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Today's Financial AdviceAllBusiness
One of the words that is being tossed around with increasing frequency is "recession." And the question becomes this: can your personal finances survive a recession? Heavy debt and low savings are just the things that can cause you money problems during a recession. But there are some things you can do now before the recession really hits, to shore up your personal finances. And if the recession never hits? Then you are that much more ahead financially. Four things that can help you prepare your personal finances for a recession There are four main things you can do to prepare your personal finances for a recession:
4. Consult a professional. A fee-based financial planner can help you chart your path."But remember, the shares you buy while the stock market is down will likely be the ones that will have generated the biggest gains a decade or more down the road. And the money you invest during market setbacks could very well provide the spending cash you'll need in your later retirement years."Choose solid stocks that are likely to make a good recovery. They may not offer sexy returns right now, but they are the tried and true that will recover from a recession. If you plan carefully now, and take the appropriate steps, your personal finances should be able to survive a recession. Tags: personal finances, finances recession, survive recession, personal finance blog, stock market, get out of debt, debt reduction plan Get advice on Personal Finance and find information about Financial Planning on AllBusiness.com. AllBusiness.com provides resources to help small and growing businesses start, manage, finance and expand their business. Copyright © 1999 - 2008 AllBusiness.com, Inc. All Rights Reserved. |
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More than 40 percent of the consumers surveyed by the U.S. Government Accountability Office in 2004 hadn’t checked their credit reports for errors. Federal law now entitles you to one free report every year from each of the three national credit bureaus: Equifax, Experian, and TransUnion. Get all three at www.annualcreditreport.com, and steer clear of other Web sites that offer “free” reports only if you subscribe to their expensive credit-monitoring services.
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For example, out-of-date information is inaccurate, right? Wrong. If you recently paid down your credit-card balance to zero but the credit bureau shows a three-month-old balance of $8,000, that’s not a disputable error, says Donald Girard, a spokesman for Experian, as long as the outdated balance was correct as of the reporting date. Missing information is also wrong, isn’t it? No. Credit bureaus don’t have to report your credit limit if the creditor doesn’t tell them. And creditors often don’t tell because they want to prevent competitors from identifying and stealing their high-limit customers. Missing credit limits can also hurt your credit score, but the credit bureaus won’t accept the information if you try to fill in the blanks.
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Dispute an error directly with each credit bureau because they’re under no obligation to report corrections to each other. Creditors and other information furnishers, however, are required to send corrections to all credit bureaus they regularly report to. Credit-bureau Web sites encourage visitors to dispute errors online, but that’s not the best approach. Instead, dispute the information in writing and send the letter by U.S. mail with a return-receipt requested. That way, you have proof that the credit bureau received it.
Here’s why an old-fashioned letter is better. Consumers must send copies (not originals) of all documents that support their claim. Then the credit bureaus are to pass along “all relevant information” to creditors for them to investigate. But they don’t always follow that rule. Instead of sending all the information, whether the dispute was filed online or on paper, credit bureaus often truncate your detailed argument down to clipped, generic codes that consumer groups have criticized as “vague and broad.” To get around credit bureaus shirking their duty, also send a copy of your credit-bureau dispute--along with all documentation--directly to the creditor or information furnisher.
The credit bureaus normally have 30 days to investigate and correct any errors they find, and it appears that they meet those timelines. However, consumer groups say that creditors don’t do a meaningful investigation. Rather, they merely check the claimed error against the flawed records that originally generated the mistake. Some creditors have confirmed this, regulators say. Creditors may also simply delete disputed information to avoid the cost and trouble of verifying its accuracy.
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As previously noted, creditors are required to report corrections to all credit bureaus that they regularly report to, but this sometimes gets overlooked. If that happens, you must file a new dispute with the creditor. But this time, include a copy of the documented correction that you already won so you don’t have to completely reargue your case.
To motivate the creditor to comply with the law and not make the same mistake again, you should also file a complaint about the creditor with the Federal Trade Commission, at www.ftc.gov (click on File a Complaint on the toolbar).
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If a lender, insurer, or other party based its prices or other decisions on your erroneous credit report within the last six months, the credit bureau is required to send corrected copies to those companies--if you request it. Finally, ask any insurer who used your credit report to rerate your policy premium taking into account the correct information. And ask any lender who used the erroneous information to recalculate your interest rate or reconsider a rejected loan application. Also ask utilities or landlords to return any extra security deposits you had to pay because of the error. If, in the previous two years, the error caused adverse consequences with a prospective employer, ask the credit bureau to send the corrected report to the employer.
If errors were the result of identity theft, you have the right to block the credit bureaus from reporting specific accounts that were opened by the thief, accounts that were once yours but were taken over and trashed by the crook, and other erroneous negative information. You can even block credit-application inquiries piled up by the thief--and you should, because multiple inquiries can reduce your credit score by creating the impression that you have been applying for an unusually large amount of credit. To accomplish this, you must fill out, notarize, and file an ID theft report with the credit bureaus. Find the necessary form at www.ftc.gov/bcp/edu/microsites/idtheft.
Copyright © 2004-2008 Consumers Union of U.S., Inc.
Bankrate.com
Wednesday February 20, 6:00 am ET
Kay Bell
In this tax tip:
Even better, the deduction is claimed directly on Form 1040, meaning there's no need to itemize to get the break. Rather, it's an adjustment to your income, helping cut your tax bill by reducing your overall income. The less income to tax, the lower the tax bill.
While every little bit helps, the educator expenses deduction is indeed relatively small. But because it's an adjustment to income, more school employees should now be able to claim at least a portion of their class-related expenditures.
Before this above-the-line deduction was created, these costs could be claimed only if they were included as miscellaneous itemized deductions on Schedule A. Even then, the expenses were useless unless they and all other allowable costs totaled at least 2 percent of the filer's adjusted gross income.
Who can claim costs?
The deduction is not limited to teachers. The Internal Revenue Service says you can take the deduction if, for the tax year, you were employed at a state-approved public or private school system and held one of a number of positions.
Couples who share education careers could get a double break if they file jointly. However, each spouse is limited to $250 of qualified expenses. That means if you spent $350 on school supplies and your husband spend $150 on his classroom, you can only deduct $400 on your return even though your combined education expenses were $500.
What about home schooling? Sorry, but the tax law specifically states that costs for this type of instruction don't count toward the educator-expenses deduction.
What items are deductible?
As for exactly what you can deduct, the guidelines are pretty broad. You can count unreimbursed costs for books, supplies, computer equipment (including software and services) and other equipment and supplementary materials used in the classroom.
The IRS also applies its "ordinary and necessary" rule here. To be considered ordinary, an item purchased for your classroom must be something that is common and accepted in the education profession. A necessary expense is one that is helpful and appropriate, but it doesn't have to be required to be considered necessary.
So buying a videotaped production of "Death of a Salesman" to help drive home Arthur Miller's points to your students would likely meet tax muster. But purchasing a new HD television upon which to watch it instead of using your school's working-but-old set may raise some IRS eyebrows.
Circumstances could limit expenses
In addition to the eligibility requirements, the IRS also has set some limits on the money spent on school supplies. Most notable is the restriction that could affect teachers who are continuing their own educations.
The IRS says when an educator uses any tax-favored funds to pay for his or her own schooling, those amounts must be subtracted from the total the teacher claims under the new deduction.
Take for example Joe Jones, a high school English teacher who is working toward his master's degree in literature during school breaks. He cashed in savings bonds to pay his tuition and excluded the bonds' $150 interest from tax. He also spent $200 for books on Shakespeare to distribute to his 11th-grade students. He must subtract the $150 in tax-free interest from the $200 for the books, leaving him only $50 to claim under the educator's expense deduction.
The same rule applies to nontaxable earnings a teacher gets from qualified state tuition programs or tax-free withdrawals from a Coverdell education savings account.
Coordinating classroom claims
The educator expenses deduction is definitely great for taxpayers who don't itemize. But claiming it won't prevent you from taking other eligible itemized deductions on Schedule A.
If you're a teacher who usually itemizes to save on taxes, such as deducting home mortgage interest and property taxes, keep doing that. In fact, if you spent more than $250 on your class, take another look at the miscellaneous deductions line on Schedule A to see if you can use the excess to also claim this itemized tax break.
Just remember to take the educator expenses deduction on your 1040 form, too. For example, if you spend $500 on classroom supplies, claim half of it directly on your 1040 as an educators' expenses deduction. Then add the other half to your potential miscellaneous itemized deduction amount.
It might be just enough to allow you to take that tax break, too.
Wednesday February 20, 6:00 am ET
Kamil Skawinski
At a glance:
Name: Suze Orman.
Hometown: Chicago.
Education: University of Illinois, Urbana-Champaign.
Career highlights:
Author of six consecutive New York Times best-sellers: "Women & Money," "The Money Book for the Young, Fabulous & Broke," "The Laws of Money," "The Lessons of Life," "The Road to Wealth," "The Courage to Be Rich" and "The 9 Steps to Financial Freedom."
Contributing editor to "O, The Oprah Magazine" and biweekly columnist for Money Matters on Yahoo Finance.
Two-time Emmy Award-winning television host for her PBS specials.
Host of The Suze Orman Show on CNBC.
Recipient of four Gracie Allen Awards in television, a record number, by the American Women in Radio and Television.
Founder and director of the Suze Orman Financial Group.
In her latest book, "Women & Money: Owning the Power to Control Your Destiny," Orman examines this dysfunctional relationship and its consequences for women and their families. She then offers a clear, easy-to-follow, five-month "save yourself" plan that can spare them from unnecessary grief -- financial and otherwise.
Orman recently sat down with Bankrate and shared some of her thoughts about women and retirement, and what women can do to make their financial futures more stable and secure.
Much of the financial advice that one reads and hears today appears geared more toward women than men. Are women in need of more guidance? What are the unique challenges that they face with saving, investing and retirement planning?
In my book, I do make the statement that women do have a dysfunctional relationship with money. The dysfunction is … not their inability to make good investments or to make the right decisions with money when it comes to investing. Women have the ability to invest, save and manage money as good, if not better, than anybody else. The problem, the "dysfunctionality," comes in that women believe that money is for everybody else's benefit before their own.
So the purpose of money is to take care of your children, to take care of your husband, to take care of your life-partner, to take care of your parents, to take care of your sister, your brother, your neighbors, your friends, your employers, your employees. And only after everybody else is taken care of … will women then begin to think about themselves.
But doesn't this "dysfunctionality" with money also manifest itself in women's investment strategies? It's been noted in survey after survey that women invest much more conservatively than men, and that there's still a great deal of financial insecurity among women today.
Women want to make sure that they keep everything safe and sound for the day that they or, more likely than not, somebody else, may need it. Women, by nature, are nurturers.
So what would you recommend women do differently with their investments so they can have a secure retirement? Would, for example, "life-cycle" mutual funds be a good investment option for women today? After all, they adjust from more aggressive to more conservative with the passage of time.
I'm not fond of these because, if you look at their actual returns, they have not done as well as regular index funds have done.
But I also think it's very dangerous to say, "This is how people should invest," because people are dictated not by their money. They're dictated by their emotions and how they feel about their money. And if their emotions -- one emotion being fear -- if that is what comes up in relationship to their money, they will invariably buy at the wrong time and then sell at the wrong time, which nets them less money. And they'd quite possibly have been much better off buying municipal bonds at a 5 percent tax-free rate or a Treasury rather than going in and out of the stock market because they got afraid.
A specific example of this is a woman who used to work for me as one of my secretaries. She's now retired and lives with her husband. And when I talked with her the other day, she said to me, "Suze, I'm so afraid about my money." And I asked, "What's the matter?" And she then told me, "I'm down $20,000 -- and that's all I have, Suze. That's all we've got."
I went and looked at her portfolio and I'm like, "What are you talking about?" Yes, she was down $20,000 from being up almost 20 percent over the past year. She was still up considerably on the year, but she's just down $20,000 from her high, and she's now emotionally freaked. Emotionally, now she doesn't want to stay in the market anymore. So guess what? She needs to come out.
She needs to come out because she is now afraid, she doesn't feel good, she's thinking about it. So, I said, "Fine, you've made a lot of money, you just want to keep it safe and sound, so let's take it out and put it into individual bonds and let's see what happens." And that made her happy. She can live her life.
Now, she's in a situation where she has enough money. She owns her home outright along with everything, so she's fine. And there's the key. Women feel secure when they own their homes outright.
Men like to have money invested to generate income to pay the mortgage. Women would rather have the mortgage paid off totally. And I am on the side of the women here. They are far better off in retirement owning their own homes outright rather than having money in a retirement account generating the income to pay a mortgage.
But owning a home outright is just part of the total financial equation.
Yes. If women follow the "save yourself" plan that's in my "Women and Money" book, part of my strategy is that women, absolutely, have a savings account and a checking account they can call their own. They need an emergency account, they need money in a retirement account, they need a will, they need a trust and they need the right types of insurance. And in their retirement accounts, or wherever it is that they may be investing, they should be doing so on a dollar-cost-averaging basis as long as they have ten years or longer until they'll need that money.
But once they know that they're in a home that they'll stay in for the rest of their lives -- and they're 40 to 45 years of age and they've just now started saving for retirement -- I would rather see them put less in a retirement account, like a Roth IRA or a 401(k), and more toward paying off their mortgage so that it's fully paid off by the time they retire.
That runs counter to conventional wisdom. Why would you have them pay off the mortgage before maxing out their retirement plan options?
You want me to give you the numbers on why? OK, say you have a $200,000 mortgage. At today's interest rates, that's a payment of $1,200 a month for a 30-year fixed-rate mortgage. After 20 years of paying $1,200 a month, you will still owe approximately $100,000 on that mortgage. Say you're now 65 to 75 years of age and you still have to pay out $1,200 a month for the next 10 years. How much do you need in a retirement account to generate, after taxes, $14,400 a year? You will need approximately $400,000 in a retirement account, let's say your 401(k), earning 5 percent.
Don't you think it's easier to pay off that $100,000 that you owe rather than to have to save $400,000 just to generate the income needed to pay that amount off every month for 10 more years? Your mortgage, after all, was only $200,000 to begin with. Yet there are plenty of financial advisers and accountants who will say to you, "Oh, please … the money is cheap and you get a great tax write-off. Just keep doing it and don't worry about it."
The problem is, for a woman, well you're going to, actuarially speaking, end up alone. And then let's say you lose your job or you lose the ability to work, and you also lose that second Social Security check that had been coming in because your husband has died. How are you going to pay that mortgage? You still have to come up with that $1,200 a month and, for most people, that is an awful lot of money. And you could easily not be able to come up with that amount and then be forced to sell your home.
Would you advocate that women and couples seriously consider a 15-year mortgage in lieu of the traditional 30-year mortgage?
Absolutely. If you know you're going to be staying in a home -- and I would only do a 15-year mortgage if you know you're going to stay in that home -- a 15-year mortgage is usually a half-percentage point cheaper in interest rate to begin with than a 30-year mortgage. Why would you get a 30-year mortgage at a higher interest rate if you know you're going to pay it off in 15 years?
If there was one thing, one message you'd most want to emphasize on the subject of women and retirement, what would that be?
Please don't wait until something happens, until you suffer some emotional loss, to get involved with your money. Women, you have more talent in your little finger than you know. It's probably more than most men have in both their hands.
We women do it all, we honestly do. Can't we please turn that talent on ourselves? Can't we give to ourselves as much as we give of ourselves? Can we understand that the true gift, the true legacy to pass down to our daughters, is one that we can also give to ourselves? It's not being selfish, it's not wrong, it's not disrespectful. It's what is needed so that you can become a woman who owns the power to control her own destiny. You've got to do it and you've got to do it now.
Bankrate.com
Tax rebate winners and losers
Saturday February 16, 6:00 am ET
Kay Bell
Congress took a step toward satisfying our curiosity Feb. 7 with final passage of the Economic Stimulus Act of 2008 (H.R. 5140). When President Bush makes it law with his signature this week, the IRS can begin setting up the system to get checks out to 130 million Americans.
In the meantime, as is often the case with taxes, answers to those first two big questions led to additional inquiries. And as the various rebate amounts and eligibility situations were more widely discussed, confusion reigned.
Don't despair. Most folks will get some cash back from Uncle Sam. And Bankrate has found answers to some common questions that should help you determine just how big a check you can expect.
Tax rebate FAQs
So will individuals who last year had earned incomes of at least $3,000 but who owed no taxes. This provision, added by the Senate to the original proposal drafted by the House and the administration, means that around 20 million lower-income older Americans who rely primarily on Social Security payments, and 250,000 disabled veterans (and those who receive their survivor benefits), will get a rebate.
Some parents also will get an extra payment for each eligible child.
How much will I get?
The figures $300, $600 and $1,200 have gotten a lot of attention. That's because they are part of the basic rebate amounts, as follows:
Individual taxpayers could receive rebate checks of at least $300 and up to $600.
Married couples will get up to $1,200.
Most individuals who have income of $3,000 but who do not have to file a return will get $300.
Some taxpayers with children will receive an additional $300 per child.
Now we get to that "additional inquiries" situation noted earlier.
Let's start with the majority of rebate recipients, who will be workers who in 2007 had "net tax liability." Most of them will get a check for $600. That amount, however, is the maximum rebate, so some could get less.
The key phrase in determining the precise amount is "net tax liability." This figure is the amount of tax you owe, both regular and alternative minimum tax entered on line 46 on the 2007 Form 1040, before you continue working down your tax return and subtract certain credits to arrive at your actual, final tax bill.
Most workers will have a net tax liability well above $600, so they'll get the maximum individual rebate amount. But if your tax liability is less, then that will be the amount of your rebate check.
Married taxpayers who file joint returns will get a maximum rebate of $1,200. That's double the maximum possible rebate amount for single filers. Again, it could be less than that depending on your tax liability. But don't worry if only one spouse earned the income. Filing jointly is all that's necessary.
What if you don't have any net tax liability? Thanks to a provision added by the Senate to the House/White House original rebate proposal, you can still qualify for a rebate of $300 for single filers ($600 for joint filers) as long as you have at least $3,000 in income from a job or Social Security or veterans' disability benefits.
Will I get more for my child?
In many cases, there is a rebate bonus for children. But not for all kids.
For rebate purposes, a qualifying child is one who is younger than 17. That means that taxpayers who claim an older college student as a dependent won't get the extra money.
Neither will college kids themselves be happy. The rebate bill specifically makes dependents, or even those who could be claimed as a dependent, ineligible for the rebate. So students who can be claimed by parents won't get rebates even if they held jobs outside class that otherwise would have qualified them for the money.
"The kid may have $3,000 in income, but his parents are paying much more for his college expenses so he's a dependent," says Bob D. Scharin, RIA senior tax analyst form Thomson Tax & Accounting. "It does seem unfair that the child can't claim the rebate."
Who won't get a rebate?
In addition to the unlucky older kids and their parents, a few other folks are left out of the rebate mailing.
Nonresident aliens are excluded. So are trusts and estates.
And wealthier taxpayers also face some rebate limits. Your rebate amount will begin phasing out if you're a single filer with an adjusted gross income, or AGI, of more than $75,000; more than $150,000 for married couples filing jointly.
These taxpayers will find their rebates reduced by $50 for every $1,000 above the income limit. That means the $600 rebate will be eliminated for individuals with an $87,000 AGI; it will be zeroed out for married joint filers with an AGI of $174,000.
What do I need to do?
Most of us just need to file and wait. "Fill out your 2007 return as usual," says Scharin.
Mark Luscombe, principal federal tax analyst for the tax software and publishing company CCH, says some folks, however, might be more proactive.
"A few people who otherwise wouldn't file might want to consider doing so this year," he says. "By filing, you're saying 'Here's my return. I have no taxes due, but by the way, please note that I have $3,000 in earned income.' It's a way of waving your hand to make sure you get your rebate."
Both Luscombe and Scharin expect the IRS and Social Security Administration to work together to find eligible rebate recipients who don't have to file. The new law gives the IRS $202 million, the Treasury Department $64 million and the Social Security Administration $31 million in additional funds to administer the rebate program.
When can I expect my money?
With all that money added to the government agencies' budgets, you'd think they could get the checks out quickly. That's not necessarily so.
Because this law took effect during filing season, and one that already was slowed because of previous alternative minimum tax legislation passed late last year, the IRS will not be able to start issuing checks until mid-May. That will give them time to process most of the 1040s that arrive by the April 15 deadline.
And if you ask the IRS for more time to finish your 2007 return, expect to also wait on your rebate. Filing for an extension, and not actually filing your return until the Oct. 15 deadline for extended returns, will delay your rebate," says Luscombe.
Right now, the official word from the IRS is that it has not yet worked out the mechanics of the rebates.
In 2001 -- the last time the agency issued such checks -- they were distributed based on taxpayer Social Security numbers. Those payments seven years ago also were mailed, but there is a possibility that rebates could be directly deposited into taxpayer accounts if that's how they receive any 2007 refund.
The IRS promises to post rebate delivery information to its Web site as soon as it's available.
Will a refund affect my rebate?
Speaking of refunds, some folks have expressed concern that if their 2007 return gets them tax money back, they won't get a rebate check. Not to worry.
"Your refund has nothing to do with it," says Scharin. "The rebate is treated as if you gave the government extra money and then it is sending it back to you. It's sort of like extra withholding."
In fact, although the rebates will be determined by your 2007 tax filing data, the money actually is officially an "advance credit payment" against your 2008 income. So it has no bearing on your 2007 taxes, whether you owe or get a refund.
And that leads to our last frequently asked question, or rather questions.
What will the rebate mean to my 2008 taxes?
Will I owe taxes on my rebate amount next year? What if this year my situation changes and that means my rebate amount should be less?
For most filers, says Luscombe, this year's rebate will appear as a simple gift from the government. The rebate amounts are tax-free.
But filers will have to reconcile any money they receive this year when they file their 2008 returns.
"It harks back to the 2001 situation when we got the new 10 percent bracket and got an advance check for that. Then on next return had to account for it," says Luscombe. "It's expected to be that way this time."
The 2008 tax forms should have a line for the new credit. When calculating taxes next year, taxpayers will have to subtract what they got as a rebate check the previous summer.
"Some people might think that's unfair," says Luscombe, "but they got the money, and they got it early."
One thing taxpayers won't have to worry about is giving back any excess if their 2008 taxes show that the advance this year was actually more than they should have received.
"If it turns out that credit on your 2008 return is greater, you get to take that additional amount," says Luscombe. "If it's lesser than what you got in 2007, you don't have to refund that back to government." The law says the IRS can't recover the extra payment by reducing your 2008 refund or adding to your 2008 tax bill.
Rebate boosting tax moves
Because the law is technically an advance credit on 2008 taxes, taxpayers essentially get two shots at maximizing the extra tax money.
Since there's still two months left in the 2007 filing season, you still have time to tweak your 2007 returns to enhance the rebate amount. And if that's not viable now, you have the rest of this year to take some tax steps that could maximize the rebate/credit on 2008 returns you'll file next year.
Consider, for example, a taxpayer now working on his 2007 return. He has no earned income so he is not eligible for the rebate. Neither does he get Social Security, which would trigger a rebate check. But he does have unearned income and is planning to use deductions and credits to reduce the tax due on those earnings to zero or less. He might want to reconsider that usually advantageous strategy.
"The provisions get pretty tricky here, but people in this situation might want to take a close look at the law and consider not taking every last penny of the deductions and credits they're entitled to, in order to qualify for a rebate," says Luscombe. Ideally, the taxpayer in this income situation also has rebate eligible children. By creating a tax liability -- a few dollars is enough -- he would get that small tax amount back along with the child rebate bonus.
"A dollar or two tax liability is probably not worth it, but two kids means $602 in rebates," says Luscombe. "As long as you have a tax liability, even on unearned income, you'll get a rebate up that that liability."
At the other end of the rebate scale, taxpayers whose 2007 income was just above the phaseout limits should look now at ways to reduce their 2008 income. This will give them another chance at rebate/credit money they're missing now.
Something as simple as increasing 401(k) contributions, says Scharin, could bring down your adjusted gross income enough to get more rebate money. You also might look at selling assets that would produce a capital loss.
Either way, if you get your rebate in a few months, enjoy what you receive this year. And if you're able to get a bit more on your 2008 returns, be sure to take advantage of it then, too.
Dear JaiVon,
Credit unions are owned by their membership, so the break in the lending rate and the bump in the savings yield relate to the benefits of ownership. Members of a credit union share something in common, such as a profession, workplace or locale.
The Credit Union National Association, or CUNA, has a credit union locator that lets you search by either location or possible ties to the membership of a credit union. Or you could search Bankrate.com for credit union savings rates.
I don't think that the targeted federal funds rate is a motivating factor for Americans to seek out a credit union that they're eligible to join. If you like the loan rates, deposit yields or community feel of a credit union, there's never a bad time to become a member.
It's important to note that shares (equivalent to bank "deposits") insured through the National Credit Union Share Insurance Fund carry the same full faith and credit pledge of the United States government as deposits insured through the Federal Deposit Insurance Corp. The two insurance funds also have similar limits on insurance.
I have compiled a list of the top five ways to make your tax season bleak. Do these things and you are certain to wish you had not.
1. Don't file a tax return because you don't have the money to pay your taxes.
Always file, even if you do not have the money to pay the taxes you owe. The IRS considers not paying on time and not filing as two separate issues, and a penalty is involved for each. When you file your tax return, you have several options. You can apply for an "offer in compromise," make monthly payments through an IRS installment agreement, or temporarily delay paying. Whichever is best for you, contact the IRS right away to let them know you cannot pay. You should pay as much as you can when you file because the IRS assesses penalties and interest on the amount not paid.
2. Ignore those letters from the IRS.
Do not ignore mail from the IRS. If you owe taxes, the IRS will collect. Persons who do not communicate with the IRS about inability to pay can expect a "Notice of Federal Tax Lien" to be filed against their property. In lien terms, this is a lien about the size of Alaska. Few carry more weight. The lien attaches all your property, including your house, car and any future property you might obtain. A levy, which is a legal seizure of property to satisfy a tax debt, is another legal means the IRS can use to collect taxes. This means the IRS can seize your car, boat or home and sell it to satisfy your tax debt or it can place a levy on your wages. More good news is that these liens often stay on your records long after the issue has been resolved or until the IRS gets around to removing it. So it's also the gift that keeps on giving!
3. Pay your tax bill with a high interest credit card.
Although this is a better approach than not paying your taxes at all, you should investigate the best way to borrow the money. Compare the interest rate of your credit card with that of a personal loan from your bank or credit union. The idea is to incur the least amount of money in interest. Try to pay off the loan as soon as possible and do what you can to avoid the same situation next year. To pay your taxes on time, you may need to adjust your withholding on your W-4 with your employer or put aside money each pay period in a savings account.
4. Get a refund anticipation loan.
Your impatience could cost you more than you realize. Refund anticipation loans are advertised heavily at this time of year. What the advertising does not tell you are the fees and steep interest rate associated with that short-term loan. Fees range from $25 to $100 to prepare your tax return, and depending on the amount of the refund a finance charge can be the equivalent of a 100 percent annual percentage rate. Also, don't forget this is a loan; if the IRS turns down any deductions or credits on your return, you will still be responsible for the full amount of the loan. You do have other options, such as filing electronically if you have a checking account. You can expect your tax refund to be deposited in your account in 10 to 14 days. Another option is to wait approximately six weeks to have your refund check mailed.
5. When you get your refund, spend it as fast as possible.
Spending your refund may not be such a good idea, no matter how tempting. Review the best use for your tax refund. If you have large credit card debt, inadequate savings or limited retirement fund, a better use of your refund may be to pay down debt, open a savings account or establish an IRA.
Obviously, I hope that you do not do the above bad practices. However, if you have already misstepped, make sure you know your rights as a taxpayer.
Two personal notes: First, my tax preparer has his office across the street from a cemetery, so I get to contemplate both death and taxes at the same time; and second, my dad was an IRS agent for 30 years, so I have the additional weight of him watching over my shoulder as well as his contemporaries.
Good luck to you all!
The Debt Adviser, Steve Bucci, is the president of Consumer Credit Counseling Service of Southern New England. Visit CCCS for additional debt advice or click here to ask a debt question.
You want to make sure that you can keep your job if times get tougher. Here are five things you can do to improve your chances of being kept on:
The Barrett-Jackson classic car auction ended in mid-January, and some of those who watched the massive live coverage on the Speed cable channel -- or who were at the auction in person -- are asking whether some new cars will bring many times their current value in the future.
The answer is that there are no guarantees.
Consider the 1976 Cadillac Eldorado convertible, thought to be the last American convertible when it was new because of fears that pending safety legislation would ban soft-top cars. The Wall Street Journal was filled with ads offering to sell new 1976 Eldorado convertibles for $25,000, twice the sticker price.
More than three decades later, even perfect examples of '76 Eldorado convertibles struggle to reach $25,000. Factor in inflation and what $12,500 -- the Eldo's sticker back then -- invested conservatively would now be worth, and it's hard to see the Cadillac as a good investment.
Fast-forward a bit to the limited edition 1990 Corvette ZR1, which stickered for nearly twice that of a standard Vette coupe. Many buyers went beyond the ZR1's sticker, paying as much as a $25,000 premium to be among the first owners. Today, ZR1 Corvettes routinely sell for little more than $30,000.
But what about today's cars?
Market conditions may make some of the cars arriving in dealer showrooms this year better bets than previous modern-era cars.
That's because federal fuel economy and emission legislation may spell the end of the widespread performance-car market.
Today's conditions are similar to what happened in the late 1960s and early 1970s, when emission standards effectively killed what is known as the "muscle car" era. Cars like the Pontiac GTO, Chevelle SS 396, Mustang Boss 302 and Plymouth Road Runner disappeared from showrooms and became coveted icons because newer vehicles didn't live up to their performance levels.
Even when modern cars began to catch up and exceed the performance levels of those muscle cars, image vehicles from the 1960s and earlier rose in value because they represented a different feel and style from today's cars.
There's every reason to believe that 20 years from now, innovation will find a way to make new cars -- be they powered by gas-electric, diesel or hydrogen power plants -- as fun to drive as today's high-performance vehicles. Still, there is likely to be a hankering for the feel of gasoline V-8 power.
With that in mind, here are a few of the new vehicles that might -- emphasis on the word "might" -- one day be worth a lot more than their 2008 purchase price.
5 cars that may become collectibles
"Brad who?" you ask, trying to seem nonchalant even as your voice betrays you by cracking and you feel yourself blushing deep scarlet. "Oh, you mean Brad from the fifth floor? Nah, we're just friends." But Annoying Co-Worker is on to you, not the least because you can't seem to wipe that silly grin off your face.
You've come back to your cubicle after lunch to find a single rose on your keyboard -- another obvious clue for your colleagues -- for the third day in a row. You turn on your computer and there are 37 new e-mails in your inbox, seven of which are about actual work issues. The rest are from Brad, the cute guy in the legal department, the one who always seems to be in the elevator when you go on your breaks. There's a lot you don't know about him, but it sure has been fun flirting. What wouldn't be fun is if your office-mates discovered your blossoming romance. You're not sure you could take the scrutiny, or -- let's face it -- the teasing. How can you discreetly fan the flames without causing a conflagration?
Depending on your and Brad's job titles and the company's fraternization rules (and you did read the employee handbook cover to cover, memorizing all the salient points, right? Right?), an office love affair can fall anywhere on the continuum from delightfully embarrassing to the cause of lawsuits and termination. Before you accept that invitation to snuggle in the supply closet (or, more realistically, indulge in an intimate two-hour lunch or romantic after-work dalliance), make sure you're aware of company expectations and ignore them, if love or lust compels you, at your own risk. A few simple guidelines will help you with the "discreet" part; the rest is none of our business.
It's a story of human triumph and perseverance.
Paul, one of my clients, was involved in a terrible car accident that almost left him paralyzed. Being an eternal optimist and a student of possibility, Paul persevered. He didn't listen to the naysayers or to the doctors who told him that he may never be able to walk again. He tapped into his internal strength and refused to surrender.
After several lengthy surgeries, the insertion of a titanium rod into his leg, and countless months in rehab, through his relentless drive to overcome the odds against him, Paul regained the ability to walk.
Paul turned what could have been a tragedy into a new career for himself, becoming a well-known motivational speaker.
For those of you who are wondering how one becomes a motivational speaker, it's essentially the same as developing any other business. You need to develop your product and brand, your presentation, sales strategy, business plan, and marketing campaign.
It was during our fourth month working together when Paul became ready to start marketing his services. He had developed his first seminar. We worked together on finalizing his sales and marketing strategy. Paul was ready to hit the streets and start bringing in new clients.
At least, I thought he was. Wait, that's not accurate: He was ready, I knew he was ready, and Paul admitted he was ready from an organizational standpoint. However, there was a disconnect between his logistical preparation and his internal or personal feeling of eagerness or inclination. Paul just wasn't ready to go out there and close a sale.
There were some red flags indicating something in Paul's mind still prevented him from putting himself out in the marketplace.
"Keith, I'm almost ready. I'm just not ready yet. You see, I still have to get my business cards done."
One week later: "Keith, I'm still not ready yet. I also need to complete my Web site. And then my presentation needs to be tweaked a little bit. Once that's done, I'll be ready. Oh, I mean after I finish the PowerPoint presentation. And I still have to get that professional photo taken . . ."
Just when I thought Paul exhausted all of the possible excuses that were preventing him from taking action, he came up with one last one. (In fact, it was the last one that I allowed him, before calling him out on all of these diversionary tactics he created for himself to justify his inaction.)
It was during a coaching call that Paul informed me of his achievements throughout the prior week. Paul was telling me about how much progress he had made in identifying the first round of target companies that would be a perfect fit for his services.
"That's wonderful," I exclaimed, happy to hear that he had identified these companies. "So, what day this week do you want to commit to calling these companies?" I asked.
"Well," Paul began reluctantly, "Here's the thing. I need to do a little more research of these companies before I start calling on them."
Paul was clearly wearing his perfectionism on his sleeve. I inquired, "Okay, Paul, so tell me, exactly when will you be ready?"
"Well," Paul began. I sensed that he was about to give me a laundry list. I was right, and I stopped him before he got on a roll.
"Paul, let's look at this through a different set of lenses for a second, okay? What if you were ready, right now, today? After all, you shared with me that you have essentially everything you need to launch your company and start selling. And, most importantly, you have your heart, your passion, and your drive to share your story and inspire others."
"Yes, but it's still not completely finished."
"So when you say completely finished is it possible that what you really mean is completely perfect?"
Silence. A few minutes later, Paul reluctantly agreed with me.
Paul suffered from a clear case of perfectionism. And while this is a very elusive diversion we often use to keep us from taking action, Paul felt that in order for him to be ready, he had to have everything perfect, including himself.
Believing that you are "almost ready" is the same as "almost" making a sale. Neither pays the bills.
So, when researching the companies that he wanted to call on, it only made sense that Paul became a knowledge junkie, believing that if he could get everything perfect and learn everything he needed to know about public speaking and about his prospects he would be ready to go out and sell. Unfortunately, of course, this level of perfection and expertise can never be achieved. Thankfully for Paul, we dealt with his hang-up before he sought out the "perfect close."
After discussing the consequences of his actions and the lack thereof, Paul soon realized that who he is and his experiences -- that is, things he already had -- are the greatest assets to his audience.
Besides, if you strive for perfectionism, you are striving for an unattainable ideal. Consider for a moment the division you create between you and your prospects, who are of course mere mortals.
Here are five questions meant to expose any disadvantageous perfectionism in yourself:
Paul welcomed himself back to the human race and soon found out that it was the vulnerability he experienced from the accident with which people connected and that made him human. At this time, Paul is successful and continues to inspire people around the world.
About Keith Rosen, MCC -- The Executive Sales Coach
Keith Rosen is the executive sales coach that top corporations, executives, and sales professionals call first. As an engaging speaker, Master Coach, and well-known author of many books and articles, Keith is one of the foremost authorities on coaching people to achieve positive change in their attitude, behavior, and results. For his work as a pioneer and leader in the coaching profession, Inc. magazine and Fast Company named Keith one of the five most respected and influential executive coaches in the country.
If you're ready for better results quickly, contact Keith about personal or team coaching and training at 1-888-262-2450 or e-mail info@profitbuilders.com. Visit Keith Rosen online at Profit Builders and be sure to sign up for his free newsletter The Winners Path.
Get more information on Sales Projections in our Sales & Selling Center on AllBusiness.com. AllBusiness.com provides resources to help small and growing businesses start, manage, finance and expand their business. Copyright © 1999 - 2007 AllBusiness.com, Inc. All Rights Reserved.
"I write down ideas and cut out photos from magazines that help me visualize what I want," explains Richter, who is director of business development at CRI, a recruitment outsourcing firm. In the past, she has pasted $100 bills on the board to remind her of her financial goals. She has included a picture of a man and woman holding hands on a beach to emphasize what she's working toward: a dream trip to Costa Rica with her husband. She has even jotted down words like "serenity" and "peaceful" to prevent her from getting consumed by the ceaseless demands of her sales job.
"I look at the phrases and images on my vision board every day," says Richter. "It keeps me focused and reminds me why I get up every morning."
Keith Rosen, an executive sales coach and author of Time Management for Sales Professionals, believes it is essential for salespeople to begin each year by creating "a personal navigation system" similar to Richter's vision board. "It's the system you use to navigate through life, which encompasses your vision, goals, and routine, providing you with a clear sense of purpose and direction," he says. "Having the end result clarified in your mind and on paper before you become consumed by your daily responsibilities will make the process of reaching bigger goals easier and more enjoyable."
Here are seven vital strategies for setting and achieving your sales goals for 2007:
For expert advice from Keith Rosen himself on meeting your sales goals, check out Meet Your Sales Goals by Learning to Honor the Process.
Get more information on Sales & Selling in our Sales Management Center on AllBusiness.com. AllBusiness.com provides resources to help small and growing businesses start, manage, finance and expand their business. Copyright © 1999 - 2007 AllBusiness.com, Inc. All Rights Reserved.
Last Updated: 2008-01-02 14:35:03 -0400 (Reuters Health)
By Amy Norton
NEW YORK (Reuters Health) - A happy heart just might be a healthier one as well, new research suggests.
In a study of nearly 3,000 healthy British adults, lead by Dr. Andrew Steptoe of University College London, found that those who reported upbeat moods had lower levels of cortisol -- a "stress" hormone that, when chronically elevated, may contribute to high blood pressure, abdominal obesity and dampened immune function, among other problems.
In the study, published in the American Journal of Epidemiology, women who reported more positive emotions had lower blood levels of two proteins that indicate widespread inflammation in the body. Chronic inflammation is believed to contribute to a range of ills over time, including heart disease and cancer.
Researchers have long noted that happier people tend to be in better health than those who are persistently stressed, hostile or pessimistic. But the reasons are still being studied.
One possibility is that happier people lead more healthful lifestyles, but not all studies have found this to be the case, explained Steptoe.
"We have therefore been searching for more direct biological links between positive states and health," he told Reuters Health.
The current findings, according to Steptoe, add to evidence that happiness and other positive emotions are "associated with biological responses that are health-protective."
The study, published in the American Journal, included 2,873 healthy men and women between the ages of 50 and 74. Over the course of one day, participants collected six samples of their saliva so that the researchers could measure their cortisol levels; after taking each sample, participants recorded their current mood -- the extent to which they felt "happy, excited or content."
On a separate day, the researchers measured participant's levels of C-reactive protein and interleukin 6, two markers of inflammation in the body.
They found that men and women who reported happier moods had lower average cortisol levels over the course of the day -- even when factors such as age, weight, smoking and income were taken into account.
Among women, but not men, positive emotions were also related to lower levels of C-reactive protein and interleukin 6. The reason for the sex difference is not clear, according to the researchers.
Steptoe said the findings on cortisol confirm the results of earlier, smaller studies; the results on C reactive protein and interleukin 6, however, are new.
"These findings suggest another biological process linking happiness with reduced biological vulnerability," he said.
But if happier people are healthier people, the more difficult question remains: How do you become happier?
"What we do know," Steptoe noted, "is that people's mood states are not just a matter of heredity, but depend on our social relationships and fulfillment in life."
"We need to help people to recognize the things that make them feel good and truly satisfied with their lives, so that they spend more time doing these things."
SOURCE: American Journal of Epidemiology, January 1, 2008.
Copyright © 2008 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
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Newswise — Forgiveness may be good for your health, according to the January issue of Mayo Clinic Women’s HealthSource.
Holding a grudge appears to affect the cardiovascular and nervous systems. In one study, people who focused on a personal grudge had elevated blood pressure and heart rates, as well as increased muscle tension and feelings of being less in control. When asked to imagine forgiving the person who had hurt them, the participants said they felt more positive and relaxed and thus, the changes dissipated. Other studies have shown that forgiveness has positive effects on psychological health, too.
Forgiveness doesn’t mean forgetting, condoning or excusing whatever happened. It’s acknowledging hurt and then letting it go, along with the burden of anger and resentment.
There’s no single approach to learning how to forgive. Talking with a friend, therapist or adviser (spiritual or otherwise) may be helpful during the process, to sort through feelings and stay on track. The January issue of Mayo Clinic Women’s HealthSource covers four steps that are included in most approaches to learning forgiveness.
-- Acknowledge the pain and anger felt as a result of someone else’s actions. For forgiveness to occur, the situation needs to be looked at honestly.
-- Recognize that healing requires change.
-- Find a new way to think about the person who caused the pain. What was happening in that person’s life when the hurt occurred? Sometimes, the motivation or causes for the incident have little to do with those most affected. For some people, this step includes saying, “I forgive you.”
-- Begin to experience the emotional relief that comes with forgiveness. It may include increased compassion for others who have experienced similar hurt.
Mayo Clinic Women’s HealthSource is published monthly to help women enjoy healthier, more productive lives. Revenue from subscriptions is used to support medical research at Mayo Clinic. To subscribe, please call 800-876-8633, extension 9PK1or visit www.bookstore.mayoclinic.com.
Children with reading problems improve significantly if teachers help and encourage their parents to read with them at home.
This was the finding of Bernard Levey from MENCAP Pengern College in North Wales who published his findings today, Wednesday 9 January, at the British Psychological Society's Division of Child and Educational Psychology Annual Conference in Bournemouth.
The project was carried out in six Hull primary schools involving 143 children aged between seven and ten years old who were already receiving support for literacy difficulties. A support assistant visited each child's home weekly to give advice, provide materials and give support to the parents in their work with their children.
The children, who had previously been making slower than average progress, were now making at least one months progress per month. However, when the support was not available the children's progress fell to less than 50%.
Mr Levey commented; "Parents can, with support make a difference to their children's progress in literacy even when the child has special needs. These results are impressive but equally remarkable was the change in the confidence level of parents, the raised level of interest in literacy and the greater recognition by schools that parents with the right level of support can make a difference. At the end of the project parents reported feeling more confident about helping their children read and a greater interest, not only in the children, but also amongst the parents in reading"
British Psychological Society
During 2005, 8.9 million cases of compromised identity were reported in the United States. While the number of incidents decreased 12 percent between 2003 and 2005, the total amount of fraud increased by 6 percent to $56.6 billion, according to a study conducted for the Better Business Bureau by Javelin Strategy & Research, a financial services marketing and research firm.
Javelin revealed that 63 percent of identity fraud was perpetrated by one of these methods:
Credit monitoring services have mushroomed along with identity theft fears. However, as we discussed in a previous column (Don't Use Credit Monitoring Services), frequent credit checks by any third party will lower your credit ratings. And using these services can create a false sense of security because there are actions you need to take to secure your personal information.
Here are some simple steps you can take to protect your identity:
Incorporating these actions into your life will stop most identity fraud.
Next week we'll examine the ultimate measure you can take to prevent access to your financial information.
Get more information on our Personal Finance Center on AllBusiness.com. AllBusiness.com provides resources to help small and growing businesses start, manage, finance and expand their business. Copyright © 1999 - 2007 AllBusiness.com, Inc. All Rights Reserved.
But the most heinous identity crimes don't occur when someone steals your checkbook or credit card (this usually doesn't harm your credit ratings when the theft is reported to the police and filed with the credit bureaus). Instead, the serious damage occurs when they steal your entire credit history. With access to your intimate, personal credit files, these thieves can build a bogus life -- assume your identity to purchase homes, cars, jewelry, RVs, etc. To put it even more bluntly, they can:
After you place a security freeze, or file freeze as it is sometimes called, no one can access your credit files except current creditors or collection agencies working on their behalf. Unless you remove it, the freeze will remain for seven years. This means you control who sees your credit files and identity thieves are forced to find a different victim. It also means employers, potential landlords, or others who may need to review your credit cannot see your file unless you temporarily lift the freeze.
In 2003, California authorized these security freezes and they gradually have been adopted by most other states. This month TransUnion credit reporting agency launched its Security Freeze program in all 50 states. Experian says it will launch its service on November 1, and Equifax says it will institute its own program by the end of this month. Watch for further details in future What's Up with My Credit? columns.
Each of the credit bureaus will charge a fee. TransUnion and Experian will charge $10 in most states. And they will also charge a small fee to temporarily lift a freeze for up to 30 days when you need to have your credit checked. If you have experienced identity fraud, no fees will be charged.
Experian says its system will supply you with a PIN number, which you must have to access your credit records. You will be able to phone an 800 number and get your Experian File Freeze lifted within minutes. In an emergency, you can easily lift the Experian File Freeze as long as you have your PIN.
TransUnion will require you to have both a FIN (file identification number) and PIN to access your credit file or lift the freeze. As with Experian, you absolutely cannot lift the freeze without these numbers. If you lose them, you will need to wait approximately two weeks to receive replacements.
Warning: When you sign up for a freeze service, these agencies will all try to sell you credit monitoring or copies of your credit reports or your credit scores. Don't buy. No one can access your credit after the freeze is in place unless you authorize access. You don't need your credit monitored.
The only product worth purchasing from the credit bureaus is the FICO score that Equifax offers when you order your annual free credit report through Annualcreditreport.com, as we discussed in a previous column (How to Correct Mistakes on Your Credit Report). With a security freeze in place, you will still be able to order your annual free credit reports and correct any credit report errors without lifting the freeze.
Finally, be sure to look closely at all accounts in your credit report, even those in good standing. If you have no knowledge of an account, someone could be using your identity to replace their damaged credit history. They could be paying bills on time and hoping their presence will remain undetected. If you don't recognize an account in your credit file, find out why. Take action to secure your identity now.
Get more information on Personal Finance and Finance & Accounting Center on AllBusiness.com. AllBusiness.com provides resources to help small and growing businesses start, manage, finance and expand their business. Copyright © 1999 - 2007 AllBusiness.com, Inc. All Rights Reserved.
Dear Dr. Don,
I had a Visa student credit card with Bank of America. Two months before the card's expiration date, the bank sent a new card without asking me first. A week later, I applied for an American Express Clear card and qualified for it. I also called Bank of America to ask for an increase in my line of credit, which they approved. Will these actions hurt or bring down my credit score in any way?
How often can I apply for credit cards in a given year without damaging my credit score?
How often can I ask for an increase in my line of credit in a given year without damaging my credit score?
Is it a good idea to apply for another card? Will it hurt my credit score?
-- Michael Magnate
Dear Michael,
Credit cards have expiration dates, but the account relationship does not. Credit card companies always send you a new card prior to the expiration of the old one. Asking for an increase on the credit line can help and hurt your credit score. The credit review process that occurs prior to an increase in your credit line may cause a dip in your score. However, the increased credit line also helps your credit score by increasing the ratio of credit used to credit available. Here's a chart from the myFICO.com Web site showing the factors that go into your credit score.
Credit score factors
Source: myFICO.com
Every time you apply for credit, the loan application generates a credit inquiry on your credit report. Called a hard inquiry, it stays on your credit report for two years but only impacts your credit score for the first year. Your credit score is based on the information in your credit report.
You can get one free credit report every 12 months from the consumer reporting agencies. However, you have to pay for your credit score. Bankrate has partnered with myFICO to provide a free FICO Score Estimator and its feature, "How to get your free credit report," will help you get your credit reports.
Between requesting an increase in the line of credit on your Visa card and opening a new American Express card account, I think you've applied for enough credit at the moment. Take a breath. Work on staying current on your credit card with timely payments and keep balances low to nonexistent.
Day 1
It's the first of the month, and the mortgage payment is due. The borrower misses the payment.
Day 16 to day 30
A late charge is assessed on payment.
The company that processes the borrower's payments (called the mortgage servicer) starts attempting to make contact to find out what happened.
Day 45 to day 60
The servicer sends a "demand" or "breach" letter to the borrower pointing out that terms of the mortgage have been violated.
The borrower is given 30 days to resolve the situation by paying the delinquent amount.
Day 90 to day 105
The servicer refers the loan to its foreclosure department and hires a local attorney or other firm to initiate foreclosure proceedings.
Depending on the state where the home is located, the servicer's representative may record a formal notice of foreclosure at the local courthouse, publish details of the debt in the local newspaper, attend hearings on the case and make appropriate court filings.
Day 150 to day 415
The house is sold at a foreclosure sale or auction. The wide time range is due to different state requirements.
Borrowers in states with judicial foreclosures, or those in which lenders have to retake property titles via the court system, can get almost a year to straighten out their affairs before the sale. Those in nonjudicial states have as little as two months.
Day 150 to day 415 and on
After the sale, some states grant borrowers a "redemption period" in which they can still repurchase the property if they have the money. Others force consumers out immediately following the auction.
Chances are, you mentally filed these come-ons under good old-fashioned American entrepreneurship in action. Maybe you even think kindly toward companies that would offer a hand to debt-ridden homeowners on the brink of foreclosure.
Fat chance. The majority of these so-called foreclosure "rescuers" are actually sleazy predators who offer sinking homeowners what Harvard Law School professor and bankruptcy expert Elizabeth Warren calls "the cement life jacket."
Before you're even aware of it, these scam artists will have acquired your home for a fraction of what it would have brought at sale. Or, in an even worse scenario, they will have transferred your title into a trust that then enables them to rent or "resell" your property to equally hoodwinked buyers while, to your surprise, you remain legally obligated to make the mortgage payments!
Foreclosure "rescue" scams are nothing new. What is new is the historic convergence of economic and political forces that Warren says may soon bring about a home-equity version of the stock market crash of 1929. She blames loose credit, lending deregulation and a Fed-supported campaign encouraging Americans to tap their home equity for bringing us to the precipice.
"In 1929, you could borrow money to buy stock, and then use that stock to buy more stock. At that point, the stock market became overinflated and it crashed," she says. "Much of the same thing is going on now, only instead of stocks, it's home equity."
Take a closer look at these foreclosure "rescuers" and you'll soon see those DayGlo come-ons for what they really are: warning signs of the bubble burst to come.
What the sharks smell
Like sharks and blood, scam artists always smell money. And in America, we've been pouring our money into our homes since the tech-stock collapse gave us a renewed awareness of our risk tolerance. Homes were safe. Homes were real. And, partly fueled by this renewed demand, real estate suddenly became the investment of choice for stock-weary working folks, making them vulnerable to scams and scam artists.
Financial institutions capitalized on the sea change by loosening credit. You can buy a home, maybe two! Can you really afford not to? And, just so you can continue to live the lifestyle you've become accustomed to, they offered an unprecedented number of ways to strip that equity through lines of credit, home equity loans and cash-out refis. The Fed cooperated by keeping interest rates at historic lows.
Our homes suddenly started to look like, well, stocks -- with one big catch.
"All you're doing when you take out a second mortgage on your house is borrowing more money," says Warren. "If you take out equity, it isn't like selling off part of your stock portfolio. You can't sell off two of your bedrooms. You can't say, 'Boy, this market is at its peak, let's sell the backyard.'"
Welcome to what Warren calls "the middle-class squeeze." Rising costs of health care, housing and education, combined with increased job uncertainty, income volatility and eroding salary levels, have placed America's piggy banks -- its homes -- at a financial risk like never before.
According to Warren, the overinflated real estate bubble is not only "unmistakable," but when it bursts, its effects are going to be widespread. Remember Econ 101: When supply exceeds demand, prices plummet.
"A quarter of all homes now are owned by investors," she says. "We are seeing those investors pull out of the home market, and no market can sustain losing 25 percent of its participants."
The perfect storm
Steve Tripoli hears the not-so-distant thunder, too. As consumer fraud investigator for the National Consumer Law Center in Boston, Tripoli interviewed numerous state attorneys general and legal aid staffers for the NCLC's June 2005 report, "Dreams Foreclosed: The Rampant Theft of Americans' Homes through Equity-Stripping Foreclosure 'Rescue' Scams."
Tripoli found that foreclosure "rescue" scams fall into three main categories:
"Rescuers" often place ownership of the property into a trust in the owner's name in order to avoid the "due-on-sale" clause in most mortgage contracts. They then transfer ownership through the trust to themselves or to a front operation. In these instances, the mortgage company is unaware that anything is amiss; the homeowner, however, is frequently left on the hook to pay the mortgage on a house she no longer owns.
Why do homeowners fall for these scams? Tripoli blames both the failure of lenders to adequately spell out the foreclosure terms, time frame and owners' rights, and the hesitancy of homeowners facing foreclosure to talk about it. That silence you hear is the deafening silence of shame.
"The consumer makes rushed judgments that are not good judgments. They get entangled in this and they think that what happened to them is just the way it works," he says. "Americans have the really admirable quality that they want to take responsibility for their own lives. They are too willing to take too much responsibility at times and take too much of the blame."
Unfortunately, help is becoming harder to find. Even if someone in foreclosure could afford to hire an attorney, fewer and fewer lawyers are inclined to take cases against scammers because the prospect of ever collecting a court award is extremely slim.
Daniel Ebihara, staff attorney for Clark County Legal Services in Las Vegas, helps foreclosure-scam victims by tapping into a network of real estate attorneys who volunteer their time to help. He recently won a trial on behalf of a young couple that thought they had sold their home to fend off foreclosure, until they went to buy a car and found that the 30-year mortgage was still theirs.
Sometimes scammers are far from strangers.
"This doesn't just happen with 'rescue' companies," Ebihara says. "We also see the elderly being taken advantage of by their own children, where they come in and say, 'We'll help you out. Just put us on the mortgage and we'll take care of you for the rest of your life.' As soon as the papers are signed, the kids are kicking their own parents out on the street. It's horrible."
With fewer places to turn, more homeowners are falling prey to the wolves that are literally at their door.
Tripoli agrees: "When you marry deregulation and the erosion of consumer protection to what's going on with consumer debt today, when you put consumers in this crunch and then you strip all their protection, you get a perfect storm. It's not a huge, huge number of Americans, it's not a majority, but it's a much bigger number than we've seen in the past."
Shelter from the storm
With credit tightening up, what should you do if foreclosure seems imminent?
Warren says if there is time, by all means refinance out of your zero-interest or adjustable-rate mortgage into a fixed-rate mortgage. "Even if it costs a little more, there will be a point in the future when you will thank every lucky star you have that you did it," she says.
If you've received a foreclosure notice, contrary to what the scammers would have you believe, contact your mortgage company first. There are many remedies available, including renegotiating the terms of your mortgage, that can save your home or failing that, allow you to walk away with most of your equity.
If you can't refinance, renegotiate or sell quickly, it may make sense to look at filing for bankruptcy.
"You're looking at a population that fears or loathes bankruptcy, and understandably. But it may be a more reasonable option instead of carrying on and maintaining a debt that you may still be obligated to pay," says Ebihara.
Benjamin Diehl, deputy attorney general for the state of California, admits that even his state's anti-foreclosure scam statute, the toughest in the nation, struggles, for want of enforcement.
"You could impose additional licensing fees, but if it's a crook, they're just going to operate without a license," he says. "What it's going to take is not necessarily extra regulatory hurdles or extra licensing requirements, but crackdowns."
Like Warren, Diehl is worried. He's seen the foreclosure scam being taught in get-rich-quick seminars from coast to coast while credit slowly tightens, putting additional pressure on those in the squeeze.
"I'm actually kind of scared because, if the supposed bubble is, in fact, a bubble and it does burst to where you have a bunch of people with their ARMs and their interest-only loan and no ability to refi, and those loans go into foreclosure, the thieves will come out of the woodwork. If it is a bubble and the interest-only loans come back to bite people, it's only just begun," says Diehl.
Warren is just as pessimistic: "It's like watching a train wreck in slow motion."
How does one go about working out a plan to keep their home?
When you fall behind on payments, your chances of getting cooperation from the mortgage servicer are better if you follow these guidelines:
Step-by-step plan for seeking help
Respond to the mortgage company's phone calls and letters
The mortgage servicer is the company that collects monthly payments, passes along the payments to the homeowners insurance company and tax collector, and makes phone calls and sends letters when borrowers fall behind.
Academic researchers have found that, in about half of foreclosures, the delinquent borrower never talked to the servicer.
"Our biggest challenge is getting folks to respond," says Bill Rinehart, chief risk officer for Ocwen Financial, a large servicer of subprime mortgages in West Palm Beach, Fla. Fear, embarrassment and shame keep delinquent borrowers from talking to servicers. "These folks, in many cases, are financially unsophisticated, so the whole process is intimidating to them," Rinehart says. "They feel that if they just ignore it, it will go away."
It won't.
Delinquencies and foreclosures have been rising nationwide for more than a year. As mortgage lenders lay off loan officers, mortgage servicers hire debt collectors and loss-mitigation specialists. Ocwen's loan resolution department has 123 full-time employees. A year ago, it had about 70 employees.
We train our collectors to have empathy," says Teresa Bratcher, Ocwen's director of foreclosure prevention. "These people, for the most part, didn't choose the circumstances that they're in."
Tip: Answer the phone and open your mail, but don't agree to any terms until you read the next tip.
Seek advice and negotiating help from a third party
Respond to the mortgage servicer, but don't be rushed into making a promise that you can't keep. Before making a deal with the servicer, describe your situation to an attorney, accountant, or a knowledgable mortgage person, advises Neil Garfinkel, a lawyer with Abrams Garfinkel Margolis Bergson law firm in New York City.
When you are in danger of foreclosure, "those are perilous waters and you want to make sure you have a good adviser who can maybe serve as an intermediary to the lender," Garfinkel says.
Another place to go is a housing counseling agency or a consumer credit counseling service. A good place to start is the NeighborWorks Center for Foreclosure Solutions' hotline: (888) 995-HOPE (4673). NeighborWorks counselors will make referrals to local agencies.
I urge people to get some kind of help with this process, to the extent that they can," says Michelle Lewis, president of Northwest Counseling Service, in Philadelphia. "They can go out and do it on their own, but they need to be cautious."
Tip: Choices for guidance include consulting an attorney, a credit counselor or a housing counseling agency.
How one man found help
Northwest Counseling Service helped Bernie Watson keep his rowhouse in the Germantown section of Philly. Watson, who is in his 50s, bought the house in 1990 and refinanced the mortgage in 2000. But he didn't realize that the new servicer wasn't escrowing the property taxes. Taxes went unpaid until the mortgage was sold to ano
