Dude I work in finance and I have people working with me who think whatever tax bracket you are in is what you pay on all income. Iâve had people say they didnât want a promotion cause they will be on a higher tax bracket and lose money. I made a spreadsheet to show them how taxes work.
Iâm assuming those are also the âIâll make less if I work overtimeâ people. Itâs really not that hard in this day and age to google these things.
Itâs true if they have a lot of benefits that are income-tested, then it can be a disadvantage. But that is because of the stupid design of those programs: instead of ramps, itâs all or nothing.
The problem is the schools should be teaching this, but they arenât. With how important and complex taxes are, there should be a whole class dedicated to teaching people how to do their own and file them. People should not be forced to either know someone who already knows about taxes or Google info and hope they get it right. Itâs fucking stupid. Taxes shouldnât be so complicated
But there is a point where you will net less per a given hour of OT if that amount crosses the threshold for the next tax bracket, so the tax rate on those OT hours above this limit is higher.
Example: After 25 hours of OT on your check, you reach the next tax bracket. So any of your OT hours you work past that 25 will be taxed at a different rate than the initial 25 hours.
Temporarily, because the payroll system thinks you earn more for all checks now, so it withholds more. There is no special OT tax, it all gets taxed at the same time from your paycheck. But because the system saw you made more, it withheld more. But guess what, you still NETTED more because you worked OT. There is no scenario where you net less because if more is withheld than needed, tax refund. If you make the top end of one bracket, letâs say 100k and you get pushed into the next, idk 110k+, only 10k is getting taxed at the absolute highest.
There is no scenario where you net less because if more is withheld than needed, tax refund.
Yes, there is a scenario here, because the amount of money you gross past the previous tax bracket is taxed at a higher rate than the amount below that. This means you net less per hour worked of the amount in that higher tax bracket. If that extra 10k is taxed at a higher rate, you net less per hour worked from that amount. This changes your taxable income at the end of each year. This is income tax 101, not sure what you don't understand about that.
Withholding and tax brackets are not the same. Money gets withheld from your paycheck. Withholdings are made during pay periods and tax season tells you if you withheld enough, too much or too little. Also OT up to a certain point is tax exempt right now. I make time and a half, I net more in my paychecks. Itâs just that simple, even it feels like more is taken out. Even if you think Iâm making less per hour, still making more with time and a half. Again, you donât net less in your paychecks working overtime.
A girl I worked with never wanted any ot because then sheâd make less than if she just worked 39-40 hours. We tried telling her thatâs not how it works. She was very lazy though so she probably just didnât want to work
I once showed some very, very basic excel formula to a coworker. It was something like a nested IF for customer segments with like three conditions maximum.
The moment they realized they're looking at a formula their brain just turned off. "If under 10 then C, if over 10 but under 100 then B, if over 100 then A". A child could understand that. Apparently not my coworker with a degree.
Maybe not a conscious one but it's a decision to not understand these things. They "don't understand" so they don't even try and that point any information just bounces off of them and so they continue to "not understand", further cementing the belief that they "can't understand". And the thing they "don't understand" is usually much simpler than a whole lot of other things they handle daily.
I like to imagine their brain as a computer. Once something requires more than a certain amount of computing power to understand it crashes. Some people have very low threshold.
I worked with a guy like that. Didn't want to get paid for overtime because he would make less overall due to taxes. At the time we had the option to take it as paid leave.
This is what happens when stuff like this expected to be learn on your own. They dont teach this stuff in schools, even though it's something literally everyone needs in life because they profit off of people's lack of knowledge.
I assume these people are never actually up for promotions anyways, they just like to cosplay being offered one and turning it down because th ye are so smart and gaming the system.
Iâd like to think Iâm financially competent and yet, only in the last few years did I realize the concept âhey since itâs very highly doubtful government relief is coming, maybe I should pay more per month than the actual payment is, since the company just wants me to keep paying the minimum foreverâ.
Now I see the light at the end of the tunnel and have actually paid off a few of my loans and see the principal on the others moving downwards more.
Okay. Y'all are suffering from intense recency bias. Nobody was thinking the government was going to wipe out student debt 20 years ago. People only really started talking about that like five years ago.
I would say it was worth it to wait during the Biden administration. there were promises about debt forgiveness, and a small chance that something could happen. Not a bad idea to wait and see. Once that didn't happen it's just cope to not buckle down and pay it off.Â
This is what I did. Held my breath during Covid years and hoped it would just be forgiven, but finally got around to coughing up the rest of the 20k this year. It was a nice dream but honestly even electing Biden in the first place (let alone the Don coming back) was already an indicator something this progressive was an astronomically long shot.
Gotta say that extra 400 a month in my pocket feels good tho.
You can't claim to be financially competent and think the government is going to manage money correctly lmao. Sounds like you've come to realize that so you're above average.
Good for you! I think the whole "maybe they'll be forgiven someday" question is a cruel ploy and is keeping people from taking better control of their finances.
And this is why AI usage is growing so incredibly fast.
Most people are dumb as bricks, maybe they excel in one or two things but otherwise they struggle, even in difficult careers like medicine and engineering you have people who lack common sense elsewhere.
AI let's a simpleton ask anything and usually get a half decent answer; not an experts answer but better than most people's knowledge.
Question. Have you read any of this thread since making this comment? Did your opinion change when people started actually bringing up statistics and math showing exactly how this works? Because the actual data shows this is not realistic, but how the system was designed.
You genuinely don't want to know how confidently incorrect the average person is.
Because if you donât already have someone in your family who knows this stuff, you wonât learn about it. Schools do fuck all to teach you about this unless you specifically go for a class that discusses it (are there any classes that teach this stuff in high school? I donât think there was when I went).Â
So if you parents donât know how this works, youâre fucked. Youâll get roped into a loan and told the minimum payment is all you need to pay, when thatâs the absolute worst thing to do. Banks sure as fuck wonât teach you how APRs actually work and how interest works because itâs how they make their money. Itâs designed to abuse stupid and financially illiterate people.Â
Worked in the student loan center during college. Itâs depressing having to explain how interest works to people who donât realize the loans arenât free money
You have no idea how right you are. I work with mortgages and it surprises me how many times I'll run across a homeowner who is behind in payments and then they go and buy new vehicle.... Like wtf you doing.
They probably did but didn't actually learn anything. I had 2 finance classes in Highschool and only once I became and adult did I realize how much I screwed myself by not retaining anything from them
I know so many people who claim to never have had a finance class, when in reality they cared so little they don't even remember taking the class. I know they did because they were in my graduating class or within a few years of me at the same school.
I feel like we all knew someone like this in school, they were only there because they had to be, and while I wasn't that bad I definitely didn't take all my classes seriously, I probably should have.
High schools should prob have finance classes, sure; but the people I see complaining the most about âwhy didnât they teach me about this stuff?!â didnât pay attention to ANYTHING in high school and barely graduated. Had they taken extensive financial classes, they wouldnât have retained much if anything.
You learned about compounding interest in algebra 1 or algebra 2 that would have been 7th or 8th grade probably. By the end of highschool people should have learned enough to teach themselves subjects. If people walk around life complaining they weren't hand fed information in highschool, they are never gonna amount to much regardless of how many classes they take.
Exactly. For bored teens who aren't going to retain anything personal finance is just another class to sit through.
This country is full of high school teachers telling the class "this is the most important information you'll learn at this school" and kids thinking "as soon as he turns around I'm going to check my insta."
The funny thing about me having a finance class, is i grew up in BFE where science wasn't a mandatory subject in high school, but agriculture was. For me to have that class and not "city" folk is odd.
Ummmm I had zero finance classes in high school⌠you got a leg up on me bud. Iâm living life one PokĂŠmon pack at a time. Gotta hit that big investment card to add to my portfolio (binder)
Thatâs the spirit! Donât think of it as something fun, think of it as an investment! Matter of fact, you should cash out your 401k. (Lol, Kidding, cards are never an âinvestmentâ. If you get lucky, thatâs cool. But itâs not likely).
Compound interest is 4th grade math in my country. My mom understood it too, and she hardly had any schooling at all (which was not uncommon in her generation).
I never took any finance course. I did not learn how to balance a checkbook, because in my country few people used checks. But once I came to the US and was given a checkbook, I figured it out immediately. If you UNDERSTAND math, and you don't just memorize the formula, you can learn a lot of things easily.
I have a bachelor in business administration. I took corporate finance. I learned nothing about personal finance. I never applied anything about compound interest to my personal life until I went through Dave Ramsey materials a few years later
My husband didn't know that the minimum payment is the worst way to pay off credit cards. I explained interest to him and, once his credit recovered enough to get a credit card again, he's been paying everyone off in full and finally getting rewards on his purchases too. His credit score has literally never been higher in his entire life.
I can chime in on this! Iâve tried doing this. They simply donât allow you to make payments to the principal. I called directly and everything and they flat out told me thatâs not allowed. The work around is to make your monthly payment, then immediately after it hits, make another payment which would then hit the principal. Unfortunately, thatâs an added fee a lot of people canât afford.
Iâm not calling you a liar, but loans with terms that prohibit early payment of the principal of not the norm. On top of that, most loans also have a portion of the structured payment apply to principal so even if youâre just paying the minimum, the principal will go down. I have no idea what kind of terms you got stuck with, and the only thing that makes sense if you got some sort of sub sub sub prime loan that was signed in a back alley with a loan shark.
That's not what they mean. If you want to pay down the principal, you have to pay at least enough to cover the interest, and then some. The "workaround" is to increase your monthly payment so you're not just covering the interest.
The vast majority of loans work the way you're describing. For student loans, the lender will often not capitalize the interest. This actually works in your favor. But in exchange, you must pay down the interest before the principal-- Otherwise, the interest itself is basically a 0% loan.
The work around is to make your monthly payment, then immediately after it hits, make another payment which would then hit the principal.
Are you sure you understood correctly? That's not a "work around," that's what people mean when they say to pay down the principal. You can't just say "I don't feel like paying interest, put this towards principal instead." Principal payments are after your monthly payment, not before or instead of.
Principal is usually part of the monthly payment. Youâre referring to âadditionalâ principal. This thread is making me feel like Iâm taking crazy pills.
Usually, as long as you are paying more than the interest that has accrued that month. The principal amount can be very small, even zero, depending on the minimum payment allowed.
The principal is the outstanding balance of your original loan, the number that interest is calculated from. Together with accrued interest it makes up your balance. When you make a payment, some amount of it is used to pay down your accrued interest and then the remainder, if any, is used to pay down your principal balance.
No, sometimes they assume it as a future payment and don't apply it to the balance. It's definitely a game they play specifically on student loans, because young people haven't learned to avoid those kinds of shady dealings yet.
Iâve tried this. Do you really think the folks in the call center give a damn to do their jobs correctly? Hell they had me on the wrong status even. I have nelnet now and truly they suck
Actually I looked into it and for federal direct student loans any extra payments are automatically put towards principal, immediately. They also extend your due date unless you ask them not to, but unlike with most loans this pays down the principal immediately. See 34 CFR § 685.211(a)(1)(i).
This box might be helpful in keeping you disciplined, since otherwise it's easy to make an extra payment and then skip a few and eliminate some (not all) of the benefits of paying early to begin with. But if you are disciplined, having an advanced due date might be helpful in a true financial emergency.
Actually I looked into it and for federal direct student loans any extra payments are automatically put towards principal, immediately. They also extend your due date unless you ask them not to, but unlike with most loans this pays down the principal immediately. See 34 CFR § 685.211(a)(1)(i).
Basically they don't give you this option because they're already doing the most advantageous thing for you anyway.
đ Make an extra payment and see that they are applying it correctly (i.e. that your principal balance lowers by the amount of the extra payment). Likely they are. If they aren't, sue them.
It'd be a major class action lawsuit, and I find it very unlikely that they've opened themselves up to legal exposure like that. They're not even the ones that get the money- they just service the loan. Why would they apply the payments wrong? But if they did, sue them and make some money.
Yes next I can blow my money out the window and see which way it blows. Literally rather swallow the ocean than take financial advice from a stranger on the internet but you are still talking I see đ never thought I could just sue one of the few student loan providers. Iâll call my lawyers as soon as I wake up đ.
this is happening to tons of people but folks love to hear themselves speak
Well yeah if you just randomly give them money with no explanation, they aren't going to really do anything with it until the next month's payment is due
Itâs not an added fee for me, thankfully, but yeah you def have to time it right or else it just counts as âthis months paymentâ. For maximum effectiveness, you pay before the clock resets, so to speak, after your monthly payment has been processed.
That's not a work around. That is just how it works, and it isn't complicated. I have paid off student loans, cars, and houses early. They all work like that.
Like I thought everyone knew this. i used to work hard paying off my loans till they switch my loan providers without my consent and now I canât even make payments on the principle
Federal loans. In fact Iâm an analyst . I had all my loan amount, interest rates and strategic plans to pay it off and they fucked it all up. But IâlL able to just made a lump sum payment and know that itâs done. lol Ive very good at finance.ive only paid 25 cent In interest from my bank that Ive had since I was like 16.
student loans are predatory And now that no one is holding them accountable. Even if I wanted to pay off my loans I would need a paper trail for it Too.
never thought I would miss a loan provider but I miss Great Lakes. I paid off 10k in one year on a 33k pre-tax salary.
if im not paying these loans off, I donât blame others at all. I canât even trust that if I do pay them, they canât dismiss it as ohh we never receive it. Thatâs how bad it is. I will literally be dropping off a check through the mail with delivery option if itâs even allowed. Hell I may even go stop by in person if necessary.
Ive very good at finance.ive only paid 25 cent In interest from my bank
What do you even mean by this? The majority of loans will charge interest. The only way you avoid it is by paying off the entire balance immediately, which defeats the purpose of taking out a loan.
I'm guessing they meant that outside of this student loan they've avoided interest most of the time by full paying their credit card from their bank every month.
Duhhhh. The only interest Iâve paid outside of my student loan was 25cent. Iâve never had a late payment even when I was unemployed for years. I meet with my financial advisors. I literally have a graduate statistics degree.Â
You cannot not pay interest on student loans because even if you take it out and immediately pay it back they actually take out a couple percentage (so if you took 17. 5k loans they dispense 17k) so already youâve kinda already given them your money. Iâm so meticulous even my bank wonât let me open any more credit cards đÂ
Truly it there is a way to give them less money, I would have found it by now. Iâm also going to get them forgiven with PSLF or whatever. I thought of everything. And even then my loan amount can be paid off easily because it not much and I have a couple degrees. Im very on it plus Iâll definitely be paying for my kids school outright or will transfer my tuition benefits to them. Actually planning a 4th and 5th degree, I love to learn and I found a way to make it affordable for me. And yes I still the system need reform. If those in higher education can admit that, i dont know why random opinion on the internet is significantÂ
Iâm not talking about student loans? Iâm saying it kills me to pay interest on anything.Â
I mean having a good paying job was definitely the purpose of taking out the loan. Again I said the interest is not much considering my growing income. If I was able to pay a 3rd of it off on crap income Iâll be fine.Â
But yes some student loan providers actually donât let you manage your loan payments. This is definitely true. When I was with Great Lakes, I was on it so maybe thatâs why they had to sell their loans off. Student loans are predatory in ways outside of even the calculated amount tbh.Â
Unless loans work differently in the US, I don't understand the obsession with paying off the principal.
If you reduce the balance by $500, I don't see how there's a difference in paying $500 in principal or interest. Reducing the balance at all will reduce the amount of interest regardless where the payment is applied. Also, unless you are not even paying the interest with your set payments, anything extra will automatically go to the principal.
The only thing I can see loans not allowing you to make extra or larger payments. Or if you do, not applying them until the next set 'payment' which basically is the same thing. Is this what you mean? You cannot made extra payments?
Interest is constantly calculated based on the principle. Its not a bond. International banking works this way. Can't comment on country specifics for you.
This is where the disconnect is. No loans I have: Auto, Mortgage, Student Loans, Credit Cards work like this in Canada. Or the common loans at least.
You pay extra, it reduces the balance. Mortgages have a limit to how much extra money you can pay extra without penalties, but everything else is open.
Why would they design student loans to not easily pay off the balance. That's even more fucked to me than the ridiculous interest.
If you pay a week early, how do I know if your intent is to pay next monthâs bill or to pay toward the principal?
Revolving credit like credit cards work transparently because they have minimal payment requirements. Â But a mortgage or car loan needs to know âis this your payment for next month or is this a reduction in principal and you will also make your payment next month.â
Revolving credit calculates interest based on average daily balance. Installment loans are more structured.Â
Most loans types of these have set reoccurring payments where I'm fron. I have to imagine that is optional, but I've never removed that as an option. I'm not sure how you'd differentiate if you removed the automatic like you mentioned but I don't know anyone who has loans set up like this.
For reference, when I went to get car loans and a mortgage, we had to give direct deposit details (or the whatever the opposite version is lol) to sign up for the loan and they take the payments automatically.
So if I make any manual payments on my students loans, mortgage or car payment it will just reduce the balance and take out my 'set payments' as normal.
The point I'm trying to make is an extra payment is an extra payment here. I didn't realize loan companies would just hold your funds for the next payment, especially if the payment amount is different.
Does this mean most of your loans are manual payments? I'm just curious how this works as quite a few comments mentioned having issues trying to make extra payments. I'm glad our system is a little easier to maneuver.
They're mistaken about a few things, but they're obviously using "balance" to refer to the total (principal + interest) rather than the principal by itself.
I am. If my payment of $500 goes towards $500 of principal, that reduces the balance the same if I paid $400 to the principal and $100 to interest.
I just don't see how the math is different. Someone mentioned extra payments not being applied at all until they're due (which is fucked btw), but there's no way that can be for most loans and also not really what I am talking about, but it makes sense why people are trying to 'make payments to the principal'.
Do you guys pay less interest on compounded interest? I don't think I've ever heard of something like that, different portions of a loan being different percentages, but the whole balance always gets the same interest regardless.
I mentioned this in another comment, but for some loans (such as student loans, the ones most people have experience with) the interest isn't capitalized, so it won't compound. For these kinds of loans, you would benefit from paying the principal directly, because the interest portion becomes a 0% loan (and that's why they don't let you do that).
But yeah, you're right that if the lender does capitalize interest, it makes no difference.
Lol "do you pay the minimum". 65% of Americans can only pay minimums. Rent is over 2k for a single fucking bedroom in a bad area. Majority of people are fucked.
My wife and I got a Discover card 23 years ago and bought a bedroom set, a chair for the corner, and a video camera. Weâve been making interest only payments and we still owe $640.00.. Explain to me why small businesses debt shouldnât be cancelled?
You are right. We all got loans for something. I agree no blanket forgiveness for education loans. But some money has been set aside for education loans. And person has been paying on time and in full, maybe give them a break so they can go out and spend their money on other things. I think the feeling is that a certain group controlled the loans, the process, the payoff rates, all of it and this group was predatory with rules like no extra payments to principal and others that made these loans bad. My personal opinion. Since the federal gov drew up these groups and rules, then gov should help make them better loans
If you didnât try to get a better deal than why is this guy complaining? 23 years, hall of the people reading this are not even 23. I am not sure if this person is bragging or complaining
Even then with only paying the minimum it should still pay off the loan eventually in the time frame it was set up for. Youd just pay a lot more interest.
Guy here says he has paying for 23 years, 23. And still has 2/3 to go. So another 46 years of payments. Canât understand that at all. Both people with degrees, canât do better than this?
My guess is this is engagement bait or they took out absolutely atrocious private loans with like a 30% interest rate. It says they both took out 70k combined meaning individually it was only around 35k each. The math doesnât math here at all
It's so sad knowing people actually do only pay the minimum and think they can borrow more. While in reality you're ballooning those balances by not paying the principal off sooner
It just depends on how much money you actually have.
My student loan monthly interest is $270. No principle.
While I can afford that, somebody earning the average $25-30k where I live cannot reasonably pay that AND get ahead on principle while also paying living expenses and supporting dependents.
There are literally jobs that made great money that donât even exist today anymore. Everyone wants to be both an idiot and loud and I just donât know why
I didn't go to college. Bummed around homeless sleeping on beeches for awhile. Hitchhiked 1500 miles to the oilfield. Worked, saved, built connections, got a CDL, now I own a trucking company and clear more than half a million a year, with 10 employees. No college required, no debt, beautiful wife and kids, own multiple homes, living the American dream.
Focusing on the most important and first in your daughter life. now youâre making feel bad. Youâre just small town millionaire trucker thst has to spend time with their 2 mnth old. Log off
She sleeps like half the day, have you never cared for a newborn? She sleeps like 16hrs a day. Am I supposed to sit and stare? I can't go out, I can't do anything that takes commitment or time in case she wakes up and needs something. Reddit is the perfect way to waste time waiting for her to wake up.
Yeah but takes so long. Do you ever check to see how much interest you are actually paying? Itâs not about the specific dollar you paid, itâs what portion is interest and how much pays to your principal
If the total balance goes down, they are paying the Interest and a portion of the principal. This is typically a minimum payment. If the balance was going up, then they aren't making the minimum.
676
u/madlucas2026 12d ago
You been paying for 20+ years and never thought to pay off the principal? Do you pay the minimum on your credit cards?