Q. I settled a debt in 2007 for less than owed, paying $15,000 on a $22,000 debt. I just today received a $7000 1099c for tax year 2007 from the creditor in the mail. Does this actually mean that I have to amend my tax return for 2007?

A. A 1099c is a tax form issued as a result of cancellation of debt. The amount of forgiven debt will count as income. According to the IRS regulations, a creditor has up to 3 years after the last ” collection activity” to issue a 1099c. You, of course, are responsible for paying taxes in the year in which that activity occurred. So, if the creditor stopped trying to collect 3 years ago, they can issue you a 1099c for 2005, on which you’ll not only owe taxes, but penalty and interest (16%). If they sell the debt to a junk debt buyer (JDB), then it becomes the JDB’s responsibility.

Some “debt fixers” claim that all you have to do is file for “insolvency” an the IRS will look the other way. The bad news is, you have to be insolvent at the time the 1099c is issued…not when the debt was “forgiven”.

If the amount of this debt was sizable, you might want to think about calling the creditor (the credit card company) and demanding your 1099c so you can get the tax accounting right.

Actually, the above situation is rare (lucky you for being so singled out)! Most of the time if you settle your debt with credit card companies, they will issue a 1099c right away. What is even more rare is a collection agency or JDB issuing a 1099c.

Popularity: 2% [?]

It’s that time of year again with the holiday shopping season’s official “kickoff” upon us, the day after Thanksgiving, appropriately dubbed “Black Friday”. And while Black Friday is generally known as the day shoppers migrate in hordes to stores in person with credit cards flashing, this shopping frenzy is closely followed by Cyber Monday, the online equivalent of Black Friday.

I was watching my local news yesterday and a feature came on warning viewers of “a greater incidence of identity theft due to scammers taking advantage of the holiday season”.  According to the National Retail Federation, in 2007 it was estimated that 72 million people shopped online on Cyber Monday, giving identity thieves a noticeably larger pool of victims to choose from. In fact, the period from October through January usually sees a significant increase in identity theft complaints, both online and in the real world.

But should you do anything different as far as your shopping procedures on either of these holiday shopping extravaganza days? The answer is, not really; you should be using the same precautions for avoiding identity theft at all times of the year. But it doesn’t hurt to be reminded! Here is a list of things you can do to make your online shopping experience as safe as possible:

• Do business on sites that you know and trust only. Make sure it is a secure site! A secure site will have “https://” in the address file. And look for the padlock on the bottom of your screen: this indicates an SSL VPN connection, which keeps your information secure when it’s sent online.
• Do your shopping from your own computer, preferably from home. Using public computers such as at a library or airport kiosk may expose you to spyware or other information recording devices that can obtain financial information.
• Guard passwords and make them unique. Always mix letters and numbers, use at least 7 characters, change them frequently, and try not to use words from the dictionary. It makes them harder to remember but less likely that it can be figured out by hacker password programs. Don’t carry them in your wallet or “post-it” on your computer!
• Make sure your anti-virus and other software is up to date. Don’t ignore those annoying pop-up windows that keep asking you “update now?” for browser, virus protection and other programs…
• Watch out for Cyber Monday-themed “phishing” e-mails where crooks send you emails that appear to be coming from legitimate sites and send consumers to lookalike pages designed to gather personal information and steal passwords: steer clear of links embedded in spam messages. Instead, type in the vendor’s Web address manually into your browser and visit the site directly if you’re looking to purchase something online. Read this article for a bunch of tips on identifying phishing emails!
• Use a disposable or one-time use credit card. These cards are put out by companies like Visa and American Express and can help reduce your risk of credit card fraud and identity theft.

In 2007,  the FTC estimated that consumers lost more than  $1.2 billion from identity theft and fraud. With consumers already facing unprecedented economic challenges, it is prudent advice to be particularly wary this holiday season of scams and fraud both at stores and in the online world of shopping.

Popularity: 4% [?]

In these times along with mortgages and credit cards, many people are not able to afford student loan payments. SLM Corp., or Sallie Mae, the largest private student lender, reported a delinquency rate of 9.4% in September, up from 8.5% a year earlier. “It’s clearly because of economic conditions,” says spokesman Tom Joyce. “The credit crunch has washed onto the student-loan beach.”

Unlike credit cards, there is no statute of limitations on these types of loans, meaning that they can haunt you into the grave. Collections agencies hired by Sallie Mae are in a strong bargaining position when dealing with consumers because of this. In my experience, Sallie Mae collection agencies are typically a cut above above collection agencies dealing with credit card (unsecured) debt.

I get many people who come to me with debt exceeding $100,000 in student loans and payments of $1000/month. What to do if you are buried in debt and facing default?

1. Student loan blemishes on your credit report (I’ve seen up to 25 loans on a single credit report) can be easy to fix. Any Sallie Mae loan can be “rehabbed” through the Department of Education. Typically, if you qualify for the program and make 12 payments on time, they will upgrade your paying status on your credit report as “paid, never late”. Contact information for the department of education is at http://www.ed.gov.
2. Another way to handle student loans: you can possibly wipe out some or all of your student loans through a program recently introduced: public service student loan forgiveness program.
3. One other ray of light: in July 2009, a program called the income-based repayment plan — designed to help those who take jobs with lower salaries — will be another option for people with federal loans.

Still the current default rate is still less from the late 1980s, when student-loan default rates skyrocketed to as high as 30%. That prompted state and federal governments to pass legislation allowing them to seize income-tax refunds, withhold professional licenses and enlist collection agencies to gather payments. Meanwhile, the U.S. Department of Education withheld eligibility from federal financial-aid programs from institutions that didn’t keep their default rates low.

Popularity: 6% [?]

Fannie Mae and Freddie Mac recently announced that from November 26, 2008 to January 9, 2009, there will be a “stay of execution” for borrowers in jeopardy of foreclosure. In other words, they have provided an initiative to their servicer network requiring that all foreclosure and eviction proceedings shall be suspended during this time period, in order to provide a “reasonable opportunity” for the recently announced rescue program to be implemented effectively. The announcement affects approximately 6,000 borrowers who have auction sales or evictions scheduled over the holidays, who now have postponements effective until after the Christmas season.

This action is expected to give the federal housing giant adequate time to more efficiently implement their new streamlined modification that they plan to launch in mid December, 2008.  Designed to enable borrowers delinquent on their mortgages who are able to qualify at a level of no more than 38% of gross income,  the foreclosure suspension (unfortunately) assists only a small percentage of homeowners that are potentially facing foreclosure over the next two months. Homeowners facing eviction prior to November 26 are not expected to be offered any sort of relief, but an estimated 10,000 borrowers would qualify for the holiday “stay of foreclosure”, according to Fannie Mae personnel.

“By delaying these foreclosure sales, the nation’s servicers will have the opportunity to work with more borrowers who could qualify for a modification under the new program”, said Freddie Mac Chief Executive Officer David Moffett.

Eligibility is determined by several factors: Homeowners must be 90 days or more late in their mortgage payments, owe at least 90% of their home’s current value, live in the home on which the mortgage was taken and have not filed for bankruptcy. Although Fannie and Freddie mortgages predominately account for more than half of all mortgages, they have relatively few of the most risky subprime loans at the center of the foreclosure crisis, thus this program is only a small step in the road to recovery for the mortgage and housing debacle facing our country.

Popularity: 7% [?]

Most of us are concerned enough about our physical health that we would most certainly heed a warning sign such as an unusual pain or lump on our body that slowly appeared over time. Similarly, our financial health should be handled with the same sort of care and caution. And just as there are both obvious and more subtle signs of physical problems with our bodies, there are different types of red flags that may indicate we are in financial trouble, especially when it comes to debt related to credit cards. Here are some of the warning signs to heed:

• The balance transfer game. Are you finding yourself simply juggling balances from one credit card to the next? Of course, this is a fine idea if you can find a no-fee balance transfer offer with low-to-no interest rate for a set amount of time, but these are hard to find for those without stellar credit scores (and even then, they are unusual) . Every time you transfer the debt fees are added and you will likely be subject to increased interest rates.
• Despite making your payments on time, your balances only increase. You can handle making the minimum monthly payments for each of your financial obligations, unfortunately the balances are not coming down as a result. Due to the exorbitant interest rates that many credit cards charge, and the fact that most have a pretty low minimum monthly payment requirement (by design), this is not an uncommon situation. Don’t get trapped by assuming paying minimum payments will get you out of debt someday; it’s quite the opposite, unfortunately.
• You skip payments on some bills in order to pay others, or worse even use cash advances on one credit card to pay off another. This is like russian-roulette; definitely a game that can blow you out of the water in an even worse situation if you aren’t careful.
• Your credit limit is maxed out on most of your cards. Don’t think that the solution is to get more cards, or to request an increase in your credit limit. Of course, beware, many companies will be more than happy to do so if you are making regular payments and they are earning plenty of interest and fees from you.
• You have no debt repayment plan.  In other words, you have no clue how you are going to dig out of the financial hole you are in, but as long as you can take it a month at a time it’s “all good”. Newsflash: it’s not good at all. You may feel like you are being “savvy” because you’ve figured out a way to buy all these items and have thus far figured out how to manipulate the system on a monthly basis, but it is going to catch up to you: and soon.

The first step to overcoming a debt problem is recognizing it. If you are reading this article, that is most likely a sign in itself. If you find yourself in any of these situations, think seriously about addressing your debt either on your own (here is a great article to read) or through the services of a credit counselor.

Popularity: 8% [?]

Spam, spam, spam, spam, wonderful SPAM!!

Now if you are are younger than a baby boomer you most likely think of Spam as those annoying “unsolicited bulk junk emails” that grace our cyberspace in-boxes daily. The rest of us either hear the lyrics of the 1970’s era Monty-Python created “Spam-a-lot” song running through our heads, or simply remember our parents serving the product on our sandwiches during childhood.

The canned meat product was invented in 1937 by Hormel Foods Corporation, and was an immediate culinary hit even before it was sent off to war to feed the troops in 1941. Since it’s release, almost 7 billion cans of Spam have been sold in the U.S. and abroad. The product has such a following it even has it’s own fan club and website, www.spam.com.

The news is, it seems that Spam sales are thriving as the economy is (reported) to be heading into recession. Even as consumers are cutting back on all sorts of goods, Spam is among a select group of thrifty grocery items that are showing steady sales. The CEO of Hormel, Jeffrey M. Ettinger, indicated in a September briefing that sales figures for Spam were growing “by double digits”.

Apparently, consumers are taking seriously the need to cut back in all areas of their spending. Given that food is a necessity for sustaining life, we certainly can’t quit buying food but we can modify our choices to include less expensive alternatives. Spam, which is considered an inexpensive source of meat protein, certainly fits the bill at about $2.50 a can.

Other products that seem to be enjoying renewed interest and higher sales in the down economy remind me of my menu back in the college days: boxed macaroni and cheese, plain instant rice and mashed potatoes, beans and pancake mix, according to October data released by market research firm Information Resources.

Kraft Foods recently confirmed the trend as well indicating that several of their value-oriented products such as Jello, Kool-aid, Velveeta and macaroni and cheese were experiencing higher than anticipated sales and increasing growth.

So, folks, if you believe the economic forecasters and that worse times are yet to come, it’s time to stock up on affordable foods: and maybe, speaking of stocks, Hormel isn’t a bad bet right now either…

Anybody have some great Spam stories they want to share?

Popularity: 10% [?]

Sometimes when I am talking to a reader about his or her debt, though he or she may be a stranger, I can hear an enormous amount of stress in their voice. I immediately switch the topic of conversation, and focus on calming them down. I am positive that if the reader is really stressed, they are not really going to absorb what I am saying, and the conversation will be a waste of time.

Back in June, we did a blog post on Stress-Related Health Problems. The post did not cover how to “de-stress” when you are freaking out over your debt problems. Well, we’re fixing that oversight now. The following list are things which seem to work in stopping the panic when counseling someone about their debt.

If you get overwhelmed, do the following:

1. Stop. All. Of. Your. Thoughts. For. A. Few. Seconds. Don’t think this is possible? I’m not kidding, you can really do this. Just sit down and listen to your breathing for 10 seconds. Don’t think, just focus on each breath. It’s just 10 seconds, people. This is not pop-psychology. Studies show that stopping and taking a few deep breaths will decrease your heart rate and halt the adrenaline flooding your system. It’s a way to “snap out” of your panic. It’s kind of like distracting a child when they are throwing a tantrum. They are very upset about something, and if you hand them a toy or point out something interesting - what happens? The tears dry up, and the child suddenly stops the tantrum. I’m not suggesting you’re a child, just giving you an example of how distraction can work.
2. Remind yourself that you are taking action in the situation. If you are reading this website, talking to a counselor, or even typing in the word “debt” into a Google search, you are not helpless; you are taking action. Taking action always makes me feel better because I know that I taking control of the situation.
3. A solution for your problems does exist - keep telling yourself this. If you are reading this post, somewhere down deep, you must believe this because you are looking for an answer. I’m 100% positive that there is a solution for you. We’ve got hundreds of success stories to tell you. The solution to your problems may not be an easy solution, but there are things you can do to pull out of the debt downward spiral.
4. Now is not forever. When you are really upset about something, it’s easy to fall into the trap of thinking that because your problems seem so enormous and all-consuming that they will last forever. This is simply not true. Invoke the cliche in your thoughts: “this too shall pass”. In a week, a month, a day, a year, things will be different. And that situation will be better if you just take some action, even if it’s just research.
5. Confide in someone. Talk to a trusted friend or family member. Sometimes keeping things bottled inside can magnify the intensity of your stress.

This advice has helped many others in the past to calm down so they can start to find ways to solve their debt problems. I hope it helps you. Breathe, grasshopper.

Are you calm yet? Ready to do some research? Read our free debt section!

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I get asked this question a lot: “If I do X, how many points will my credit score go up?”

The truth is, no one knows EXACTLY, except for the creator of the FICO score, Fair Isaac and the creators of the other scoring system, VantageScore. VantageScore was created by the credit bureaus in an effort to have to keep purchasing the rights from Fair Isaac to use Fair Isaac’s scoring system when giving out credit reports to consumers and financial institutions. Whenever you pull a credit report from a credit bureau, you are NOT getting a FICO score, only a VantageScore.

Though the exact formulas for each scoring system are shrouded in secrecy, what seems to be the most important factors in calculating a consumer’s score has been posted on their websites. Listed, in order of importance are:

1. Payment History
2. Amounts Owed (percentage of credit limit used)
3. Length of Credit History
4. New Credit
5. Types of Credit Used

Fair Isaac and VantageScore take into account all of these factors when calculating a consumer’s credit score. In addition, any item on your credit report, such as a late pay, is weighted against your overall credit report. Both positive and negative factors are considered; a score is not calculated by taking the maximum possible score and subtracting negative items from it.

So which credit score should you care about? We always recommend that you order your credit score from myFico.com, which is the scoring system most lenders use.

If you want to raise your score quickly, we’ve written this article to help you out.

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Having been a corporate slave for a good portion of my life, I am all too aware of the complacent, comfortable feeling that traditionally comes with long-term employment. The daily routine is built in for most Americans, who, on average, spend 70% of their Monday-Friday waking hours on work-related activities. But it seems, with recent economic times and competition being what it is, that the warm fuzzy feeling of stability in our jobs is looong gone for most of us. So if the axe suddenly falls on you, what should you do?

• Don’t panic: begin some basic expenditure cutting that you can live with temporarily, at least: for example, no eating out, put vacations on hold, cut back the cable service, do your own manicures…
• File for unemployment if you qualify; your previous employer pays for it, after all. It’s a pretty easy process in most states; contact the U.S. Department of Labor to find out the procedure for your state.
• Begin the process of gathering contact information for all your previous co-workers, friends, neighbors, family members, acquaintances; anyone and everyone you can think of. This is your “network” and is where you will start as far as finding open positions and getting referrals. Contact each personally via phone or email and discuss your situation and what kind of position you are seeking and provide your resume as applicable.
• Before you start networking, you need to make sure you have a rock-solid current resume ready for distribution.  Hire a professional to create or critique if possible; this will make a first impression and be the pivotal piece to determine if you even get a chance to step through the door for an interview.
• Get your resume out there on the many online employment sites; much less effective than your neighbor taking your resume in to the company where he works and handing it to the boss, but you have to cover all the bases.
• Get out there on social networking sites; Facebook, Linked in, and others.
• Be aware that your job search expenses may be tax deductible. The IRS allows deductions for certain expenses incurred in looking for a new job (in your present occupation), even if you do not get a new job. According to IRS tax regulations, you can deduct amounts you spend for typing, printing, and mailing your job applications, so ensure that you keep accurate records of expenses.
• Some additional ideas (a little more drastic) are to get a roommate to share expenses, get a temporary job just to make ends meet, sell some items on craiglist or ebay that you don’t need, collect aluminum cans (sorta kidding here!); but you get my drift.

When you get laid off, you need to make sure you don’t crawl into your cave in embarrassment. In fact, it is the ideal time to walk around and meet new people everywhere you go; keep a resume or a card with you! You never know when you may meet someone who can help you or knows someone who might have a position that is a fit. Networking is the most effective way to find employment. Good Luck!

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With the latest numbers from the Federal Reserve indicating that Americans are facing $900 billion in credit card debt, the proposed bailout is probably a case of banks simply attempting to cut their losses. Seeing the writing on the wall as consumers deal with record unemployment rates, skyrocketing home foreclosures, inflated prices for goods and their 401(k)s tanking, these financial giants are taking action in the form of a proposed temporary pilot program in which lenders would forgive as much as 40% of the amount of credit card debt consumers owe.

The proposal is being spearheaded by the Consumer Federation of America and the Financial Services Roundtable, and has the support of the most of the major players in the credit card banking circus (I mean circuit) including Discover Financial Services, American Express, Bank of America,  JPMorgan Chase & Company, Citigroup Inc., and Capital One Financial. The catalyst for this rather brash action? Credit card delinquencies are skyrocketing, and issuers’ charge-offs — balances written off as bad debt — are up 48% compared with last year, according to Moody’s Investors Service.

The credit card debt-forgiveness plan could (initially) help an estimated 50,000 people who are in serious debt, potentially facing bankruptcy; possibly more if the pilot program is deemed successful. How much debt would be forgiven would rise according to the severity of the borrower’s financial strife, ranging from 10 percent up to a maximum of 40 percent, contingent on evaluation of the individual’s personal financial situation. Individuals qualified to receive the maximum forgiveness level would be those nearing a personal bankruptcy filing. Additionally, qualified borrowers would have to enroll in a credit card debt counseling program. Debtors would also obtain a tax benefit, deferring income tax on the forgiven debt until they’d paid off the remainder of their balances.

It appears that the credit card companies have decided that getting something out of these debtors is better than getting nothing if they stop paying or file for bankruptcy.

How can I sign up? Wait; I probably don’t qualify. How “unfair” that I can’t take advantage of any of these bailout programs since I was able to sell my home last year and make a (much smaller) profit and still pay off my credit card debt each month– so far, with only part-time employment .

Many of us can probably relate with a quote from a recent article in msn money by Liz Pulliam Weston:

Bailouts are going to reckless Wall Street bankers, to homeowners over their heads and now maybe even to Americans hooked on credit cards. Where’s the reward in doing the right thing?

I guess I’ll just have to wait until the “Main Street Bailout” for those of us that have saved responsibly for years, and just lost half of it in the stock market, comes about; unfortunately I suspect I’ll qualify for that one…. that will never happen.

Is anyone else out there starting to get a little peeved?

Popularity: 17% [?]