3 of Your Biggest Financial Worries—Answered

In her debut column, podcast host Gaby Dunn demystifies tax forms, walks you off the ledge in loosening the purse strings, and schools us on student loans.

Q. I got a new job, and I never know how to ll out the W-4 form. Should I put a 1 or 0 or more for federal and state?

A. I've lost entire days trying to figure out the labyrinth that is tax forms, and it still usually ends in me dumping loose papers on an H&R Block employee's desk and shrugging helplessly. So I asked Kelly Phillips Erb, a tax attorney located in southeastern Pennsylvania. She says the more allowances you claim on the W-4 form (which is for federal, but not state taxes—you pay both!), the less federal income tax your employer will withhold from your paycheck. That means you take home more money each week, and vice versa for fewer allowances.

"Based on the formula, if you're single with no dependents, and you work just one job, chances are you'll claim a 2. If you have kids, that number typically goes up," Phillips Erb says. While it might be tempting to take home more money each paycheck, she says it's better to claim fewer allowances if you don't want to owe a bunch of money at the end of the year.

"That way, your employer will withhold more tax from your paycheck so that you pay more tax as you go. And if you pay in more than you end up owing, you'll qualify for a refund," Phillips Erb says. Hooray! Refund! "But be careful," she adds. "While getting a refund feels like a good thing, it means that the government had the use of your money all year, and you don't earn any interest." If you'd had that money in your possession instead, you could have placed it in a savings account and received some interest back on it. Right? That's totally what you'd do?

Q. I grew up in a financially fraught household, which has terrified me that I'll return to that way of life and has made me super-frugal now that I'm earning my own money. How do I allow myself to spend without hyperventilating?

A. I'm the same way, girl. I overspend as a way to regulate my emotions, and then cry, convinced that I'm falling into my parents' irresponsible patterns. But there's a difference between spending just to spend and spending on the things you need. There's no logic in depriving yourself of meals or clothing in some misplaced sense of martyrdom. My advice is to have a "treat-yourself schedule"—so you know that on a specific day of the month, you can buy yourself something you normally wouldn't. But please recognize that there are certain things you have to spend on that are investments: for instance, a new computer if your old one breaks, or a more professional outfit for a job interview. The hard part is not beating yourself up about buying the essentials. Being aware of your own tendency to do so is half the battle.

Q. How do you consolidate student loans, and what are the benefits? There are a lot of scammy loan-consolidation places, and it seems impossible to figure out which ones are legit.

A. I currently have three different federal student loans. Mine aren't consolidated, so I can see the benefit of making only one payment instead of three confusing ones each month. If you have federal loans, they can be consolidated into one payment, the terms expanded, and the loan kept at the same interest rate. Another option is refinancing your loans, wherein a student-loan lender buys your existing loans and gives you a new loan with a lower interest rate. But since this is through a lender, you lose the protections that come with a federal loan.

"Federal consolidation is not important for most recent graduates, but people with older federal loans may benefit from consolidating into a Direct Consolidation Loan to access additional repayment and forgiveness programs that aren't available for older loans," says lawyer and student-loan expert Heather Jarvis of askheatherjarvis.com. There are, as you've said, many different sites that allow you to do this. Credible.com has a great list of the best legit student-loan consolidation options, including Citizens Bank and SoFi.

But, Jarvis adds: "Borrowers considering private refinancing should beware of giving up valuable consumer protections unique to federal loans and understand that the best interest rates are offered only to people with the best credit."

Gaby Dunn is the creator and host of the podcast Bad with Money. Her YA novel, I Hate Everyone But You (Wednesday Books), will be published in September. This article appears in the August issue of Marie Claire, on newsstands now.