year correctly managing this. This would be the best example to hire a professional to take care of the filings etc accurately & on a timely basis. 

Bibliography: Publication 926; Schedule H. 

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As always, read my disclaimer here. Please consult a qualified tax professional for your unique tax needs. More of my contact information is on my website, www.mntaxsolutionsllc.com.