The last thing anyone wants to do right now is reflect on this year.
It was dreadful. Let’s move on.
Before you do, though, it’s a good idea to take stock of how your finances may have changed during the last 12 months and make any needed adjustments.
Here are five areas of your finances to check on so you don’t get any unpleasant surprises in 2021.
If you’ve been taking advantage of student loan forbearance since March — when all payments and interest on federally held student loans were suspended — it’s time to resurrect those payments.
Forbearance ends Jan. 31, 2021, at which point you start owing and accruing interest on your student loans. Don’t delay reaching out to your student loan servicer.
If you’re on the standard repayment plan and are unable to make the payments, apply for an income-driven repayment plan, which could substantially reduce your monthly payments when the forbearance period ends. If you’re already on an income-driven plan, update your income to modify your monthly payment.
Don’t let the ghost of credit card purchases past haunt you in 2021.
However, if you’re having problems making payments, you should reach out to your lender to ask them about assistance or hardship programs.
Start by looking for a customer service number on a copy of your bill for your mortgage, credit card, auto loan or other loan. When you call, have your account number and a clear explanation about why you will be unable to pay the bill. Be sure to ask about all your options as well as how your payments, balance, interest rate and credit score could be affected.
Early Retirement Withdrawals
If you took a CARES Act withdrawal from your retirement account, you won’t owe the 10% penalty you’d usually owe on an early distribution before age 59 ½. Be prepared for the tax bill, though.
Normally, you’d owe income taxes on the entire withdrawal when you file your return for the year, but the CARES Act lets you spread the bill over three years. That means you need to be ready to pay one-third of the taxes by April 15, 2021.
If you received unemployment compensation in 2020, you may be in for a shocker. Your unemployment benefits are taxable, but more than one-third of Americans didn’t know it.
If you didn’t have taxes withheld from your jobless benefits, make sure you file a 2020 tax return even if you can’t afford the bill. You can work out a payment plan with the IRS, and you may even qualify for certain tax credits that can offset the amount you owe.
The IRS says employers that stopped withholding payroll taxes for the last four months of 2020, as ordered by President Trump, will have to collect those taxes during the first four months of 2021. That means if you’ve been getting a bigger paycheck as a result of the temporary tax holiday, start preparing for a smaller paycheck now.
Make a bare-bones budget, and set aside any extra money you can so you’ll be ready to live on less.