With today’s society becoming more and more business oriented, establishing and maintaining good credit is vital if you plan to do any of the following:

1. Apply for employment
2. Rent an apartment
3. Open a bank account
4. Setup an account with public service or the telephone company

It used to be that establishing good credit was important only if you planned to buy a home or car, but not anymore. The simplest task, such as applying for employment could very much mean that you need a good credit.

Having bad credit could impede your ability to survive. This is sad to say, but it is a proven fact that people have been turned down top quality job positions just because of their credit rating despite the fact that that particular job could be exactly what a person needs to fix their credit. That’s a scary catch twenty-two don’t you think?

Ok, I’m caught in that scary catch twenty-two, what should I do?

Start by requesting a copy of your credit report in writing. You are entitled by Federal Law to receive a free annual credit report. There are three major credit-reporting agencies that you need to contact, you can run a search on the internet or find their information in a phone book. If you have already received a credit report for that year, you may also use any letter of credit denial by sending in a copy of that letter within 60 days of its receipt with your written request. Be sure to include a copy of your state issued ID, proof of your address and your last known addresses for the past 5 years. It is very important to include a copy of your social security card.

What does is mean to have good credit? Who cares who sees it?

Unbelievably, your credit report is public information to anybody where you are asking for a line of credit. Any time you apply for employment, an apartment, or attempt to make a big purchase, you are asking for credit and permitting the potential creditor to view your credit report. Although your credit report does not reveal a personality diagnose, it may just as well, considering it is through your credit report how others (potential creditors) will perceive what kind of person you are.

Businesses look into your credit report and determine by your ability to pay and follow through on your promises what kind of person you are.

Do you adhere to your promises?

Are you stable, do you follow through on payments?

If so, then you most likely are a good and reliable person. You may be worth giving a chance at that perfect job, or residing in that particular community.

What about good people with bad credit?

You may be a good person, you may even be the most considerate and compassionate person alive; however, if your credit report shows a late payment or no payment on an account at all, your entire being could be perceived as not reliable, unstable and untrustworthy. Prepare yourself to deal with a lot of paper work and phone time once you are ready to repair your credit.

What does this mean? How can I protect my reputation?

What this means is that it is time for you to fix your credit. Your income may be null or limited, that’s ok, there is still a way to save your personal reputation and open more doors of opportunity. Once you receive your credit report(s), contact the creditors listed and make payment arrangements, even if it is just $1-$5 a month. Doing this shows your willingness to get back on track, it show that you are putting effort towards establishing stability and responsibility.

Whom can I turn to for help?

There are many resources available to assist with credit repair, make use of your library or the internet. Most credit repair agencies offer free services, take advantage of their offers and assistance. Building your credit is more than being able to make a big purchase, it also means you are establishing your personal reputation and setting your survival foundation.

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Todays post is a bit special as it is a Guest Post written by my friend Maria Smith, I hope you find it useful and as usual your comments are most welcome, enjoy!!!!

Debt settlement is a process of negotiating with your creditors to pay off your credit cards and other unsecured debts at an amount less than what you owe. You can save up to 40-60% of the outstanding balance that you owe. You will need to be behind in your payments to qualify for settling your debts through a debt settlement company. Do you have lots of questions about the debt settlement process? If answered yes, then it’s great that you are doing the adequate research. Those who invest the most of themselves in getting out of debt trouble, they are the ones who successfully come out of debt. Have a look at the most frequently asked questions on debt settlement taxation.

How does debt settlement affect my taxes?

Any money that is saved through debt settlement will be considered as taxable income by the IRS. Therefore after you save money through settling your debts, you will again owe money to the IRS. However, the amount that you will pay as tax will be much lower than what you had paid in interest rates. Thus this should not be a deciding factor while considering debt settlement. You are supposed to pay the tax only after the settlement or at the time you prepare your income taxes after the new year.

Who informs IRS about the settlement deal?

As per the new regulations implemented the creditors are supposed to inform the IRS about the debt settlement deal. They issue 1099-C that reports the details of the deals that are taking place between you and the creditor.

What is 1099-C and what does the IRS do with this?

1099-C contains the details of the settlement agreement that you have with the creditors. As the form reaches the IRS, they forward a copy to the debtor. The debtor has to account for the same in the income tax return. If the debtor fails to do so, he will be penalized by the IRS in the form of penalties and interests.

Can the settlement taxation be avoided anyhow?

Yes, it can be avoided, but under various circumstances. If the debtor can prove insolvency during debt settlement, then the saved money won’t be subject to tax. The forgiven debt is also non-taxable if the indebtedness is due to loss in real estate business or if it is a result of bankruptcy proceeding.

How can I report insolvency to the IRS?

You have to fill up the form 982 in order to report insolvency to the IRS. The form 982: Reduction of Tax Attributes due to Discharge of Indebtedness is issued by the IRS along with the tax return. The debtor can also choose to attach a letter with a detailed estimate of the total amount of debts and assets throughout settlement along with the tax returns.

What is the specific amount of forgiven debt that becomes taxable?

If the forgiven debt amount is greater than $600, then it becomes taxable.

For consumers with debt amount more than $10,000 in unsecured debt, you become liable to settle your debts through debt settlement. Take into account the frequently asked questions mentioned above to know more about the process of taxation related to debt settlement.

Your age is the first factor which it’s almost impossible to do anything about. Yes it’s possible to lie, but don’t because it will make things more difficult for you in future if the creditor get to know. If you are between 24 to 64 years of age you will get one point. Any age below or above that will score you zero point.

If you are married you have chance of adding extra point to your score. If not, you still score zero as most creditors see you as a higher risk. Also if you have no dependant you will score zero. But if you have between one to three you will add to your points. Here is how it works – if you have no dependant creditors believe you can skip town and not pay off your credit.

Creditors will also want to know more about your root. They will want to know where you live. Owning a home with a big fat mortgage or even without mortgage will give you more points. How long you stay in your present or previous residence also adds more points to your score. If you’ve move so often you will score zero point. However, if you’ve stayed up to 5 years before moving, you will surely get more points.  It shows you are a good risk to them.

Other factors that will add to your point are your years on job (the longer the better), kind of job, your monthly income, present debt status, previous credit history and your saving or checking account.

You credit score is usually rate between 350 and 850. The lower your score the more difficult it will be to get loan. Scoring 800 or above should be goal of every consumer. Bellow is list of short tips on how to achieve 800 credit score or above.

Limit the number of credit cards you sign up for at a time. The more cards you carry the more debt you will have to live with. If one card is not enough for you make sure you don’t sign up for more that three cards. Also make sure that you don’t go out with more than one card in your pocket. That way you will limit your purchases when you are outside.

Make sure that you make your payment on time, if possible before the end of grace period if it’s part of the service. Late payments will affect your credit score adversely.

Whenever you want to apply for credit make sure that you don’t apply for too much credit often. Credit reporting agency may score you low as it means that you can’t live without credit.

Another thing that reporting agency consider in scoring you is outstanding balance on your credit account. If you are the type of consumer that often exceeds their limit you are risking your credit score. So make sure you don’t exceed 30-35% of your available credit. It doesn’t make sense financially to always spend all your credit at a time.

Hopefully you may have found that interesting, next time I will talk about how you can actually improve your Credit Score so stay tuned for the next post exploding onto the Blog

Because of lack of enough financial education and discipline on the part of most of these consumers they often find themselves in bad credit situations like court judgement, bankruptcy, and loan default which often make it difficult for them to get any credit at all in future. You may now want to ask – what exactly is credit?

Credit means that you are getting a service or cash grant to use for your own purpose. You are often bound with a contract or agreement to repay in future as agreed with lender or service provider. Credit exists in different forms like loan, mortgage, or credit card.

Before you can get credit from any financial institution or lending agency, they will first check your credit history. If you have default on loan before or have bad credit history you will find it almost difficult to get credit any time you apply for it.

However, it’s possible for you to improve your credit history or build a new good credit history by repairing your credit, thus re-establishing your credit-worthiness. This process is called credit repair. It’s the process in which consumers with unfavorable credit histories attempt to re-establish their credit-worthiness.

Though there are lots of credit repair companies nowadays that promises repairing your credit for you, if you can follow simple guide, it’s very possible for you to do it yourself – afterall it’s your credit.

If you repair your credit it will make it easy for you to get low interest credit, car or home loans. However, with poor credit rating you may not be able to get loan or be subjected to high interest rates and several other unnecessary conditions. So it’s very important that you repair your credit if you have bad credit. You will get lots of tips on how to do this easily if you follow the next dozen posts or so here on my blog

So keep a look out for the next installment coming soon.

1-  Stop all your credit card and keep only one for emergencies. Always use cash instead. And for the one you keep, be sure to choose one with the lowest interest rate and best credit facilities. If you search you find. If you are a student, look for student plans with zero monthly fees and very low interests and also a low renewal fee.

2-  Cancel all of your credit lines and request a lower interest rate on the debt you have left. 

3-  If you have multiple credit cards, transfer the debts to the card with the lowest interest rate or get a debt-consolidation loan from a bank at a very lower rate. 

4-  Use cash! And buy what you really need only! 

5-  Pay off the debts with the highest interest rate first. 

6-  Add an extra payment on the next debt by taking the payment you made on the first debt and adding it to the current debt. 

7-  Always have you notepad or PDA with you and invest in personal finance software to track your spending. Search the web and you will find great software for competitive prices. Also invest in debt-reduction software, it will help you calculate and create a debt reduction plan.

8-  If you have investments that are paying lower percent then the credit card interest rate, cash out your investments and pay off your debt. 

9-   Use consumer credit agencies to arrange repayment of debt. Many are free. 

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If you are an employee, be willing to work overtime, get a part-time home job or something similar, there is plenty of websites that offer home job opportunities. Get a better income will help you to get out of debt. When you are free, take an hour just to think and think, try to have new fresh idea that might help you in improving your income and/or reducing your expenses. Search and search, for example you can buy the same item with 30% less price from a different store.

Do not be fooled with brand name, a xyz mouse for your computer will work the same than a xyz2 mouse. It is a mouse! Why do you need to spend double the price for a brand name!

When you have the same item with different brand names and both of them have a 2 years guarantees. In such situation, do not look for the brand name, look for the cheapest. There are thousands of tricks and ways to save! Always search and save!

If you can buy directly from the factory do it, stores are buying from resellers and resellers from the factory so the fees are double or triple sometimes.
 

When your debts are high and your monthly income is not enough to cover the payments, there are ways to solve your debt problem. But the road to financial recovery takes a total commitment. You must decide you want to be debt-free. You have to discipline yourself to take the necessary action to pay back your debts. Only you can determine if you are willing to make the necessary sacrifices to achieve this goal.

Finally, it is inadvisable to take out new loans to pay off old ones. So-called consolidation loans are often offered at very high interest rates, quite often all they do is saddle people with new debts they can ill afford just follow the get out of debt plan and you should be okay.

So it would be better to carry your PDA or small notebook rather than your credit card(s). When you need to buy something take a look at your notes, and see your total debt or purchases and the budget that you can really work with. You do not really need to buy an item or whatever product unless you really cannot live without it. In most cases, you spend money for something with less priority while you can save this money for something with higher priority or to pay existing debts.

Always make a monthly budget for yourself, if possible do it weekly or even daily; being financially organized is the key to success. You must include details in your budget. Add foods, bills, entertainment, transportation, shopping, miscellaneous and other and this way you will see how much you really need to spend and which is higher in priority… If you can make changes to your way of life and save some money, do so. Use that money to pay back debts and in the meantime you should stop adding to your borrowing by surviving only on cash or debit cards

Are you a student? An employee? Bring everything with you to school/university or to work. Have your lunch, snacks and even your drink. It is better than buying from a machine. You will save even with a small amount but you are SAVING.

For example, you can save between 1 and 3 dollars every day if you avoid using machines, this way you have around 60 dollars each month saved. 

Instead of saying that something only costs one dollar, say if I don’t buy it that is one dollar that I can put away for a rainy day or put toward debt.

Look at your monthly income based on the net amount. Deduct taxes, health plans, social security etc… and you will have the net income.

If you are in debt, it is a given that you are spending more money than you make. You are in the red. There is no way to play games with yourself about it.

Live within your means. If you can’t afford to pay cash, you can’t afford to have it. Pay off highest interest debts first.

Usually, when you have less free time, you spend less money on nights out or shopping. When you are in debt, do not go out for shopping or for entertainment until you are managing your financial life the good way. Find something beneficial to do with your rather than going to the mall. This way, you’re reducing your debt, and most importantly, not adding more to your debt. If you cannot keep up, you may enter a debt consolidation program. Do not ever work with private forms or lawyers with these issues. There are plenty of non-profit agencies who are glad and ready to help you anytime by negotiating maybe a lower interest rates or by plans on improving you financial situation.

Even though you do not like to have an third party agency help you get our of trouble, remember it is 100% better than bankruptcy and you will have a debt-free date to look forward to.

Take this advice from someone who work in the credit card industry; pay your bill every single month, whether you have a due payment or not. Look at how much you’re late and over limit fees are. You could be racking up with monthly fees which are added to your principal balance and are then charged interest on the next month.

If you’re a real shopaholic, go to the thrift stores. They are often charity run and often don’t take credit cards, so you have to pay cash. Keep you living within your means and you can find great stuff there. Go to the well-heeled neighborhoods early for the best stuff. You can get great items if you keep your eyes open. Would you rather have a big credit card bill you can’t pay or a few scuffs on furniture or appliances that has lots of life left?
It’s a real high to find the things you need and still stay out of debt.

Be honest with yourself, this way you are on the road to freedom. Ask yourself how this happen to me and why it happen.
You will need to really assess all the debts.
Look at all your statements. Cut up and cancel all the cards and accounts, except the one with the highest remaining credit available.

You should keep one account open for an emergency; we are not saying that you must live without a credit card.

In the next post I will be doing the 3rd and final part of your Get Out Of Debt Plan

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If you follow the steps below, you can help yourself by 90% to become debt free.

1- KNOW what you owe.

You must know and identify clearly what you owe; the best way is to create a debt list with details for example:

And identify which payment has the highest rate thus allocate the highest priority to it.

2- Avoid creating new Debts. When you are already in debt, do NOT create a new debt. Try your best to create savings strategies for the expenses that you do not pay monthly, for example some bills are paid quarterly. Even though, this bill is paid quarterly, keep aside the amount aside each month.

3- Decrease your expenses by developing a clear strategy and try to increase your income.

4- Do not always use your credit card.

5- Always create a list of items you plan to purchase and know the amount you are planning to spend. 

6 – As soon as you develop a plan with your monthly income and expenses, you can set the good amount for paying your debts. Remember, as we discussed previously, adding an extra amount to your monthly debts payment can decrease the interest payment and save time. When you have money with you, and you really do not need them as an advice add this amount to your monthly payments.

7- Being debt free is not only, a way to manage your money, but also a negotiation part. Try to find the alternate with a lower rate. Use negotiations, pretend to your current creditor that you’ve got lower rates with another one; this might help reducing rates to keep you as a customer.

8- Think before you buy! Sometimes you buy for an item and later on identify that you do not really need it at the moment. Think well before planning to buy. Ask yourself “do I really need this item?”

9- As we mentioned in an earlier post, we have good and bad debts, stay away from bad debt. Stay away from:

     – High interest credit cards

- High interest items

- Big mortgage

10- Do not buy a brand new car when you cannot afford to pay it. As an advice get a used one and keep it for many years.

11- Be smart and reasonable.

Those are some steps toward being debt free, but getting out of debt is challenging but for sure it can be done especially with dedication and perseverance.

When you are asked to decrease your expenses, cancel your credit cards, develop a plan, etc… you are changing the way you live, and especially the way you think. Following the steps mentioned above is not a rule to follow, you must change the way you think to be convinced with that.

Saving one dollar every day or any very small amount of money can be useful for a rainy day or to help in your debts.

Always pay off the smallest bills at first, this way you will save some money and add it to the highest bill. This works in most cases when you have for example 5 bills. You pay the small then allocate an extra payment from the saved amount into the higher bill.

Again and again, we repeat the same messages, keep your credit card for emergencies, do not carry the card with you, and have cash in your pocket unless you really and urgently need it. Get out of troubles, and put your credit card at home. Hide it somewhere out of your eyes. 

Take this into consideration; the credit card business is very competitive. When you always make your payments on time, call and ask to lower your interests, this is a right for you.

In the next post we shall continue with our plan so look in soon.

Real examples are usually the best tool to demonstrate a theory. Let’s take few examples:

Lets just imagine you have 3 debts:

-      Home Loan

-      Credit Card

-      Car Loan

Home loan has an amount of $36.000 with %14 of interest rate, $3500 for the credit card with %18 of interest and $21.000 for the car loan with %10 of interest.

Most people unfortunately, do not summarize their debts correctly. They simply follow the debt period/time and payoff their debts without having a clear status of what is really happening behind the scene.

This Blog, is not written to simply explain theories; you will learn how to calculate your debts and how to recreate a payment plan to avoid huge interest rates and hence cutting down your debts and/or becoming debt free.

As an advice, take your calculator, have a paper and do at the same time these examples and you will notice how drastically you can cut down your interests and save time and money!

Let’s now start to summarize these debts:

Summary for your current debts:

-      $60.500 is the total amount of the debts we have. ($36.000 + $3500 + $21.000)

-      12.8% is the interest rate we are paying. (Weighted average for 14%, 18% and 10%)

-      $850 is your current monthly payment. ($500 + $100 + $250)

-      $647.50 is the amount of interest you are paying each month. ($60.500 x 12.842% / 12)

-      76.1% is the percent of your monthly payments on all your debts.

If you continue to make the current minimum payments on all your debts, you will be in debt for:

13 years and 2 months

During this time you will pay a total of $59,766.10 in interest which is 98.7% of your current debt!

Can you imagine this huge number! 98.7% of interest!!!

This is the current debt status; this is the nightmare if you do not follow a debt free plan. Shocking numbers!

● Your Home loan needs 13 years and 2 months to be paid off

● Your Car loan needs 12 years and 2 months to be paid off.

● Your Credit card needs 4 years and 3 months to be paid off.

Total: $60.500

Interest: $59.766.10

Can you imagine paying interest approximately the same amount of owe? Unbelievable!

You will be paying for this $120.266, by simply recreating a repayment plan (following steps of Chapter 5), you will save this money! And save time too! And make life easier and let the dream come true, by understanding this you can hopefully start to see how to get out of debt simply by having a greater understanding about how interest works and make it work for you.!

If you were to pay off your debts by paying either the minimum amount or the payment amount of a 15 year amortization, you would have to pay a total of $59,766.10 in interest and would not pay off your debts for 13 years and 2 months and in the next post I shall be looking at how to make a debt plan.

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This little blog will help you summarize your debts and create a Debt Reduction Plan that will show you how to pay off all your debts much sooner than you would by paying only the minimums.

After reading my next few posts, you will be able to reduce or/and eliminate your debts in as little time and/or with as little interest payment as possible. Believe it or not, you will succeed to let the dream come true.

This post will be followed with real-life examples, on how to reduce debt for a given payment.

Keep in mind one word: “Interest”.

Interest is a magical tool, interest makes you rich or poor. Creditors always use it to their advantage. Remember! It can also work in your favour if you really followed the articles in this blog. Let the interest be working FOR YOU instead of AGAINST YOU.

However, getting out of debt and becoming debt free will require patience, commitment, and consistency. The most important part of this step is to restructure the way you pay bills and set priorities.

We know very well that everyone is excited about getting a fresh start especially upon graduation, and unfortunately in most cases this start is at the same time the beginning of debts!

You will accumulate loans, credit card bills, and miscellaneous expenses and costs. These debts you are building will unfortunately stay with you a very long time if you do not know how to manage and get rid of them in the shortest time by paying the least interests. Debts and interest charges can eat you alive!

The first advice to become debt free is to pay attention on how you are spending your money, the second advice is to summarize your debts and get a debt reduction plan work at it and become debt free.