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The average Class of 2016 graduate walked down the commencement aisle with $37,000 in student loan debt . We all know that higher education is expensive, but that’s a big responsibility for a 22-year-old to be saddled with as they start their career. The interest payments on a $37,000 loan alone could afford the average new grad a whole lotta revolutions through the Taco Bell drive-thru and pairs of polyester work slacks. (Or better, the ability to start saving some money!)

If you have student loans, there is a way to reduce the amount of interest you pay over the lifespan of your loan or loans; It’s called student loan refinancing. There are people who have refinanced their loans and saved tens of thousands of dollars—and it’s possible you could too.

You’ll often hear the terms student loan refinancing and student loan consolidation used interchangeably, but they’re technically different. Only student loan refinancing has the potential to reduce how much you pay in interest. If your goal is to reduce what you owe, you’ll need to learn how to refinance student loans. Because it’s important to understand which is right for your situation, let’s hash out the definitions and details of both options.

Student Loan Refinancing Breakdown

Okay, so your current loans are either obtained through the government (that’s the most common route) or a private lender, like a bank (less common). Each loan has an interest rate—likely, a fixed rate of interest—set at the time you took out that loan. (If you have loans issued before 2006, there is a possibility that rates on your loans are variable, which means the interest rate may fluctuate.)

When you refinance one or all of these student loans, you’re basically just swapping out the old loans and replacing them with a fresh, new one in hopes of getting a better rate or more favorable terms.

Quite literally, the new lender pays off your old loan(s) and provides you with a spankin’ new loan. Now, the reason it’s worth it to learn how to refinance student loans is because it can lower your interest rate or term, thereby saving you money. A better interest rate or term can either lower your monthly payments or reduce the time it takes to pay off the loan, respectively.

Getting Started With Refinancing

The first step is to explore whether refinancing is the right option for you. Refinancing has historically only been available for federal loans, but there are a handful of lenders who refinance private loans as well. This is not the case for simple loan consolidation, which can only be done with federal loans.

If you’ve got federal loans and are taking advantage of income-based repayment or the Public Service Loan Forgiveness program, it may not be worth learning how to refinance student loans; Those programs (and other benefits) won’t transfer to your new loan . If you have no plans to take advantage of any federal debt-relief program, it’s time to look into refinancing.

Local banks and credit unions often offer student loan refinancing, but online lenders like SoFi tend to offer more competitive rates. Each lender has its own criteria for determining your rate, but it’s generally based in part off credit score and income.

Student loan refinancing is generally available to folks who are in better financial situations than when they first took out loans, whether through increased salary, improved credit score, or another circumstantial shift, like marriage. Refinancing can also help if you have loans with exceptionally high interest rates.

Even a seemingly small improvement in your loan’s interest rate could save you a lotta scratch in the long run. (Which could amount to hundreds, potentially thousands more T-Bell odysseys! Or some extra money for retirement or a down payment, your call.)

Often, you’re able to get pre-approved for refinancing online in a matter of minutes. After pre-approval, you select the loan you want, fill out a full application, upload or mail in some key financial documents, and voilà! You’ve done your part.

Here’s the Difference Between Student Loan Refinancing and Consolidation

Consolidation is exactly what it sounds like; You’re consolidating multiple loans into one loan. And that’s it! Because you’re just smushing all of your (federal) loans together without any accompanying re-evaluation of your credit, your interest rate won’t change. The rate on your new consolidated loan will simply be a weighted average of your current loan rates. Your monthly payment would only decrease if your payback period was extended, which would actually cost you more in interest over time.

Loan consolidation is typically done using a Direct Consolidation Loan through the government. This is why you can only consolidate federal loans and not private ones. The benefit to consolidation is creating one payment instead of dealing with multiple loan payments. It is also possible to detach or add cosigners and switch from a variable to a fixed rate.

It’s worth noting that refinancing is sometimes referred to as “private loan consolidation.” And yes, when you refinance multiple loans, you are inherently consolidating them. But for the sake of keeping the two mentally separated, consider consolidation and refinancing as two different actions.

Benefits of Refinancing Student Loans

Ideally, a student loan refinance would benefit you in the following ways:

1. You could pay less in interest over time, which can mean lower monthly payments.

2. It can also shorten your loan term, allowing you to pay debt off sooner.

3. You get to enjoy the benefits of consolidation with one monthly bill.

4. There are both variable and fixed rate loans available. The benefits of having a lower monthly payment or a shorter payback period need no championing, but it is pretty sweet to think about what you could do with all that extra cash. SoFi estimates that the average customer saves $30,069 in interest over the lifetime of their loan.

Additional Refinancing Considerations

When you refinance, not all lenders will give you the same repayment options that federal loans offer. This is important to consider, especially if you work in an industry sensitive to economic cycles. As with any financial decision, refinancing should only be done after considering all of the trade-offs.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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You might be the kind of person who relishes spending money on exciting purchases, but can’t stand paying for boring things, like $8 shipping or a $25 oil change. And while it’s fair to be stingy sometimes, it doesn’t make sense to stress out about the inevitable costs of living while ignoring the far more important kind of spend: how much of your money goes toward accruing interest on debt.

The average American family has approximately $16,000 in credit card debt , and even more if you’re counting other types of consumer debt. If they’re paying the average credit card interest rate of 16.4% APR, they’re shelling out thousands of dollars per year on interest charges alone. That’s worth putting some thought and action toward. If you have credit card debt, use our Credit Card Interest Calculator to see how much interest you are paying.

With interest rates running into double digits, it’s no wonder people are seeking out ways to lessen interest payments. That’s where a debt consolidation loan comes in. Here’s how to determine if it is the right choice for you.

What are debt consolidation loans?

A debt consolidation loan is another name for a personal loan that you use to pay off other sources of debt, such as credit card debt. You’re basically just taking out a new loan out from a bank, credit union, or other non-bank lender and then using that money to pay off existing debt.

This is not the same as debt or credit relief, where a credit counselor helps you reduce interest rates or eliminate debt altogether. Credit relief programs can help you consolidate your debt, but they aren’t getting you a new loan—it’s only consolidation.

With a personal loan—also called a debt consolidation loan—you can merge multiple payments into one streamlined payment and potentially lower the combined interest rate. To put it in perspective, the average credit card interest rate is 16% APR.

When should you take out a personal loan for debt consolidation?

Most people considering a personal loan—also called a debt consolidation loan—feel overwhelmed by having multiple debt payments every month. A personal loan can lighten this load for two reasons. For one, you can lower the interest you pay on your debt, which means you could potentially save money on paying interest over time.

For two, it can also make it possible to opt for a shorter term, which could mean paying off your credit card debt years ahead of schedule. If it’s possible to get lower interest than you have on your current debt, or a shorter term on your debt to pay it off faster, a personal loan could be worth looking into.

On the other hand, you’ll also want to be careful about fees that might come with your new loan, separate from the interest rate you’ll pay. For example, some online lenders charge a fee just to take out a personal loan, and some don’t, so you’ll want to do your research.

How are personal loans used for debt consolidation?

Generally, people seeking debt consolidation loans have multiple sources of debt and want to accomplish two things: First, lower their interest rate—and thereby pay less each month—and reduce the amount they have to pay over the life of their loan. Second, they are trying to merge multiple loans into one, making it easier to keep track of monthly payments.

With a lower rate of interest, you are able to lower your monthly payment, shoring up money for other expenses or financial goals. You can also opt for a shorter repayment term, which shortens your payback period and gets you out of debt faster.

Who is eligible for a personal loan for debt consolidation?

If you have one or more sources of debt where the interest rate is higher than 10%, it’s worth exploring a personal loan. While there’s no guarantee that you’ll find a lower interest rate, you can’t know unless you get quotes from a few lenders. (And these days, it’s a pretty painless process. If it proves difficult, find yourself a different lender.)

Those with the best credit scores will typically qualify for the best rates on their new personal loans, but don’t let an average or even poor score keep you from requesting quotes. This is especially true if you have more than $10,000 in credit card debt and those cards charge exorbitant interest rates, which most of them do.

Also know that your credit score isn’t the only data point that’ll be considered in determining whether you qualify for a loan and at what rate. Potential lenders typically also consider employment history and salary, and other financial information they deem important in determining loan-worthiness.

A personal loan isn’t for everyone. If you’re doing it only for convenience and there isn’t a legitimate financial motive, it’s probably not worth it. Instead, focus that energy on paying back the money you owe as efficiently as possible.

While personal loans can be a great tool to reduce interest payments, it doesn’t reduce the actual debt you owe. If you’re looking to get out of debt so you can focus on other financial goals, but the interest rates on your debt are making it nearly impossible, a personal loan could be exactly what you need.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit .

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Graduating from college and starting your career is a time filled with questions and excitement. On the one hand, everything is new and getting to check all the “firsts” (first solo apartment, first salaried job, first absolutely terrible post-grad roommate) off your list is incredibly rewarding. On the other hand, some of those first financial questions can be just a bit overwhelming, especially when it comes to student loans.

Understanding your student loans, whether they are private or federal, and how much you need to pay to make a dent is all new territory and brings on even more questions. But know that you’re not alone. The latest numbers suggest over 44 million people in the country have a total of $1.4 trillion in student loan debt.

As you start managing your post-grad budget, you might realize that student loan payments are a large portion of your monthly bills. If that’s the case, it’s a good idea to start learning about student loan refinancing. Can it get you a lower interest rate? How does refinancing differ from student loan consolidation? And will any of this save you money?

The most important answer, first: Yes, student loan consolidation and refinancing can save you money. However, they are both different, and you’ll need to figure out which option is a better fit for you. Now let’s get into the nitty-gritty.

What is federal student loan refinancing?

If you graduated with student loans, you likely have a combination of private and federal student loans, which are loans funded by the federal government. Direct subsidized loans or Direct PLUS loans are both examples of federal student loans.

Interest rates on federal student loans are fixed and set by the government, so you can’t refinance at a lower rate and keep it as a federal loan. However, you can refinance your federal student loans into private loans with a new—ideally, lower—interest rate.

When you refinance into a private loan, you lose some of the benefits that come with a federal loan, which is worth keeping in mind. However, the new loan (and the new interest rate) could translate to a lower interest rate and paying off loans sooner.

What is the difference between federal student loan refinancing and student loan consolidation?

Student loan consolidation and student loan refinancing are not the same thing, but it’s easy to confuse the two. In both cases, you’re essentially signing new loan terms that replace your old student loans.

Consolidation takes your student loans and bundles them together. This allows you to work with the provider of your choice and qualify for new repayment options. Consolidation, however, does not get you a lower interest rate. Refinancing, on the other hand, takes your old loans and finances them at new interest rates with a private lender.

You can consolidate federal loans into a federal Direct Consolidation Loan at no cost. This keeps your loans federal and can give you a longer repayment timeframe, and simplifies the repayment process to help you not miss payments. But it doesn’t necessarily save you money. Generally, the new interest rate on your federal direct consolidation loan is the weighted average of your original loans’ interest rates. For some people, even if it doesn’t save them money, the streamlining of loans is worthwhile.

What are the benefits to federal student loans?

There are a number of benefits to federal loans that aren’t always available for private loans. For example, you may be eligible for the Public Service Student Loan Forgiveness program if you’re working in public service and have made 120 loan payments.

You may also have access to certain income-based repayment plans or protections on your loans if you default or miss payments. However, as with all things, there are pros and cons. Loan forgiveness is great if you qualify, but double-check the requirements before thinking you can just write off all that debt. And income-based repayment plans can be a life-saver if you’re in between jobs or just getting started, but it may mean you pay more over the life of your loans.

Should I refinance my federal student loans?

It depends on how much you might save with a lower interest rate from a student loan refinance, versus how likely you are to use the benefits that come with having federal student loans.

First, you can use the SoFi student loan calculator to figure out how much you might save with a lower interest rate. In general, borrowers often refinance federal graduate student loans and PLUS loans, since those have historically offered less competitive rates.

Next, ask yourself: Are you going to use the programs or benefits that come with federal student loans? These include income-based repayment plans , as well as loan forgiveness for teachers, doctors, or even lawyers in public service. If that’s you, great, but if it’s not, that’s OK too. (There is also some concern Public Service Loan Forgiveness programs could disappear .

There are some downsides to income-driven student loan repayment plans, too. You can end up paying more in interest or get hit with a higher tax bill after your loan is forgiven. However, depending on your financial situation, that flexible repayment plan could be a saving grace. It depends on how much you have in federal student loans and how confident you are about your repayment options.

The last thing you’ll want to consider before you opt to refinance your student loans is the terms of your new student loan. Weigh all the costs and benefits, and figure out what makes sense for you. We know you can do it. After all, you’re a college graduate.

The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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You probably already know that you should have an emergency fund—a bit of extra cash on hand in case of an unforeseen event, like getting laid off or needing to move.

But many of us don’t know more than that. How much should you have? How, exactly, do you save that cash? And should you focus on building this fund or paying off debt first?

SoFi advisor and Certified Financial Planner Alison Norris recently talked about all of this and more at a recent #WealthWednesday discussion on the SoFi Member Facebook page. (Yep, SoFi members have daily access to complimentary advisors on social media and via phone—check out more about the SoFi Member Benefits.)

And today, we’re bringing that discussion, as well as other common questions about emergency funds and her expert answers, to you.

How much should I have in an emergency fund?

Your emergency fund should be three to 12 times the amount you spend monthly. The exact amount should reflect your risk aversion to unexpected unemployment. If you have reason to believe you could quickly land another job—say, you’re a software engineer in San Francisco—then you might be comfortable with three months’.

If, on the other hand, you’d expect a longer job search—for example, you’re in a specialized line of work, or a finding a new job would likely entail moving to a new city—your emergency fund should reflect that

Also, consider this: Would you be willing to amend your lifestyle if income slows or something costly crops up? If you’re OK living on a friend’s couch eating ramen, then you might survive with a smaller rainy day fund. If you wish to keep living the life you’re accustomed to, then you may want more of a backup.

Where should I keep my emergency fund—my checking account, a savings account, or elsewhere?

You want to keep your emergency fund money “liquid,” or available to access as soon as you need it. It’s also smart to separate cash on hand from your emergency fund. Cash on hand can be left in your checking account, earmarked for paying upcoming bills. Your emergency fund works well in a FDIC-insured savings account.

With that said, many savings accounts only pay you 0.01% interest on cash balances. This doesn’t keep pace with inflation, so you’re essentially losing money. Instead, you might consider a high-yield savings account that earns 1.0% interest or more. Bankrate is a good place to compare your options.

What do you suggest if you have roughly $5K built up so far for an emergency fund and also about $3K in credit card debt?

Should I wipe out the debt and then build the fund back up, or chip away at the debt and maintain the fund?

I might suggest knocking out that credit card debt in full. Here’s the order of operations that works best for most:

•   1. Keep enough cash on hand to pay recurring bills and avoid living paycheck to paycheck. (This isn’t your emergency fund, just cash that’s good to have on hand.)

•   2. If your employer matches contributions to a retirement plan, max out that match.

•   3. Pay off consumer debt, including high-interest credit cards.

•   4. Build your emergency fund.

Also keep in mind that the comfort of having a cash cushion and not living on the financial edge may outweigh other purely financial benefits of wiping out high-interest debt. Sleeping soundly at night is another benefit to building up an emergency fund.

Could a credit line be considered a pseudo emergency fund?

While I don’t have credit card debt, I do have a ton of student loans I want to pay off more aggressively. My credit cards would allow me to live for a good three months or so if I needed to.

I commend your desire to pay off your student loans aggressively, but I wouldn’t do so if it means you would instead have revolving credit card debt.

Say, for example, you have a 6% rate on your student loans and a 20% rate on your credit card loans, and $1,000 in outstanding debt with both. You’ll end up paying $140 less toward your student loan each year (maybe even less because there are tax deductions for student loan interest). I might suggest prioritizing the emergency fund while making minimum payments on your student loans.

What’s the best way to save up for my emergency fund, quickly?

The basic equation for wealth building is: Money In – Money Out = Money Saved.

But you don’t need us to tell you how math works. The key is to figure out which levers to pull to increase your odds of success.

Start by tracking your expenses, either in a spreadsheet or using a free service like Mint.com. You’ll quickly get a handle on your monthly cash flows, which will enable you to target an emergency savings goal tailored to your needs.

The next step is key: Pay yourself first. Schedule recurring auto-deposits into your savings account to coincide with your paychecks. You’ll find this cash flow will quickly become painless and invisible. More importantly, it ensures that when you overspend in a given month, it’s discretionary items—like eating out one more time—that get cut, rather than your savings.

I’m almost at my savings goal for my emergency fund. Where should I put my money next?

The earlier you save for retirement, the better, so you can let the power of compounding interest work for you. And even better than compounding is free money. For both reasons, the first place to invest for retirement should be in your employer-sponsored retirement plan, if you have access to one.

Many employers will match part of your contribution, which is essentially free money. Once that match is met, aim to keep contributing to tax-advantaged accounts. You can invest in the employer retirement beyond your match, contribute to an IRA, or (our preferred strategy) both. To understand which IRA account you can contribute to, use this IRA calculator.

From there, document your assets and liabilities. Know your good debt from bad. A mortgage or student loan? Good. A high-interest credit card? Not so good. Also write down your long- and short-term goals—for example, paying for wedding, saving for a house down payment, or even taking a summer vacation.

Once you’re saving for retirement, you can plan a savings or investment strategy for these goals, based on their time horizon.

SoFi can’t guarantee future financial performance. This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite. Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Neither SoFi nor its affiliates is a bank.
SoFi Checking and Savings^TM is offered through SoFi Securities, LLC, member FINRA / SIPC . Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.

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Student loan refinancing is most likely the first major financial decision you’ve made as a young professional—and it was a smart one. For starters, you’ve achieved an immediate psychological win, and you can breathe easier knowing you’ve taken a strong step toward eliminating your student loan burden.

Plus, by scoring a lower interest rate and more manageable monthly payments, you now have wiggle room to chalk up some other financial gains.tr

Here’s how to get cracking on achieving major money milestones now that you’ve refinanced your student loans:

1. Track Your Spending

If you haven’t already created a budget, do so and take it seriously. Tracking your income and expenses—and automating monthly loan payments—will give you a sense of where your money goes, and guide you toward spending mindfully.

Budgeting will also help you allocate cash toward your short-term (i.e., home down payment) and long-term (retirement) savings objectives.

2. Pull Out Your Crystal Ball

Now that your student loans are no longer suffocating you, give some thought to what’s next on your personal and career agendas, and how you’ll accomplish those goals. Do you plan on relocating for a new job? Is marriage in your future? Children? Focus on the debt you currently carry and how it influences your long-term financial objectives.

Since student loan refinancing reduced your interest rate, you can save thousands of dollars over the life of the loan. That means you can continue to make minimum payments and redirect those savings toward growing your investment portfolio, reducing bad debt, or saving for a wedding, for example.

Think about it this way: A big drop in loan interest usually means that more of your payment can go toward the principal than before, especially if you’ve been paying the loan for a while. Other factors at play might include a new loan term, so start number-crunching. You’ll likely realize that putting extra funds toward maxing out your 401(k) instead of accelerating your loan payments, for instance, will garner a higher return.

Related: How Student Loans Could Impact Your Taxes

3. Become Conscious of Tradeoffs

In order to complete your money missions, you’ll have to accept that they come with tradeoffs and sacrifices. This mindset will help you avoid falling victim to “lifestyle inflation”—the idea that as you earn more, your needs and desires get more expensive.

So instead of joining another wine club, for example, focus on actions that provide long-term value and happiness, such as strengthening your investment portfolio and saving for a home.

Learning to make sacrifices early in life will keep you on the right track financially. That being said, don’t feel like you have to give up everything you enjoy. Go ahead and celebrate wins, make memories, and treat yourself to nice things—just avoid deviating too far from your big-picture goals.

4. Tackle High-Interest Credit

If you have credit card debt, dealing with it is of the utmost importance. The money you’ll save by eliminating a revolving balance that typically carries an interest rate of 15% or more can go toward building your nest egg or saving for your child’s education.

Consider consolidating your credit cards into a personal loan to secure a lower interest rate. Paying down credit card debt can also improve your credit score, which will help you qualify for more favorable interest rates and terms in the future.

Debt utilization—the amount of debt you have compared to your credit limit—is the second biggest factor that FICO and other scoring models use to calculate your credit score. So if you have a $10,000 credit card limit and owe $7,500, that equates to a 75% debt utilization rate. To maximize your credit score, aim to keep that rate under 30 percent, but as close to zero as possible.

Read Next: Two Couples Open Up About How They Manage Money, Together

5. Save For Your Dream Home

When you’re hoping to buy your first home, coming up with a down payment is probably your biggest obstacle. But the savings from your newly refinanced student loan and—should you choose it—credit card consolidation can get you on track.

If you live in a high-rent city or plan on relocating to one, buying a home could be just as affordable as renting. Plus, you can save for a down payment while still paying down your student loans. The fact is, you might not even have to save as much as you think.

Although conventional wisdom says to put 20% down on a home, you might qualify for a mortgage loan with as little as 10% down, or even just 3.5% if you go with a government-insured FHA mortgage .

To get started, create a home savings account and automate deposits to it each pay period. You’re more likely to stick with it if you never actually have the cash in hand. You might also consider tapping into other assets, such as a Roth IRA, which allows you a one-time, penalty-free withdrawal if you’re using it for a first-time home purchase.

6. Fund and Contribute to Retirement Accounts

Using your student loan refinancing savings to fund your retirement accounts will put you that much ahead of the game. If you have an employer-matching 401(k) that you’re not maxing out, that should be your first move.

If you have savings left over, contribute to an individual retirement account, such as a traditional, Roth, or SEP IRA. For more information on which IRA account you can contribute to, check out SoFi’s IRA calculator. Choose a low-cost investment platform to save on fees while building your savings.

Just be aware that you may be penalized and taxed for early withdrawals, so work with a professional. Investing in retirement while in your 20s and 30s will make a huge difference in the long run, thanks to compound interest, which allows your earnings to also earn interest.

Leveraging the money you save by refinancing to achieve your financial goals takes forethought and determination, but the sooner you get started, the better. Whether it’s buying a home, developing a strong investment portfolio, or finally achieving debt-free status, putting your money to work for you will get you closer to your dreams.

SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite. Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.

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