In the wake of financial struggles that 2020 presented for millions of Americans, many are hoping that 2021 will be a year of recovery. Many have had to defer loans, bank on eviction moratoriums and learn to live lean. Though the year is new, financial responsibilities are not. Here are a few financial surprises you need to know about, and how to mitigate their effect on your budget.
Student Loan Forbearance Ending Soon
Federal student loans have been in forbearance since March 2020. This financial break ends on January 31st, 2021. This means you’ll need to start repayment and interest begins to accrue again. If you have had financial hardship, job loss or other major financial changes you may need to reach out and request an income-driven repayment plan. This means you’ll pay based on how much you’re making rather than a higher monthly payment.
Credit Card Debt
If you had to rely on credit cards during leaner times in 2020, make sure you’re making your payments on time before you get in over your head. If you are still struggling, reach out to your lender to inquire about hardship programs and explore other options for assistance.
If you had to rely on withdrawing funds from your retirement plan with the CARES Act, be prepared for a higher tax bill this tax season. You’ll owe 1/3 of the taxes on your entire withdraw on April 15th.
Many Americans don’t know that unemployment benefits are taxed. Be sure to file your taxes, even if you can’t pay the bill. Make arrangements with the IRS for a payment plan.
Many employers chose to stop tax withholdings for the last quarter of 2020. This may have meant a larger paycheck for you, but those taxes are now being recouped during the first quarter of 2021. Be aware that if your employer participated, your checks will be smaller for a few months. Calculate this into your budget so you won’t be surprised.
You have time to prepare and rework your budget to accommodate any of these potential financial pitfalls. Create a leaner budget for a few months and cut the excess fat from your expenses so that you can get through these or other financial surprises without too much struggle. Knowledge is key.