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A 2015 expansion of the Military Lending Act extended a cap on annual percentage rates at 36% for revolving credit.
As interest rates on debt climb, Congress may consider implementing a similar policy.
But other changes may better help consumers save, research finds.

Source: Getty Images

Rising credit interest rates have made it even more expensive to carry debts.
But a proposal in Congress that would cap rates on consumer loans at 36% may not be an effective way of curbing those higher costs of borrowing, according to new research from the Urban Institute’s Financial Well-Being Data Hub.

The report examines the effects of a previous policy, the 2015 expansion of the Military Lending Act, which also extended a 36% cap on annual percentage rates for revolving credit such as credit cards and overdraft lines of credit.
But the changes did not effectively result in enhanced consumer protections, the Urban Institute’s research found.
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One key reason why: The average APR on revolving loans was 17%, based on credit bureau data on residents of military communities with subprime credit scores.
The research focused on individuals with subprime credit scores because they are more likely to have higher annual percentage rates when they borrow, and therefore be affected by caps on those rates.

Because lenders were already charging rates at or below 36%, the policy did not affect their rates.
“It was well intentioned,” said Thea Garon, associate director at the Financial Well-Being Data Hub at the Urban Institute.

“Based on research, we found it did not have much of an effect at all on credit and debt outcomes among residents of military communities, specifically those with subprime credit scores,” Garon said.
Military community residents with subprime credit scores did not see meaningful changes in credit card ownership, the research found.
Borrowers with subprime credit scores also did not see a decline in delinquency or collection rates on revolving loans.
Nor did service members with subprime credit scores see changes to their credit scores.

‘Detrimental effects on the most vulnerable’

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Importantly, those with the lowest subprime credit scores of less than 500 may have seen reduced credit access.
“The policy may have had detrimental effects on the most vulnerable consumers,” Garon said.
A bill put forward in Congress called the Veterans and Consumers Fair Credit Act seeks to implement a 36% cap on debt for veterans and other consumers. The policy would apply to both closed- and open end credit products.
The Democratic proposal has support from a coalition of 188 organizations.

“Extending this 36% APR cap to all forms of revolving credit would be unlikely to improve debt and credit outcomes for all borrowers, not just for those in military communities,” Garon said.
Based on the findings of the research, policy makers may want to consider other changes to boost consumer protections rather than the 36% cap, according to the Urban Institute.
For example, fee disclosures may help borrowers better understand the costs of loans over time, which research has shown may help discourage them from taking payday loans.
Moreover, when payday loan terms allow for installment payments over six months, rather than in one lump sum, borrowers may spend 42% less to repay those debts, according to the report.

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Several of the large banks behind Zelle are teaming up to create their own digital wallet that will take aim at Apple Pay and PayPal.
For consumers, increased competition over digital payments could be a benefit, but there are still risks to consider.

What the war over your wallet means to you

“The pitch for consumers is an easier online checkout experience,” Rossman said. “You won’t need to enter all of your card information because it will already be saved in the system.
“And it will be managed by the banks, which will in theory have better fraud protection than retailers.”

The good news is “they are already a regulated sector,” added Pam Dixon, executive director of the World Privacy Forum, a nonprofit research group, in contrast to the equally popular buy now, pay later programs.
However, “consumers still have to be really careful,” Dixon cautioned. “This is your financial information.”

Digital payments soar in popularity, but are they safe?

During the pandemic, shoppers showed a growing preference for cashless transactions and still do: Peer-to-peer payment apps — known as P2P — such as Zelle and Paypal’s Venmo, which let users store their banking information on their smartphone, have exploded in popularity.
Now, 64% of Americans use peer-to-peer payment apps, although for young adults that jumps to 81%, according to a March 2022 survey by Consumer Reports.
Roughly 40% of the more than 2,000 people polled said they use payment apps at least once a month, while 18% use them at least once a week. 
Digital payments are generally more secure than credit card transactions because there’s a biometric component, Rossman said — “this online solution will likely have some sort of two-factor authentication, like a code sent via text message.”

But it is not without risk. Users are vulnerable to fraud or scams or can lose money if they accidentally send a payment to the wrong person, a Consumer Reports analysis found.
And peer-to-peer payments still have varying degrees of consumer protections, which could cause an issue when it comes to getting a refund.
Trying to get money back into your personal account after it’s been transferred to someone else may require more work compared to requesting a refund with a credit card company, which often reverses charges almost immediately and fights on your behalf. 
“It’s kind of like getting the toothpaste back in the tube,” Rossman said. 

‘Let the buyer beware’

Zelle, in particular, has been the subject of recent criticism. A U.S. Senate report last fall stated that “Zelle is rampant with fraud and theft, and few customers are getting refunded — potentially violating federal laws and consumer rules.”
The Consumer Reports analysis included a call on policymakers to strengthen consumer protections. “There is a lag between the protections available to consumers and the latest technologies for payments,” said Delicia Hand, director of financial fairness for Consumer Reports.
In the meantime, “payment providers can raise the bar for consumer protection by taking more aggressive steps to minimize user risks,” Hand added. 

If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.

executive director of the World Privacy Forum

Contrary to those findings, “99.9% of the 5 billion transactions processed on the Zelle network in the past five years were sent without any report of fraud or scams,” the American Bankers Association, Bank Policy Institute, Consumer Bankers Association and The Clearing House said in a joint statement. 
And in every instance in which a customer disputes a transaction made via Zelle, banks are obligated under federal law to investigate and provide reimbursement if the transaction was unauthorized, the statement said.
For now, Dixon offers consumers this advice: “Let the buyer beware.”
“If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.”
Also, adjust your privacy setting to minimize the amount of information that companies are collecting, Hand advised.
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With the fate of the Biden administration’s sweeping student loan forgiveness plan uncertain, borrowers in New York state may have another option for relief.
The Get On Your Feet Loan Forgiveness Program, established in 2015, offers some college graduates loan forgiveness equaling up to 24 months of payments.

Alexander Spatari | Moment | Getty Images

With the fate of the Biden administration’s sweeping student loan forgiveness plan uncertain and headed to the Supreme Court, borrowers in New York state may have another option for relief.
The ‘Get On Your Feet’ Loan Forgiveness Program, rolled out in 2015, is meant to “invest in recent college graduates with student loan debt who opted to invest their futures in New York,” said Angela Liotta, public information officer and director of communications at the New York State Higher Education Services Corp.

Under the program, certain residents of the state may be eligible for student loan forgiveness on up to 24 months of payments.
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There are around 2.5 million people with federal student loan debt in New York, who collectively owe almost $100 billion, according to higher education expert Mark Kantrowitz.
Here’s what borrowers need to know about the program.

You must live and have attended school in New York

The state relief is available to legal residents of New York who have lived in the state for 12 consecutive months or more. If you’re employed, you need to be working in the state, too.

Among other requirements, applicants must have graduated from a New York high school, or have received a New York state high school equivalency diploma, as well as attended a college or university in the state and earned their undergraduate degree in or after December 2014.
You also need to apply for the program within two years of graduating.

An income-driven repayment plan is required

To qualify for the program, borrowers must be enrolled in an income-driven repayment plan, in which their payments are generally capped at 10% of their discretionary income, such as the Pay as You Earn (PAYE) plan, the Revised Pay As You Earn (REPAYE) plan or the Income Based Repayment (IBR) plan.

Eligibility is limited by income, loan type

The program excludes those who have an adjusted gross income of more than $50,000 a year.
Not all student loans qualify for the state relief.
Under the Direct loan program, subsidized and unsubsidized loans are eligible. Federal Family Education Loans (FFEL) may not qualify, although you might be able to consolidate these loans into the Direct program. Private student loans are ineligible.

Meanwhile, loans taken our during graduate school are also typically excluded from the state forgiveness, and to qualify for the program you need to have no more than a bachelor’s degree at the time of applying.
Unsure of what kind of student loans you hold? You can check on Studentaid.gov.

Up to 24 months of student loan payments available

Under the Get On Your Feet Loan Forgiveness Program, New York state may cover your full student loan bill for up to 24 months under a qualifying income-driven repayment plan.
The state makes the payments directly to your student loan servicer.
The loan forgiveness could have tax implications. Recipients will get a 1099 form from the state, and are encouraged to contact a tax professional, the IRS or the New York State Department of Taxation and Finance for more information.

Federal student loan payments have been on pause since March 2020, due to a pandemic-era policy, and will remain suspended until after the litigation around the Biden administration’s student loan forgiveness plan resolves, or by the end of August — whichever comes sooner.
Although you can apply for the Get on Your Feet Loan Forgiveness Program now, applications will be reviewed for eligibility once federal student payments restart, Liotta said. Still, if you believe you qualify, it’s a good idea to request the relief now because of the requirement that you apply within two years of graduation.
Don’t qualify for this program? New York has a list of other state and federal student loan forgiveness programs.

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Tax experts say most IRS audits are different from how they’re portrayed in the movies.
While the Oscar-nominated film “Everything Everywhere All at Once” includes an in-person IRS audit, many happen by mail or remotely, experts say.
If your tax return is accurate and you have supporting documents, “there’s really no reason to worry,” said Michael Prinzo, managing principal of tax at CliftonLarsonAllen.

Michelle Yeoh in “Everything Everywhere All at Once.”
Source: imdb

Tax audits are rare

Tax audits have been a hot-button political issue since the Inflation Reduction Act, passed in August, allocated $79.6 billion to the IRS over the next 10 years, with more than half of the funds earmarked for “enforcement.”   
But audits have been rare, according to Ryan Losi, a certified public accountant and executive vice president of CPA firm Piascik. “I have maybe two or three a year, and that’s with 600 clients,” he said. 
Indeed, the IRS audited 3.8 out of every 1,000 returns, or 0.38%, during the fiscal year 2022, down from 0.41% in 2021, according to a recent report from Syracuse University’s Transactional Records Access Clearinghouse.

Typically, the IRS uses software to assign a numeric score to returns, and when the rating is high enough, it may be flagged for an audit, explained Michael Prinzo, managing principal of tax at CliftonLarsonAllen.
“It’s compared to a general population of other returns with similar income or deductions and when there’s an outlier or a number of outliers, it increases the likelihood that one might receive an audit notice,” he said.

Most audits occur by correspondence

While “Everything Everywhere All at Once” shows a nerve-wracking in-person exam, Losi said most audits happen via “correspondence,” or letters that arrive by mail. You have 30 days to respond by phone or mail.
During the fiscal year 2022, 85% of IRS audits occurred by correspondence, according to the Syracuse University report.
Alternatively, you may receive a letter saying you’ve been selected for an audit with an “information document request,” or IDR, and specific questions about the return, Prinzo said. These may require interacting with an agent, either via a phone call or meeting.

Taxpayers are typically scared of IRS exams. There’s really no reason to worry.

Michael Prinzo
managing principal of tax at CliftonLarsonAllen

Even so, many such audits occur remotely, Prinzo said, especially since the beginning of the pandemic. But if it’s an in-person exam and you’re working with a tax professional, that pro typically shifts the location to their own office.
After the audit, the IRS reviews the information provided and may send additional IDRs before deciding whether the return is correct.
If the agency determines the return isn’t accurate, it will propose an adjustment, outlined in a “30-day letter,” which gives the taxpayer one month to respond if they disagree, Prinzo said. But many IRS exams close with no changes, he said.
“Taxpayers are typically scared of IRS exams,” Prinzo said. But if your return is accurate and you have supporting documents, “there’s really no reason to worry,” he said.

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Smart Tax Planning

Tax season kicked off for individual filers on Jan. 23, and the deadline for most taxpayers is April 18.
If you’re expecting a refund, there may be ways to get the money faster, tax experts say.

Drakula & Co. | Moment | Getty Images

How soon to expect a tax refund after filing your return

Typically, you will receive a refund within 21 days if you’ve filed an accurate, electronic return with direct deposit for the payment, according to the IRS. Paper filings and errors may extend the timeline. You can check the agency’s refund portal for status updates. 
The timeline changes if you’re claiming the earned income tax credit — a tax break for low- to moderate-income workers — or the additional child tax credit. While the IRS can’t begin issuing these refunds before mid-February, you should receive the funds by Feb. 28 if there are no issues with your return.

Start with a ‘full audit’ of your 2022 financial year 

Sheneya Wilson, a certified public accountant and founder of Fola Financial in New York, advised taxpayers to begin the tax-filing process with a “full audit of your financial year.”

You’ll want to identify all sources of income, major expenses and life changes, such as marriage, divorce or having a baby, which may affect your filing. While your finances may change from year to year, your 2021 tax return may provide a rough guideline of what to expect, she said.

It’s better to ‘get it right than to get it out quickly’

While you may be eager for a refund, the IRS says to wait until you have all the necessary information. “Filing an accurate tax return can help taxpayers avoid delays or later IRS notices,” the agency said in a recent news release. 
The IRS said this is “especially important” if you’re receiving a Form 1099 for unemployment income, capital gains or dividends, pensions or retirement plan distributions.   

It’s more important to get it right than to get it out quickly.

Marianela Collado
CEO of Tobias Financial Advisors

“It’s more important to get it right than to get it out quickly,” said certified financial planner Marianela Collado, CEO of Tobias Financial Advisors in Plantation, Florida. She is also a certified public accountant.
Companies prepare information returns, such as 1099s, every year, with a copy going to the IRS and the taxpayer. If you skip any of these forms, the IRS system automatically flags your return and sends you a notice, which may take time to resolve. 
Of course, you’ll want to double-check the details entered from your tax forms. “I always say haste makes waste,” Collado said.

Always double-check your tax return

Tax return typos are another common reason for processing delays, Wilson said.
Whether you file on your own or work with a professional, it’s critical to review your tax return, including all of your personal information — such as your name, date of birth, Social Security number, address and banking details for direct deposit — to make sure everything is accurate, she said. More

A wave of companies, including Amazon, Google and Spotify, have announced deep cuts to their head count, leaving former employees without a paycheck.
Here’s what they need to know about applying for unemployment benefits.

Iryna Imago | Istock | Getty Images

A wave of companies, including Amazon, Google and Spotify, have announced deep cuts to their head count, leaving former employees without a paycheck.
Fortunately, the unemployment insurance program, created in 1935, offers support to certain people who have lost their job. The federal program is administered by states, and the rules vary based on where you live.

In a handful of states, employees and employers pay into the unemployment insurance program, said Michele Evermore, a senior fellow at The Century Foundation. In the bulk, only employers pay into the program, but it’s a benefit workers have earned, she said.
As a result, she said, laid-off workers shouldn’t be shy about applying for the aid.
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How soon after a layoff can I apply for unemployment?

“As soon as you leave your job, you should be on your way to the unemployment insurance office,” Evermore said.
In some states, it can take weeks for your claim to be approved, so the sooner you file the better.

While most states have a one-week waiting period before they can start paying you benefits, you don’t have to wait to request the relief, Evermore said.

Where do I apply for unemployment?

Do I qualify for unemployment benefits?

Generally, to be eligible for unemployment benefits, you have to have been laid off through no fault of your own, Evermore said. Maybe the job just wasn’t a good fit for you, or your company was downsizing.
But it doesn’t hurt to apply even if you’re unsure if you qualify, Evermore said. Many people prematurely exclude themselves from the program, she said: “There’s a lot of mythology around who qualifies.”

People may be surprised to learn, for example, that in some cases they can qualify for unemployment benefits even if they quit, Evermore explained.
For instance, in some states you’re eligible for the benefit if you made the choice to leave your job after your employer asked you to transfer to a location where your commute would be too long, or if you had to leave your job because your partner’s employment was relocated.

What are the requirements of the program?

To receive and keep receiving unemployment benefits, you have to be able to work and actively be seeking new employment, Evermore said.
States have different ways of making sure you’re looking for work, she added. In some cases, you’ll be responsible for keeping a log of work search efforts on your own, and in other states, you’ll have to call in to the state unemployment office and share what jobs you’ve applied to on a regular basis.
“In some states you may also report work search online,” Evermore added.
When you apply for benefits, make sure you learn about how to fulfil any requirements in your state.

Are unemployment benefits taxable?

Prapass Pulsub | Moment | Getty Images

Yes, Evermore said. The benefits are subject to federal taxes and most states take them, too.
When you start to get unemployment payments, your state will typically give you the option to have taxes withheld.
“I’d always take that option,” Evermore said. “You could be in for a long spell of unemployment and then get hit with a big tax bill.”

What is the typical weekly benefit?

In the third quarter of 2022, the average weekly unemployment benefit was around $385. But there’s a large range in the payments by state. For example, in Washington state, the benefit was nearly $600 during that period. In West Virginia, it was around $305.
There are other resources, too, for people struggling financially due to job loss, Evermore said.
“Unemployment insurance isn’t the only program in the world,” Evermore said, adding that out-of-work people can also try applying for food stamps and other aid.

How long can I get the benefit?

Yellow Dog Productions | The Image Bank | Getty Images

The standard duration for unemployment benefits is 26 weeks but that timeline varies by state.
For example, Missouri recently slashed its benefit duration and some workers may only receive payments for eight weeks there.

I received unemployment benefits during the pandemic. Could I qualify again?

It’s possible, Evermore said.
Workers are typically eligible for unemployment benefits for a certain amount of weeks per benefit year. Depending on how long has passed since your last period of joblessness, and how many weeks you previously received the benefits, it’s possible you could qualify again after a follow-up job loss for at least some more weeks and possibly another full duration.

I received severance pay. Will that affect my unemployment benefits?

In most states, if your layoff included severance pay, your unemployment benefits will likely be reduced for the period in which you’re still receiving payments from your former employer.
But, again, that depends on your state. In some cases, your severance package will have no impact on your unemployment benefits, Evermore said.
Clarification: In a handful of states, employees and employers pay into the unemployment insurance program. In the bulk, generally employers only pay into the program, but it’s a benefit workers have earned. An earlier version didn’t draw that distinction.

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As Democrats and Republicans negotiate over the nation’s debt ceiling, some worry changes to Social Security benefits could be on the line.
Sen. Joe Manchin, D-W.Va., said on Sunday that increasing the payroll taxes wealthy pay may help shore up the program.

Sen. Joe Manchin, D-W. Va., speaks to the cameras about the reconciliation bill in the Hart Senate Office Building on Monday, August 1, 2022.
Bill Clark | CQ-Roll Call, Inc. | Getty Images

Now that the U.S. has hit the debt ceiling, lawmakers need to revisit the federal budget and find ways to make cuts, Sen. Joe Manchin, a Democrat representing West Virginia, said in interviews this weekend.
But that should not include cuts to Social Security and Medicare benefits, he said.

“I’ve got 60% of my population that that’s all they have is Medicare and Social Security,” Manchin told NBC’s “Meet the Press” on Sunday.
“You think I’m going to go down that path and put them in jeopardy? No,” he said.
In a separate interview on CNN’s “State of the Union,” Manchin called for a key change to help shore up Social Security’s ailing funds — raising the cap on payroll taxes that are used to fund the program.
“The easiest and quickest thing that we can do is raise the cap,” he said, while also curbing “wasteful spending.”

How raising payroll tax cap could aid Social Security

In 2023, wages up to $160,200 are subject to a 6.2% tax for employees and employers that goes to Social Security.

A 1.45% Medicare tax is also paid by employees and employers, though there is no wage limit to those taxes.

Both programs face the prospect of a funding shortfall in the coming years if lawmakers fail to act. Social Security’s combined trust funds are projected to become depleted in 2035, at which point 80% of benefits will be payable, according to an annual report released in June.
The fund that covers Medicare Part A, which pays for inpatient hospital care and other services, will be able to pay full benefits until 2028, after which point 90% of benefits will be payable.
“Social Security and Medicare basically is running out of cash because we stop at a certain level where people pay into FICA,” Manchin said. (FICA stands for the Federal Insurance Contributions Act and represents the U.S. federal payroll tax.)
Other Democrats have also proposed raising payroll taxes to help shore up Social Security. Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., have proposed reapplying payroll taxes for those earning over $250,000 along with a host of other changes to shore up the program. A separate bill to reform the program from Rep. John Larson, D-Conn., calls for applying payroll taxes starting at over $400,000.

Republicans have proposed program changes

Concessions may play into debt ceiling negotiations

However, the concern is that Republicans may demand concessions from Biden in exchange for raising or eliminating the debt ceiling.
On Thursday, the U.S. hit the debt ceiling, leaving just months before it may default on its obligations, Treasury Secretary Janet Yellen wrote in a letter to Congress.
“The concern is that they are willing to destroy the global economy, plunge us into a recession or a depression, with their refusal to raise the debt limit in order to force these changes,” Freese said.
The White House has maintained the president will not make concessions during the debt ceiling negotiations.
“As President Biden has made clear, Congress must deal with the debt limit and must do so without conditions,” White House press secretary Karine Jean-Pierre said last week.

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The average credit card debt owed by Gen Xers is $7,004, according to a new report.
That compares with $6,785 for baby boomers, $5,928 for millennials and $2,876 for Gen Zers.
The average credit card interest rate is above 20%.

Maskot | Digitalvision | Getty Images

When it comes to credit card debt, Generation X may be struggling the most.
The average amount owed by people in that cohort is $7,004, according to a new report from New York Life. That compares with $6,785 for baby boomers, $5,928 for millennials and $2,876 for Gen Zers.

“I think Gen Xers can be especially squeezed by credit card debt because they’re living expensive years right now,” said Ted Rossman, senior industry analyst for CreditCards.com. Research from CreditCards.com also shows more members of Gen X (77%) have any type of personal debt compared with other age groups.
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“They might be sandwiched between caring for elderly parents and raising their own kids – maybe even putting them through college,” Rossman said.
The New York Life study, based on a survey conducted in December among 4,410 U.S. adults, defines baby boomers as people ages 59 to 77; Gen Xers, ages 43 to 58; millennials, ages 27 to 42; and Gen Z as age 11 to 26.

The cost of carrying credit card debt has become higher

Credit card balances across all age groups hit $930 billion in the third quarter of 2022, according to the Federal Reserve Bank of New York’s latest quarterly report on household debt. That amount was $38 billion more than the previous quarter and $121 billion more than a year earlier, marking the largest yearly jump — 15% — in more than 20 years.

And as interest rates have risen — a result of the Federal Reserve trying to rein in high inflation — the cost of carrying credit card debt has become more expensive.
The average credit card now charges a record-high 20.16%, Rossman said. What’s more, 46% of card holders carry debt from month to month on at least one card, which is up from 39% a year ago.

The average credit card debt owed by adults across all ages is $6,321, and the average monthly amount put toward that debt is $430, according to the New York Life study.
The length of time it would take to pay off that average balance at that monthly amount depends on the interest rate. At zero percent, it would take 15 months. At 20%, it would take 18 months, and about $1,028 would be going to interest.
Those calculations, made using Credit Karma’s credit card calculator, also assume no additional credit card debt was incurred while paying off that amount.

How to knock down your debt

There are some ways you may be able to pay down your credit card balances faster.
For instance, some people approach the debt using the “snowball method,” which involves paying off the smallest balance first and then moving on to the next-biggest and so on.
It works like this: You pay the minimum on your higher-balance cards to avoid late fees or higher interest charges, then throw as much money as you can at the smallest debt until it’s paid off. Then you apply the same strategy to the next-biggest balance. The idea is that erasing balances can be empowering and give you motivation to keep paying all your cards off.
If you don’t need the positive reinforcement, you can focus on the highest interest rate debt first. In the long run, this “avalanche method” —  from highest rate to lowest — will save you the most on interest charges.
Additionally, there are 0% balance transfer cards that you may be able to get, depending on your credit score. The higher your score, the better terms you can get overall.

Or, a personal loan could help you consolidate the debt. “These rates go as low as about 7% if you have good credit,” Rossman said.
You also should consider whether you can reduce spending or increase your income, which could free up some money.
“You could take on a side hustle, sell stuff you don’t need and/or cut your expenses to come up with more money to throw toward your credit card debt,” Rossman said.

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