How to Cancel a Credit Card

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Not licensed in Alaska, Hawaii, Georgia, Massachusetts, North Dakota, South Dakota, and Utah. A mathematician and a financial advisor sat down one day to discuss credit cards. After much deliberation, they determined that credit cards have three dimensions, length, width, and debt. We get a lot of serious questions about credit cards here at MoneyWise Live. One of the most frequently asked is, how do I cancel my card? Well, today, Kingdom Advisors President Rob West has the answer. Then we take some calls from all across the country. However, today's edition of the program is not live. We are prerecorded.

I'm Steve Moore. How to cancel a credit card. That's next right here on MoneyWise Live. Well, Rob, we might be tempted to think that we just have to call the credit card company and tell them we want to cancel, but there's really a bit more to it, isn't there? There is, Steve, especially if you want to minimize the impact on your credit score, which we'll get into in a bit. But first, you have to decide whether you should cancel the card in the first place, because by itself, there's no benefit in canceling a card. It won't raise your credit score. So, when should you cancel a card?

Well, consumer expert Clark Howard says there are two reasons this makes sense, and I would agree with him. First, if the card has an annual fee that's more than the benefits you receive from the card, put plainly, if you're paying a $135 annual fee, which isn't uncommon, but you're only getting $100 a year in rewards, obviously, you'll be money ahead by canceling the card. The second reason that Clark puts forward, if you're running up a balance on the card, if you can't resist the temptation, probably best to cancel it.

You may even want to throw it in the oven and turn that way up. Fair enough. Now, you mentioned that canceling a card will impact your credit score. How does that work? First, you have to understand the five factors that make up your credit score. Your payment history, whether you've paid on time or late, makes up the biggest component at 35%. That's followed by credit utilization, how much you have in outstanding balances versus your total available credit. That's another 30% of your score. Then there's the length of credit, how long you've had each account open. That's 15%. New credit counts for another 10%, and we round that out with your credit mix at another 10%. That's whether you have just a credit card or if you also have a car loan and maybe a mortgage. Lenders feel that having different kinds of credit makes you actually a better risk. Okay, one to carry the three, divide by two. I've been adding these up, and yes, it does come to 100%.

You're always watching. So, why does canceling a credit card in most cases actually lower your credit score? Well, it's because closing that account can affect three of the five factors making up your score. Your credit utilization, the length of credit, and the credit mix. Unless the card is completely maxed out, it will mean you have less credit available. Eventually, it'll cause the length of time you've had the account to drop off your credit report. And it may also eliminate one type of credit in your overall mix. So, it has the potential to negatively affect 55% of your credit score. If you want to cancel multiple cards, you can lessen the impact by spreading out the cancellations.

I would say one or two every six months or so. The impact isn't a lot and it's only temporary, but you don't want to increase it by canceling several cards at a time. All right, now how do I actually cancel the card? Well, first, you want to redeem any outstanding rewards you might have on the card. If you cancel it first, it may invalidate your reward points. Then, you want to pay off any outstanding balance.

Technically, you can still cancel with a balance, but you won't have use of the card and you still are accruing interest. Next, and this one can save a lot of headaches, check your card statements for the last few months to see if you have any automatic charges. For example, maybe you have auto pay set up for your car insurance. If you find any automatic payments on your statements, put them on another account.

If you miss any, it could result in late fees. Now, you're finally ready to call the credit card company to cancel. They have different procedures for going about this, though, so ask for specific instructions. For example, you may have to do it in writing. On the other hand, you may be able to cancel the card entirely online. So, check the issuer's website to see if they have a procedure for canceling. If so, follow the directions carefully to make sure it goes through. So, that's it then?

Not quite. There's still one more step to make sure it's actually been canceled. Get your credit reports from all three bureaus. You can get them at AnnualCreditReport.com.

Probably best to wait 30 days from the date you cancel it, but you're going to want to make sure that the cancellation is reflected on that bureau's report. Okay, and that's it. That's how you know when to cancel a credit card and how to do it and how it might impact your credit score. This is MoneyWise Live with Rob West. We're pre-recorded today. Don't call, but we'll be right back. Great to have you along today on MoneyWise Live. This is a program and a place where we try to find God's wisdom for your finances to the best of our ability.

We'll see what the Bible has to say about it. Now, today's broadcast is pre-recorded, so please don't try to call in. If you do, well, no one will answer, but we do have some callers all lined up in advance just for today. So, let's begin. Out to Spokane, Washington. Ed, how are you today, sir? How can we help?

Outstanding. Real quick question. What would your counsel be to fellow believers in terms of giving what God has prospered them on? For example, a businessman might generate $500,000 in revenue, but in doing so, they incur $100,000 in expenses.

So, are they expected to give on the $400,000 or on the gross $500,000, as opposed to a salaried person who maybe has $100,000 in income, but no expenses? Right, right. Well, there are no Christian businesses. There are business people that are Christians, right? That's what I meant, yes.

Yeah. And so, what we do is we look at what is my increase as the steward of God's resources, as opposed to what is the revenue of the business? And so, the question would be, in the case of an S-Corp where everything flows through, yeah, it doesn't really matter what the gross revenues are of the business, because there may not be anything left over after all the bills are paid, and if we tithed on the full gross, the business would go out of business. So, we need to look at what is truly the increase to the individual, the steward, that is then giving on that as an act of worship to the Lord.

And what I would say is a couple of things. Number one is any salary that's being paid out of the business to the individual, clearly that's the increase. And then any profits that's retained in the business, which you could look at on a quarterly or an annual basis, where it's either held in the business as profits, or it's paid out over time as a distribution of profits, doesn't matter, that would be where you would tithe, because that's part of your increase. But certainly not on the gross receipts, that just wouldn't work. I mean, think about a business like a grocery store.

I mean, you know, the margins are so thin, you know, if you took 10% off the top, that just wouldn't work. So, I think you always have to look at, you know, what is my increase personally and from my business, what's actually coming to me as income or profits, regardless of whether it stays in the business or not. Does that make sense, Ed? Absolutely, and I'm glad there is that clarity. You know, I don't listen because of my schedule.

I can't listen to you all the time, but that's a very good balance, and it's encouraging to hear that, because I think a lot of times Christians get under bondage, and they don't understand, and your principle is very good. Appreciate that. Excellent. Absolutely, Ed. Thank you for calling.

I appreciate that encouragement. Thank you, Ed. All right, let's go to Center, Alabama. Rhonda, is Center like right in the center of the state, or what's happening in that regard? No, Center is actually northeast Alabama, so we're about 15 miles from Georgia.

Oh, okay. Well, you're in the center of our radar right now, so with that said, how can we help you? Well, six years ago, we paid off our house and moved to Alabama, and in doing so, we did not have credit cards because we had already paid off all our credit cards, so we no longer had a mortgage payment, and our car was paid for, so our credit plummeted. Literally, we went from the 775-780s down to 565, so I restarted. It's like being a college student or a 20-year-old, rebuilding back up, because I couldn't believe when I looked at it how it had gone down. Even to this day, I can never get over about a 770-775, and when I click how to improve my score, it says, well, you don't have home loans or auto loans.

You should try one of those. Right, so your credit mix is... So that's the only way to hit it up? Yeah, unfortunately, in order to get the top tier of credit, the credit mix is going to be a pretty big factor there. Are you carrying any balances currently? No, I pay it off every month. When we use the credit card, we just pay it off.

And if the only open account is the one that you're using on a monthly basis, how does the average charges, even though you're paying it off, before you pay it, how do those charges relate to the total available credit? I'm within anywhere from three to nine percent, because I usually use it for gas and groceries and all that, and then just pay it off at the end of the month. So you're using 93 or more percent of the available credit before you pay it off? No, no, no, no, it's not that high. We're only using about nine percent of it.

Oh, okay, great. Okay, so it's below 30 percent. Yeah, so I think if you don't have any late payments, and you're not pushing the utilization even before you pay it off above 30 percent, you're not out there seeking new credit, and you haven't had a major change in employment, then really the only factor you've got here is a lack of credit, because when some of these accounts were closed out, they may have rolled off the report, so they're old enough where they're no longer appearing. Certainly not reporting any new information, and the credit mix, which is, do you have in addition to revolving accounts, those are credit cards, do you have installment loans, mortgage, car, you don't. And so, you know, I think you're going to have to kind of settle with this high 700s, but the bottom line is, you know, over 740, Rhonda, you're going to qualify for the very best terms and rates.

So this is not going to work against you apart from just kind of being annoying that you're handling your finances so well, and you're not being rewarded for it, but apart from that, you're not going to miss out on anything if you ever did need to go get additional credit in the form of a new loan. So I think it's something that you really shouldn't lose any sleep over. Okay, thank you so much, and you have a blessed day. All right, you too. God bless you. Thanks very much. Alrighty, continuing on in Coeur d'Alene, Idaho. Hello, Tracy, you have a question today for Rob West.

I sure do. If I call one of these credit bureaus to get information on my credit score, what kind of personal information should I expect to be asked for? Yes, so if you call where to get your credit score, I'm sorry, I missed the first part of that. You know, like that TransUnion place you were talking about, there's three credit bureaus that we can call. So if I call one of them and ask about my score, what should I expect them to ask me, personal information wise? I see. Yes, makes sense, Tracy.

So a couple of things. Number one is if you want the credit report, you know, not the score, but the report, I would go to annualcreditreport.com. That's the website that's put in place by the U.S. government or sanctioned by the U.S. government and authorized by federal law for you to get free credit reports. Now, you could expect to have to not only give them your Social Security number and address, but you're going to have to verify that it's you by answering questions related to information contained in those reports. They might show you a list of addresses and say which one is yours. They may show you a list of finance companies and say which one are you currently doing business with. That will be the kind of information you have to give there. In terms of your credit score, you could go to Credit Karma, you could go to NerdWallet.

Even if you have a credit card, many of the credit card companies like Discover and Capital One and others are now offering free credit scores just by doing business with them. You're going to have to provide similar information to those, though. Now, if it's your credit card company, they already have all the information, right? Because you're logging into their account or their app and that's where you're getting the credit score. So you're not providing any additional information. If you're going somewhere like Credit Karma, you would be providing the similar information to AnnualCreditReport.com. Name, social, and you'd be verifying information contained in your credit report to prove that it is, in fact, you that's seeking this information. Are you concerned about that, though, Tracy, in terms of giving out that information? Yes, and that's why I was thinking one of these.com places, I never do anything online just because I've heard horror stories about people's identities being stolen and I do not want to go through that.

Sure, sure. And that's certainly legitimate. I mean, you know, more and more business is being conducted online. More and more people are transacting business, electronic payments, checking their financial accounts, making electronic transfers, banks, Venmo, Apple Cash. I mean, you know, we're moving quickly toward that type of commerce. And with that comes risk. And that's why you need to make sure you do things like have really strong passwords, change them regularly, don't transact business on public Wi-Fi.

Make sure you're checking regularly for spyware on your computer, you know, not clicking links and emails. But if you just want to stay away from that, do you have a credit card that you use or no? I do.

In fact, I have two and I don't use them all the time, but I do use them. Okay. Do you happen to know if either of those, just as a benefit of having the account, offer free credit scores? I don't know, but I could find out. I never even thought about going to my bank. Okay.

Yeah. Check with your credit card company. Oftentimes they will.

If they won't, you can pay for a credit score from the three bureaus and they will charge you a small fee. But they've already got all this information. So if it was going to be compromised, it's already there. You're just providing it in order to verify that it's in fact you. But I'd start with your credit card company. They already have all the information too.

And at least you wouldn't be giving it out to a third party on the web. Tracy, we're going to have to say goodbye. We're out of time, but we hope that information helps you. Great question.

I'm sure many others have the same concern. Thanks so much. Hey, you're listening to MoneyWise Live with Rob West. Today's broadcast is prerecorded, so we won't be taking any calls, but we have some calls lined up and some great information coming your way that I think you'll find usable at the very, very least. This is MoneyWise Live.

I'm Steve Moore. We'll be right back. Hey, thanks for being with us today.

It's MoneyWise Live and we go back to our phones. St. Cloud, Minnesota. Stephen, nice to have you there, my friend. What's your situation?

Hey, guys. So I'm just kind of wondering if it's better for me to buy a car with the money I've saved up or to save up more money for even a better car. So I have a $10,000 budget, I would say, for a car.

I don't need it right now, but I'm just curious what steps should I take to get the right car at the right price. Yeah, Stephen, I appreciate this question. Tell me just a bit more about the rest of your financial life. Do you have an emergency fund? And then secondly, do you have any debt? I have an emergency fund and I have no debt. Okay. And the emergency fund you're speaking of is in addition to the $10,000 saved for the car?

That's right. Okay. And are you contributing to some kind of retirement plan?

I am. Excellent. And you said you don't need a car right now, so you have other means of transportation? Yeah, I've got a work vehicle my boss has blessed me with and just my regular personal vehicle that I have paid off. Yeah.

Okay. Well, I think we would prefer, I mean, just kind of as a starting point, we would say try to look for a two to three-year-old, if not that three to four-year-old reliable car that gets a good rating on Consumer Reports, meaning that it tends to be reliable, it can be repaired without an exorbitant cost, and you'll want to have it checked out by an independent mechanic who can look it over. And if you look at cars today in that two to three-year range, a good quality car, nothing fast and flashy, but just something that's going to get you where you need to go in a reliable fashion, you're probably going to want a little bit more than $10,000. But the great situation is you've got another vehicle, it sounds like you've got all the other boxes checked at this point, and so if you're keeping your lifestyle at a minimum, which I suspect you are given what I've heard thus far, you could probably continue to save. What I would do is go out and look for the make and model that you ultimately want to settle on, that's a newer car, that really is going to last you for a while, something you can buy and just plan to drive for a long, long time. We just ended the last run of our last vehicle at 230,000 miles, a Honda that just did great for us, and that's the way I prefer to buy and use cars. But if you're going to do that, you're probably going to want something that's a little bit newer to start with in that two to three-year range.

So I think as you go out and look for what that is, you may settle on $15,000 or $18,000 that you need to buy that car, maybe even a little bit more. And so perhaps you take this opportunity to continue to save and delay that purchase until that time. Steve, any other thoughts you might have? No, I like everything you said. I did want to ask one other question to Steve. Steven, Rob referred to it as fast and flashy. Is that what you're looking for?

I mean, are you trying to impress someone, and what's her name? No, not necessarily. Yeah, no, just like you said, car A to B.

As I was listening to you, another thought came up. So what if, God forbid, I needed to have a car ASAP, my car breaks down, what would you do? Yeah, well, I think at that point you could decide, do I either want to take what I've got because I have a conviction, I'd like to stay debt-free and just go buy the most reliable, best deal car you can, or do I want to take on a small note and put 50% down or put 70% down and borrow a small amount to get into the car that I want? And because you have handled your finances so well to this point, I suspect you could pay that off in a hurry, just given some of the margin that you have. So I think you could go either way at that point. It really would come down to A, your budget, does it fit, and how quickly could you pay it off? And B, do you have a conviction that you just want to remain debt-free? And if you do, then I would just trust the Lord will provide the right car with the money you have.

Yeah, and I'll tell you, I hate to go out on a limb or offend anyone, Stephen, by mentioning names and models and things like that, but if you were my son and you had ten grand, I would say buy a Toyota, buy a Honda, anything that looks good and has moderately low mileage for $10,000, and more than likely you're going to be just fine for the next four or five years. And with that, we're going to have to let you go. God bless, thanks for calling, and we'll pray that God directs you to the right automobile. You're listening to MoneyWise Live.

He's Rob West, always a little fast and flashy. I'm Steve Moore, fairly mundane and understated, and we'll be back with more. Oh, here, this phone number, 800-525-7000. Please stick around. And we're back. Good to have you along today.

It's MoneyWise Live with Rob West. I'm Steve Moore. This quick reminder, we are not live. We're taking some time off today. The boss has been very generous, so we are prerecorded, but I hope you'll stick around. Some interesting calls coming up, so please don't go away. Let's continue on by going to Terre Haute, Indiana. Hello, Jackie, what's your question for Rob West? Hey, guys, I'm so grateful. Thank you for taking my call.

Sure. I'm in a situation, I'm in the middle of a divorce, not a good one. Just add there's an order of protection, so I don't have support or anything on that side, like sometimes people do. And purposely, through the court system, he kind of pushed me to pass the three months that they allow you to go with your mortgage. The lawyer kept telling me it was okay, that he got the back pay, and I'd be able to make up my mortgage payments.

He didn't, and it kept going to the court system, and it ended up being passed out. So I got three months passed down. I couldn't, with his then forced child support and spousal support, didn't have enough to make the three-month payment.

So they suggested I do loss mitigation. I started doing that process. I didn't have a job, wasn't working prior.

We have an eight-year-old. And so by the time I got a job and everything seemed to start to get sorted out, and the loss mitigations were still going, COVID hit. And the job that I had was working in restaurants, so that quickly faded. And then it came to be a little bit of a relief because COVID, that whole thing kind of put foreclosures at a hold, which I didn't know at the time, but it did, I guess in my favor a little bit. But now we're in the situation that we're at still, and now I'm a year and four months in pre-foreclosure, they're still calling it. I'm really nervous that it's coming to an end, and everybody in my church has given me so many different ideas, and I listen to you guys just about daily.

And I thought I'd ask and see what you guys suggested. Well, Jackie, you've been through it, and I'm sorry to hear that. I know this has been a challenging season on a number of fronts, and certainly this home on top of it, I'm sure, is adding a lot of stress to your life. So let me just encourage you. God is on the throne. He can be trusted. His promises are true, and He is your provider.

He will never abdicate that role or responsibility or hand it off to anyone else or anything else. And so I'm going to ask our MoneyWise Live community to be praying for you as you navigate this season. I appreciate even in your voice just your positive spirit that you have, and certainly I know you need some wise counsel here. You know, the good news is that this is a year where lenders are accustomed to dealing with these kinds of things.

Pre-foreclosure is obviously just the first step in the foreclosure process, but really it's designed to give homeowners options to stay in their homes before a foreclosure. And so I think that the next step is really to engage them in a discussion. Perhaps you already have.

Perhaps you need to reopen those conversations. The reality, Jackie, is the foreclosure process is very expensive for lenders, so they want to avoid it if at all possible. And in many cases, they will work with you, especially this year, to lower those payments, delay the payments, restructure it through what's called a loan modification where they could take everything that's past due and stick it on the back end and just kind of reset the mortgage, which means you're going to pay more interest in the long run, at least you could restart under a loan modification and pick up with the current payments, assuming that you have the ability to do that with your cash flow, but at least you wouldn't have this kind of big lump sum that you'd have to come up with on the front end. So I think looking at a loan modification would be one option. You could check to see if there's any government mediation programs there in your state or even locally in your county where that would allow for an independent third party to sit down with you and the lender to see what might be worked out. Obviously, a short sale, if you're wanting to get out of this home, is a possibility. That would be where the lender accepts for the fact that you would sell the home for less than what you owe on the mortgage, and you could just kind of walk away if you were upside down. So I think the key right now is to kind of get into that process and see what's possible and use terms like loan modification or mediation if that's what you're looking to do.

Let's say they were to put everything that's past due on the back end. Do you have the cash flow to be able to resume the monthly payments on time? I believe that I do. It's close and it would be tight, but I know that I feel like I could do it.

I'm definitely not upside down. I've been here since the early 90s, so I owe this before the lawyer costs that are probably there under $100,000. And I have like $350,000, $400,000 equity in it. Okay, wow. Yeah, so that's tremendous. Yeah, so I think that's the key is just explaining the reality of the situation. Have you had that kind of conversation around these various options they might put forth? Loss mitigation, which I'm assuming is the same as the loan modification converter?

Yes, depending on what it is they're offering. But I think your real goal here, just based on everything I'm hearing, would be to take this amount that's in arrears and stick it on the back end, allow you to become current if you'll resume the monthly payments. That would keep everything current, get you where you're rebuilding your credit score, and get them, the lender, in a position where they're starting to collect the payments, which is what they're ultimately looking for, and they'll eventually collect every bit of interest they're entitled to get.

It's just that you don't have to come out of pocket right up front with this massive amount. So I think that's what you want to be looking for, and I would probably call and ask for a loan modification and to talk to somebody about that. Once you do, give us a call back and let us know what they say, because I think that's really the next step for you. Jackie, thank you very much for your call, and we'll continue to remember you and your family in our prayers. God bless you. Let's try to get one more in here today.

Muskegon, Michigan. Cheryl, what's your situation? Hi. Thanks for taking my question. Happy to. I'm pretty much going to get right down to the nitty-gritty.

I've lost everything. I've come up a little bit, scraped enough for a USDA loan and bought a house in Muskegon. I'm allowed to work part-time, taken home about $350 a week, and I'm kind of wondering, I scraped together $1,000 and I would like to invest it, but every time I get with a company like the bank to help me invest it, I always lose. So I guess what I'm wondering is, what do you think about doing it myself online, even though I'm kind of ignorant on how to invest money?

That's certainly an option, Cheryl, and I appreciate the fact that despite the fact that you've had some challenges, you've got limited resources here. I'm sure there's more expense than there is money in most months. You're wanting to be disciplined and systematic in putting some money away, and you absolutely can do it yourself. What do you have currently set aside for investments, and what potentially are you adding to it every month? Well, I have $1,000. I could potentially maybe do not very much, because I am so tight, I might be able to scrape $100 here and there a month, so maybe $200 extra a month if I'm lucky, if nothing happens. I don't have a fund on a rainy day.

Sure. Yeah, I think you could use what's called a robo-advisor, they're very low-cost investment solutions that would be a great fit for you here. I'd go to either Betterment, betterment.com, or the Schwab Intelligent Portfolios, either one of those.

Open an IRA, set up an automatic contribution every month for what you have, plus what you had already set aside. You'll go through a tutorial and a question-and-answer process. They'll build an ETF portfolio for you of index funds.

It'll be low-cost, it'll be highly diversified, and I think it'll give you what you need. Thanks for calling. We'll be right back.

Thanks so much for including us in your day. This is MoneyWise Live. If you get a chance, even if you have to go out of your way a little bit, let this local radio station know how much you appreciate them and that you appreciate the fact that they carry MoneyWise Live each day. They have big choices and decisions to make at your local radio station about what programs to carry, and hearing from you will really help them make a decision, and it will help us stay on the air. Let's go back to our phones. Kalamazoo, Michigan. Hello, Jeff, what's your question for Rob West?

Hi. I'm just wondering if my house is too expensive for me to stay in. I have, let's see, a home equity line that has about $40,000 that I have spent out. On the mortgage, I have $161,000 left on it. It's about a $250,000 home.

I like it a lot. I don't want to move. And let's see, I also have a room available to rent out if I am going to stay here. I think I'll have to do that, which is fine.

Yeah, yeah. You said the home was worth about $250,000. Jeff, what is the total between the first and second mortgage? I missed that, that you owe. The total, let's see, so I owe $161,000 on the regular mortgage and about $40,000, so about $200,000.

Yeah, okay. Now, in terms of your spending plan, do you have a budget? Have you taken the time to actually look at both your discretionary and non-discretionary expenses and put all that on paper and determine exactly what your shortfall is, if any?

Right, I have. Okay, give me a sense of where you came out. Some months it is not too much of a shortfall, but some months it is a little bit of a shortfall. It is a little hard for me to tell because in the summer I teach private lessons, a lot of them over the summer, so I earn an extra like $6,000 and I am a teacher, so I have about $80,000 of income per year. Okay, all right.

Well, there is a couple of ways we can do this here, Jeff. I think the first thing is you have got to really have an accurate budget, and if I hear that some months it is working, other months it is not, perhaps one of the challenges is you do not have an accurate reflection of what is really going on, not only just the monthly recurring expenses, but the non-monthly expenses, being able to capture everything in there, even those things that happen once or twice a year. You have got to build in some maintenance, so we will often say you need to take a factor of 1% of the value of the home per year and be setting that aside in the form of a regular savings. Take one-twelfth of that every month and be putting that in savings because things are going to break down and need to be repaired in your house, and that certainly applies to your car as well. We might have a semiannual insurance payment or HOA dues. You have got to get a budget that has all of that in there, so I think that is the starting point.

I would even love to see you anticipate what you are going to have in the summer and then spread that out over 12 months where that goes into savings, and you take one-twelfth of that over the balance of the year and apply that to your budget to make sure it fits. In terms of whether the home is too expensive for you to maintain, I think there are a couple of ways we can go with that. One is, just as a rule of thumb, we will often say you need to make sure that that principal interest, taxes, and insurance payment is no more than 25%, at the most 30% of your take-home pay. If it is, that should be a warning flag that perhaps it is a bit much and you are not able to support that given your other expenses and the things that you have.

I think you also perhaps need to look at this from a global perspective. You know, so often we start with the living expenses, and by the way, I would put the mortgage in with the living expenses, but we do not factor in the other pieces, and I would rather do those first. So I would look first at what are you doing in the area of giving in terms of a percentage. Let us say it is 10%, okay? What is your effective tax rate?

That is just your income divided by the total state and federal taxes you paid last year, and you will come up with a percentage. Let us say it is 15%. What are you paying toward debt? Not including your mortgage. Hopefully it is at zero, but let us say that is at 5%. And then beyond that, what are you putting into savings? Well, whatever that percentage is, we can back into the income needed to support that. Basically, you just take your income divided by one minus all of those percentages. So everything I just said totaled up to about 30%, so one minus 30% is 0.7. Well, on $60,000 a year, you would actually need about $85,000 in income to support all of that, the budget plus the other expenses that you have, both giving and saving and otherwise. So I think that is the kind of deeper dive you need to do to answer this question, is this too much home for me so that I can maintain my lifestyle but also give and save and pay my taxes and pay off all of my consumer debts if you have any. Does that all make sense, though?

It was really fast. It makes sense, but I was trying to write some of it down. Let me simplify it and just say this. I think the starting point is to say, is that mortgage payment more than 25% of your take-home pay?

If it is, that would be a warning sign. Secondly, let's get a really accurate reflection of your spending plan, including those nonrecurring expenses to make sure that you can capture everything that happens over 12 months and still cover the house, but you can't neglect the other things. Are you able to give? Are you able to save? Are you paying your taxes? Are you reducing your debt?

So we've got to look at this globally before you make that decision. If you conclude it is just too much house, then I think you need to seriously and prayerfully consider downsizing. But perhaps when you have the numbers in front of you, you'll see how you can make some other changes to right-size the budget and still do the other things. I think our MoneyWise coaches could be a great help to you as well. Jeff, just go to MoneyWiseLive.org, click on Connect with a Coach, and see if they can help you work through that spending plan and get some answers. And Jeff, if you want to revisit the conversation that we just had, I know it was a lot of information, great information, but it went by quickly.

You can always visit our website, MoneyWiseLive.org, go to the radio archives at the bottom of the page and re-listen to this program and perhaps that'll help you. We wish you the best as you work through it. Great questions on your part today.

Thanks. Let's go out to Idaho and say hi to Christian, Rob. Christian, we're so glad you called today.

How can we help you? Thank you guys so much for taking the time to listen, and I so appreciate your guys' perspective on money and how God's given it to us as a tool to steward and used to build his kingdom, and I really appreciate your guys' perspective. Thank you.

Thank you. My question was, me and my wife own a small, seasonal business for snowplowing in our area. God's gifted us and given us a lot of provision, and we do very well with that seasonal side business. We would like to contribute to our church's, we're calling it, 2020 vision. We're trying to pay off the remainder of our church's mortgage, $2.7 million by the end of 2020, and I would like to know if there's any way that I can contribute to that campaign from my business without any tax implications.

Yeah. So this is a sole proprietor business? What type of business do you have? We are an LLC.

An LLC. Okay. So everything is going to flow through to you personally in terms of how it's taxed, correct? Yes. Okay.

Yeah. So that's really the key. As you think about, you know, any deductions, they're not going to hit Schedule C with your business expenses.

They're going to really hit at Schedule A. It's going to flow through to you in this particular case. So you're going to want to make sure you can itemize to take advantage of those deductions. But as a sole proprietor, that's the way it's going to be taxed. And so none of these contributions would be handled as a business expense.

It's really all going to be done personally. Now, you have an engine to create revenue that can be given away, and you can get credit for it as it flows through to your tax return, and so that's a great thing. But you'll be doing that personally as it flows through on the tax return as opposed to out of the business. So I would be thinking about what the Lord may have you to do using the resources you have available, notably what you're able to do through your business that you would commit to personally, and then make those gifts this year. And Lord willing, be able to deduct a good bit of that, if not all of it, and save some taxes at the same time, which could actually even allow you to do even more than you expected. And I'd probably visit with your CPA or accountant to kind of run that through and understand exactly what you're praying and thinking about doing and how that would show up on your tax return.

Does that make sense, Christian? So from the business side of things, we're not going to be able to do that on a Schedule C. But as it passes through to me personally, then I would be able to give there as a charitable donation once I've made an owner draw or a payroll check from the business, I could give there with no tax implication after it's already passed through the business to me personally. Exactly. And that's the way it's going to be done most effectively in most cases. But again, you're going to want to check with your accountant or CPA just to make sure, run by him or her what you're planning on doing, and then make sure you understand the implications of that, the timing of it, and how all of that will affect your tax liability.

But that's probably the way it's going to work out most effectively. Christian, we wish you the best with that. You sound like a very generous person.

Thanks so much. Speaking of generosity, if I may, if you haven't visited our website in a mile, you might want to do that. It's MoneyWiseLive.org, MoneyWiseLive.org. At the top of the page, you'll see a tab that says donate. The donate tab will help you if you'd like to help us. We wouldn't be here today without your past generosity. So give that some thought, give that some prayer, and we'd be blessed and honored. MoneyWise Live is a partnership between Moody Radio and MoneyWise Media. Thanks for listening. Join us again next time.