Debt Free

For the rest of you, here is the reason that gas prices are so high. There is a little known office, high atop an office building in mid town Manhattan. In that office, on the 3^rd Tuesday of every month, there is a meeting of an even lesser known group of people, almost exclusively older, white, men by the way, who shape the future of world economics.

In these meetings they discuss how to separate the absolute maximum amount of money from the poor and downtrodden to enrich themselves, hopefully at the expense of all that is good and decent. The name of this secretive organization is the Commission for the Maximization of Oil Derived Revenues (CoMODR). They have been known to resort to all manner of tactics to not only achieve their stated goal of keeping gas prices, and other petro product prices, as high as possible.

Not only that, but more than a few good people have died trying to penetrate the inner workings of their organization, all to no avail. As can be seen when you drive by any corner gas station, gas prices are still going up, largely thanks to the efforts of these men. Thanks to modern technology and good old fashioned greed, their efforts to drive up gas prices are more successful than ever. Once, the thought of $125 barrels of crude oil and $4.00 gallons of gasoline were but pipe dreams to these men, something they could only hope to achieve.

Okay, so that’s all a total load of crap, but you would probably find that story a pretty easy sell to at least some of the aforementioned 203 million American drivers and the burgeoning crowd of conspiracy theorists spawned by ever increasing gasoline prices.

So, why is gas really so high? Is it all due to a secret conspiracy, or reckless oil company profiteering? Actually the reason gas prices are so high is a bit more simple than that.

As noted there were 203 million drivers and 244 motor vehicles in the U.S. in 2006. Worldwide, there were an estimated 850 million vehicles (Organization of Arab Petroleum Exporting Countries figures). Contrast that to 1973. In 1973 the U.S. had approximately 122 licensed drivers and 126 million motor vehicles. Worldwide, OAPEC estimates reveal about 298 million vehicles in 1973.

According to the International Energy Studies Group at Lawrence Berkeley Laboratory, the average fuel economy of U.S. driven, light duty, motor vehicles, the group that includes the cars and light trucks that are the predominant transportation resource for American drivers, was only 13.3 mpg. In 2006 that figure had increased to 21mpg (EPA figures). The fuel consumption figures will improve even further in the U.S. due to recent legislation, and the higher price of gasoline and diesel pushing consumers toward more efficient vehicles.

So fuel economy has increased, but not nearly enough to offset the increase in the number of drivers and motor vehicles. This is especially true when worldwide fuel usage statistics are considered. As the world economy has improved and population has increased, so has the demand for petro-products, including gasoline.

Here is the underlying reason why gas prices are so high.

Total U.S. refinery capacity (approximate):
1973 – 13.5 million barrels / day
2004 – 17.5 million barrels / day
This reflects a refinery capacity increase of 29.6%

World Wide Crude Oil Production (U.S. DOE):
1973 – 55.68 million barrels / day
2006 – 73.45 million barrels / day
This reflects a crude oil production increase of 31.9%

World Wide Crude Oil Consumption (U.S. DOE):
1973 – 57.24 million barrels / day
2006 – 85.01 million barrels / day
This reflects a crude oil consumption increase of 48.5%

Consumption increase far outstripped production increase for the period from 1973 – 2006.

U.S. Crude Oil Production (U.S. DOE):
1973 – 9.21 million barrels / day
2006 – 5.14 million barrels / day

This represents a crude oil production decrease of 55.8%

Total U.S. transportation related petroleum consumption:
1973 – 9.05 million barrels / day
2006 – 13.98 million barrels / day
This represents a transportation related crude oil usage increase of 64.7%

Also note that in 1973 U.S. refinery capacity exceeded transportation related demand by 49.2%, while in 2004 (transportation related crude oil demand was 13.76 MBD) they exceeded demand from the transportation sector by only 27%. As 100% of refinery capacity is not available at any given time for a variety of reasons, this, coupled with the fact that demand for motor fuel has risen, while U.S. capacity has been slashed by about 40%, means that we now import much of our gasoline, rather than producing in excess of our demand, as we did in 1973.

You may note that according to U.S. DOE figures worldwide crude oil consumption exceeded supply in 2006 by an average of 11.56 million barrels per day. I triple checked the figures on that, because it seems patently impossible that world wide consumption could outstrip supply by such a large margin.

That would mean that in 2006 the world used 4.2 billion more barrels of crude oil than it produced. Is there a giant tank of crude oil somewhere that I’m unaware of, or are these figures calculated using different methods. If those figures for supply and consumption are indeed true, that’s the reason for gas prices to be so high and be prepared for them to rise even further.

 Here is a post on some Tips to Save Gas.

Posted by debtblog at 08:58 PM | Permalink | Comments (0) | TrackBacks (0)

That is part of the reason for the economic troubles we’re facing these days. People want to get mortgages to buy houses, they have shown that they are trustworthy and historically are fairly unlikely to miss payments. However, many lenders (or their investors) are so skittish that these folks are being denied the opportunity for a mortgage in many cases.

If you are one of those that gets through the net and is in the position to be offered a mortgage, you shouldn’t just take whatever then lender is offering. There are some questions you should be asking first, even though you may just feel damn lucky to get a mortgage at all.

Here are mortgage questions to ask when analyzing your mortgage offer.

Mortgage Question to Ask – 1
What is the interest rate?

That is numero uno. The interest rate will have the greatest impact on how much you’ll pay every month and how much you’ll end up paying over the term of the loan. (For mortgages of the same amount, obviously.)

Mortgage Question to Ask – 2
Is this an ARM or a fixed rate mortgage?

In a survey of mortgage holders last year, over 30% of respondents were unsure of what type of mortgage they had. That amazed me so much I did a post on it. (Type of mortgage post) How so many could fall into this situation still amazes me, but don’t end up being one of these borrowers.

If you don’t know the difference between the different types of mortgages, here it is in a nutshell. A fixed rate mortgage is basically what the name implies. The interest rate will stay the same over the term of the loan. On the other hand, an adjustable rate mortgage (ARM) will change, or adjust, the interest rate at various times throughout the term of the loan. Rest assured the interest rate adjustment will be up, and so will your monthly payment. For more on this, see a post I did last year on how to select a mortgage.

Mortgage Question to Ask – 3
Are there prepayment penalties?

This is of huge importance. The majority of borrowers keep their mortgages for 5 years or less. That means you’ll pay off the mortgage and either get another one for your existing home, or you’ll buy a different house. In any case you’ll hold the mortgage for less than the full term. If you are charged a prepayment penalty it will cost you a hefty premium to do this.

Prepayment penalties are charged by lenders to help mitigate the risk that they’ll not get the entire revenue stream provided by the loan going full term (sounds like a pregnancy). Typically prepayment penalties expire after the first 2 – 5 years, but in some cases can persist longer than that. The penalty is monetary, you’ll not be asked to pledge your first born or classic ’57 T-bird. The normal prepayment penalty is about 2 – 3% of the outstanding balance at the time of the loan payoff.

You may be offered some consideration for agreeing to a prepayment penalty, such as a lower interest rate. On the other hand, you may be required to agree to one if you have bad credit, although at the present time few borrowers with really bad credit are able to get a mortgage at all, unless they have absolutely huge down payments.

A prepayment penalty may apply to a refinance only, in which case it is termed a “soft” penalty. If it applies to both a refi and a payoff of the mortgage, it is called a “hard” prepayment penalty.

Mortgage Question to Ask – 4
How much will this mortgage cost me in addition to the principal and interest?

Paying fees and closing costs for your loan are completely normal. There are a myriad of fees associated with securing your loan, such as appraisal fees, title insurance, documentation fees, recording fees imposed by the county for recording the deed, prepaid insurance, notary fees, application fees (try to negotiate your way out of that one), and so on.

You are required by law to be informed of any and all such fees and closing costs within three days of your loan application being received by the lender. These fees and closing costs can vary widely so it bears checking up on. Be aware that any such fees that are rolled into your mortgage will cost you a substantial amount of money after you’ve paid interest on them for 20 – 30 years.

Mortgage Question to Ask – 5
How long will it take to close the loan?

Closing is when you actually receive the proceeds for the loan. When it closes can affect your house deal, so you have to know how long it will take to happen. About 3 – 4 weeks is normal.

Mortgage Question to Ask – 6
Are you charging me points?

Points are an interest rate buy down. If you are charged points, you will pay a fee to the lender in exchange for a lower interest rate on the mortgage. It’s important to know this when comparing different mortgages, because if for example, one lender quotes you a 5.9% mortgage and another a 6.4% mortgage, you aren’t making an apples to apples comparison if the lower rate was obtained by your paying points to buy it down.

Points on a mortgage are equal to 1% of the mortgage amount. So a point on a $350,000 mortgage would cost you $3,500 up front. See the specific term of the offer to see how much each point is worth in terms of rate reduction. Normally it’s only a good idea to buy points if you are going to stay in your home and not refinance for at least 5 years, probably longer, otherwise you will not have time to recoup your added costs.

These are some of the most important mortgage questions you should ask when comparing different mortgages and before you sign your loan agreement. Before going into the process, make sure you have all your ducks in a row, they’re easier to shoot that way. Get all your required documentation in order, such as bank statements, tax documentation, check stubs, and anything else the lender may ask for. Also, you should have any offer reviewed by a good real estate attorney before you sign it. Here’s to hoping you get that mortgage!

Posted by debtblog at 01:56 PM | Permalink | Comments (0) | TrackBacks (0)

What are some of the dangers of reverse mortgages?

Reverse Mortgage Danger Num. 1 -
Well, in the first place you should be aware that the amount you receive will probably be less than you are shown in the initial calculations. This is because unlike a traditional mortgage, where the taxes, insurance, and fees are paid by monies you paid into an escrow account when you write your mortgage check. With a reverse mortgage on the other hand, it actually works, drum roll please, in reverse. The money for those items is subtracted from the amount the mortgage holder receives for their monthly payment, thereby reducing the net amount of the money you'll get each month. Be aware of this when you are making your calculations.

Reverse Mortgage Danger Num 2 -
Another danger of a reverse mortgage goes to the actual structure of the loan. As it is stated in most of the loan documentation, you will retain use of your property as long it is your primary residence. The problem is that, as reverse mortgage holders are senior citizens, the chances are fairly great that they may do one of two things that could cost them their home.

One is to be confined to an assisted care facility. At this point the home is no longer their primary residence and the bank will come for their money. If the balance is less than the home equity, the home will be sold and the equity beyond what is owed on the reverse mortgage will be given to the homeowner. If the balance is greater than the home will simply be forfeit to the lender to satisfy the terms of the loan.

The other condition that could trigger the primary residence provision is that the homeowner could move for much of the year to a second home. This is very common for seniors living in northern states. They will purchase second homes in warmer climes, such as California, Florida or Arizona, where they can relax in the sun. If they take their relaxing a bit too seriously however, they could find themselves in a situation where their home is no longer considered their primary residence.

Reverse Mortgage Danger Num 3 -
Another danger of a reverse mortgage is getting sucked into paying high fees or getting bad ARMs. Many reverse mortgages are adjustable rate mortgages. Many people are well aware of the dangers of these type of mortgages as they've occupied more than their fair share of the evening news for the last year. The same problems can apply for reverse mortgages as for traditional mortgages. You can easily be risking your security with the uncertainty of a reverse ARM. Personally, I may just be too conservative, but I like the old fashioned way, fixed.

Another point to be aware of is that the FHA will charge a 2% fee to insure reverse mortgages. But the real thing to watch out for is that you may be asked to pay even higher fees and closing costs than you would with a traditional mortgage. Don't do that, because many lenders will offer basically the same fee structure with a reverse mortgage.

Reverse Mortgage Danger Num 4 -
Another danger of reverse mortgages is that they let you spend your home's equity on just about anything you want to. This could cause a problems if you need those funds for an emergency down the road. While there's nothing wrong with living it up a bit in one's golden years, be aware of the temptation to splurge with all your reverse mortgage payments on trips to Mexico or a new Prevost to impress the folks in Arizona. Keep your eye on the future and remember that the money from the reverse mortgage could allow you to keep your independence at home should you or your spouse's health take a turn for the worse in the future.

A reverse mortgage can be a great financial vehicle to carry you through your golden years in relative financial security. Just be aware that there are dangers to reverse mortgages, just as with any other financial products

Posted by debtblog at 02:03 PM | Permalink | Comments (0) | TrackBacks (0)

First of all, as they are minors, children can't actually buy and sell stocks themselves. They can however take advantage of the Uniformed Gift to Minors Act (UGMA) that enables minors to legally own property. It does this by allowing the establishment of a trust for the minor's assets. There is a trustee for the UGMA that is typically the parents. Unlike more complicated trusts, UGMA related trusts are statutorily established in the individual's state of residence. That's nice because you don't have to rack up a mountain of legal fees to establish a UGMA trust, as can be the case with many other trusts.

What the UGMA allows is the gift to a minor child of an amount of money with no tax consequences as per the limits of the gift tax exclusion. The exact amount of the annual gift tax exclusion can vary from year to year, according to IRS regulations, but currently it's $12,000 from one individual to another. There is no actual contribution limit for a UGMA, but there will be tax consequences if the contributions to the account are greater than the current year's exclusion limit. You can establish a UGMA trust for your kid's investment whims at your broker's office or bank by simply filling out a few forms and choosing a custodian.

You can do all the investing you want with the funds in the account, as long as you don't things like gambling as investing. Any realized gains or losses will be reported under the child's SSN. At the age they cease to be minors, either 18 or 21 years of age depending on the state of residence (although some states allow you to move the age from 18 to 21 if you so desire), the funds in the UGMA trust revert to the ownership of the minor. Hear this, you will lose every once of control over these funds at that time.

This bears a bit of thought, because no matter how responsible or irresponsible your kid, you'll have a trust fund baby on your hands if you establish a UGMA. The difference is that you can not prevent the minor from gaining control of the funds through special terms of the trust as you can in other trusts. They are all set up according to the state's statutes, remember? (There are other trusts that you can set up as custom as you would like, but these will usually cost more to establish than a UGMA trust).

Something else to know about a UGMA is that they reduce the child's eligibility to receive student financial aid. Apparently the Feds feel that if your kid is sitting on a half a million dollar trust fund the taxpayer shouldn't foot the bill for their education. The point is that any assets in a UGMA established trust account are considered the child's assets when applying for financial aid, so they will have an impact on eligibility. That's something to consider when setting up a UGMA so your kids can dabble in the markets.

Another thing to consider is that transferring any funds from the UGMA into another vehicle, such as a 529, will cause you to be liable for capital gains taxes on the transfered amount. That's because the assets can't actually be transfered directly. They must be sold, then the proceeds from the sale are used to fund the 529 account. The other issue is that 529 plans are actually adult owned, so the funds must be transferred back to the parents, possibly incurring other tax consequences. 529 plan assets are not used for calculating financial aid eligibility though.

What if you child just wants to invest for an education. Not to fund their education, but to learn how the markets work, and get an actual financial education. That is a great thing, because the vast majority of children today have absolutely no idea about anything financial. If your child is responsible enough to actually want to spend their time investing their assets, rather than spending them at the mall or on smoking dope, you probably have less to worry about than many parents. Most kids would rather spend their money on new games for their PS3 than on shares of the Visa IPO, so if your's doesn't , congratulations.

Posted by debtblog at 01:34 PM | Permalink | Comments (0) | TrackBacks (0)

Lessons About Investing – 1
The first thing to determine when you're beginning investing is why you're investing. What are your goals? Only once you've determined your goals can you develop a plan to achieve them. Are you looking to create a future income stream to fund your retirement, do you want to invest as a business to create income for the present, or are you trying to fund a specific goal, such as college for your children. The other option is that you could be investing for fun, and investing can be an enjoyable hobby (when you do it right).

So, your first lesson is to set your specific investing goals before you begin investing. Be specific when you're doing this. For example, it's not enough to say “I want to fund my retirement”. You have to actually know how much money it will take to do so. One of the most common mistakes beginning investors make is failing to invest in such a way that will meet their goals, because they haven't really set any. So, if you're looking to invest as a retirement funding mechanism, your first task is to decide just how well you'd like to live when you stop working.

If a Jed, pre-Beverley Hills lifestyle suits you just fine, then you'll have an easier time than if you would like to retire and earn the same as your pre-retirement income. If you can feel comfortable at 75% of your pre-retirement income, that will give you a specific monetary goal. Obviously you'll have to know what your pre-retirement income will be to do this. Unless you spend time down at Zoltar's, you'll have to rely on a bit of educated guessing.

This is a bit more difficult now than your parent's day, because of the mercurial nature of most people's careers in our brave, new century. In any case, look at your career path, and determine how much your income will realistically increase over your working life. If for example, you are pretty sure you can count on roughly a 5% raise every year, use that number in your calculations.

Lessons About Investing – 2
Your second lesson about investing is to invest in vehicles that will meet your investing goals while taking into account other important factors. The two most important of these are probably your personal risk tolerance and time horizon. For example if you're risk averse, you will want to stay away from high risk investments, no matter if they promise high returns.

Looking at your time horizon is extremely important to help ensure that your investments will have the funds you need when you need them. Some investments tend to be fairly volatile, meaning they go up and down in fairly large swings. Volatile investments may generate pretty high returns over time. The problem arises if you are close to the time when you may need to begin withdrawing funds. If the investment has wide swings in value you risk it being in a trough, rather than a peak when you need the money. Not a good situation.

Lessons About Investing – 3
That leads into lesson about investing number 3. It's one that even the best, most experienced investors can have trouble learning. Don't try and time the market. That's it. Trying to guess exactly when to buy and sell in order to maximize your returns is not a trivial task even for the pros, most amateurs will just get killed trying it. Guess right and you'll make out like a bandit, but the more likely scenario is that you'll be wrong much more often that you'll be right and end up taking a bath.

Lessons About Investing – 4
This a lesson that can be very expensive if not learned. You have to diversify your holdings. If you are a fund investor much of the diversification will be handled for you, unless you invest only in sector funds in a limited scope of sectors. You want to avoid putting all your eggs in one basket, lest you end up in the situation Enron employees found themselves in. Actually this often happens to investors that mainly invest in their employer's stock. While that can be a great experience, just ask Google employees over the last few years, or Microsoft employees in the '90's, it can also be a horrifying ride if you're forced to watch you retirement funds evaporate.

Diversification is an investor's best defense against such a catastrophe. If you're well diversified, a calamity in a certain industry or sector will have much less of an effect on your portfolio, because you have holdings in other areas of the market that will, in theory, be unaffected.

Lessons About Investing – 5
An investing lesson you should learn early is to always do your due diligence. You should know all the factors about your investments that could come back to bite you if things go wrong or you need access to the money. You should know about tax and withdrawal consequences, fees, and other things that can affect your investments. In addition you should know as much as possible about the companies you're invested in, their businesses, and the economic factors that could affect them.

These are 5 of the top lessons you should learn before you start investing. The money you make (or save) will be your own.

Posted by debtblog at 02:08 PM | Permalink | Comments (0) | TrackBacks (0)

These days times are tough and probably no one is experiencing that more than small business owners. According to the 368 page SBA report on small business released in December of 2007, there are over 6 million non-farm small businesses. That means well over 6 million of you out there are small business owners. Because so many are owned by more than one person, it's probably closer to 10 or 12 million.

Many of these entrepreneurs are constantly operating on the ragged edge of profitability and trying to keep their heads above water, so uncollected accounts can threaten their very existence. Few small business owners have the expertise, time or temperament to be effective debt collectors and yet allowing the debts to remain uncollected can sink their ship. Speaking from past experience, the financial stress of irregular cash flow can keep you awake at night, especially when you're staring payroll in the face. One position you never want to be in as a business owner is having to tell your valued employees that they'll have to wait to deposit their paychecks.

In the majority of cases, the cash flow problems are created by debt you can't collect in a timely fashion. Late and delinquent payments will ruin your cash flow. You may be profitable on paper, but your accounting won't pay your bills, only an influx of cash can do that. As a business owner there are times when you may have to hold your own paycheck in order to pay your employees. That doesn't go over too well on the home front, I can assure you.

You have some alternatives. You can just hope your accounts will pay, which sometimes just isn't very realistic. After all, in many cases your accounts are other small business owners just like you, and they're having their own financial problems. You have to make sure paying you becomes one of their top priorities. When cash gets tight, most business owners will pay their employees first, then the lease, and then vendors and other debts. Key vendors get pushed to the front of the pay line, while less important vendors are moved farther back.

If you don't have the skills to get your account moved to the front of the payment priority line, you'll need to hire someone who does. As I mentioned before, that expertise can come with a hefty price tag. An alternative is to use one of the online debt collection agencies that have come with the dawn of the Internet. For many of the same reasons other industries can become low cost service providers by becoming virtual, so can debt collection agencies.

This alternative can offer some advantages to you as a business owner. Typically the cost will be lower than a traditional debt collection agency, which helps preserve much need cash for you. In addition, you will usually have to pay no up front fees, which you may be in poor position to do. Basically the online agency will send collection letters from an official source for a set fee per letter, typically from $5 - $30. As you may have noticed, that's far lower than the 30% - 50% fee you may face when using a traditional debt collection agency. To be fair, a traditional agency will normally have a larger breadth of services available than does an online collection agency. For example, they may add phone calls to their repertoire.

You can have the entire process handled by an online debt collector, which could provide you with substantial cost savings. If they are unsuccessful you will have lost only a very small amount, and can turn to more traditional agencies. If they collect your outstanding debt, the money will be sent directly to your business. You will have much needed cash and can concentrate on what you really want to do, running your business, not collecting debts.

Posted by debtblog at 01:37 PM | Permalink | Comments (0) | TrackBacks (0)

Is silver investing worthwhile, or are all the gold talkers right? Currently, silver is sitting at $16.96 an ounce, while gold is at $889.70. That doesn't mean, however that gold is a better investment. Actually you could have made impressive gains in through silver investing over the last 3 years. As with many commodities, silver has been in high demand because of various world economic factors, causing prices to skyrocket (investment cliche number 307).

For much of 2005, silver hovered in the mid $7.00 range. In August of '05 it briefly dipped back into the $6's, where it had spent most of 2004, before starting a nice climb, culminating about 22 months ago, when it reached $15/oz in mid may of 2006. Subsequently it gave much of those gains back, falling to $10 by mid June. Since then silver has been pretty generous, see-sawing itself up to it's present level of almost $17.00. Actually Silver reached a peak of just over $21 in mid March, only to lose 25% of it's 3 year run and land at it's current value. So, in 3 years you would have seen roughly 242% gains in a silver stake. How does that compare with the talk show darling, Au?

In April of 2005, Gold was sitting right about $440/ oz. It was flat for the first portion of the summer of 2005, actually declining to about $425 by early June. It then started a rise roughly parallel to that of Silver, growing to $750 by mid May of 2006, before dropping back to $575 by mid June. Since then, like silver, gold has risen nicely. The exception is that gold reached a peak of just over $1,000 an ounce in mid March of this year before giving back about 20% of it's 3 year gains to land at its present value of $889.70. This equates to a gain of roughly 202%, impressive, but less than the over 240% gains posted by it's ugly cousin from Nevada.

What are we likely to see from silver investing in the future? Silver has historically been in high demand, and in the past traded at about 1/10^th the price of gold. In the early 1980's it even rose to almost $50 an ounce (not adjusted for inflation). Like many other commodities, volatility is the order of the day. Investing in precious metals is not for the faint of heart, but is often used to diversify a portfolio and protect against losses in the stock market. This is because many of the things that cause stocks to rise or fall will stimulate the opposite result in precious metals, as investors tun to alternative places to rest their capital.

One thing about investment in precious metals or any other commodity is that while prices can see precipitous drops, they will never decline to absolute zero, as can happen with stocks. If a company goes out of business, it's stock will be worthless, while a commodities stake will never experience a decline all the way to nothing.

One of the most powerful factors stimulating prices is expected future demand. Nothing causes bidders in the commodities pits to ratchet up prices more than either the fear that something will be unavailable, or that demand will grow enough to outpace supply.

One of the largest uses of silver today is in the electrical switch contacts of small appliances and consumer electronics components. Silver is also used in appliance in other interesting ways. Because silver has bug killing properties, it is now being used in washing machines, air conditioners, and toilet seats to kill germs. As developing nations demand more and more such trappings of 21^st century success, we'll have to pull more silver out of the ground to supply raw materials for them. Another popular use of silver is for the rear window defroster conductors in vehicle defrosters. Again, look to China to cause demand to grow here.

One place where the use of silver will be on the decline is in photography, where 24% of the world's silver was used in 2001. Since most of pics today are printed using ink jet and dye sub printers, rather than developed on traditional film, this use of silver will taper off.

Due to the many uses of silver in industry, jewelery and economic conditions such as inflation and uncertainty in the middle east, silver could be a nice addition to one's portfolio for the near term. Pressure on the dollar, recent rises notwithstanding, could help to drive the price of silver even higher. Many of these conditions were the same as were seen 30 years ago, when silver last experienced a huge price run up. Just remember that prices eventually came back down to earth, so if you are going to try your hand at silver investing, keep both hands on the wheel.

Posted by debtblog at 01:49 PM | Permalink | Comments (0) | TrackBacks (0)

Tax Return Question 1–
What should I do if I think I made a mistake when I filled out my return?

Mistakes on returns happen all the time. The IRS has provisions for just such an event. You’ll have to spend 6 months in jail, do 150 hours of community service, and pay a 50% penalty on any taxes owed. Just kidding. Actually the IRS recommends that you fix the mistake by filing a form 1040X. This is an amended return that you’ll use of you forgot to report all your income or claim a credit. You have up to 3 years after you filed your return to file this form, so there’s no rush.

The IRS reports that most math mistakes are caught when processing the return. If the processors have more questions or something is missing, don’t worry, they’ll contact you.

Tax Return Question 2 -
What if I made a mistake on my return, I’m getting more money back than I should be, and I’ve already sent me the check? I don’t want to be visiting Wesley in jail for a few years. What should I do? Fear not, tax payer. The IRS has you covered. If it was a math mistake, see answer number 1, above. If it was a mistake in the amount of reported income, you simply use the same form 1040X and send it back with the un-cashed check.

What? You say it’s too late, you already cashed the check and bought a new Ducati to ride for the summer? Well, in that case, you have to file the 1040X ASAP. Include a check or money order payable to the Internal Revenue Service for the amount you borrowed due to your error, and pray repeatedly that that settles the whole matter.

Tax Return Question 3 -
What do I do if I received a 1099 form, but I’m not self employed and I don’t have a business license? What do I do about this? Unless you can prove you actually were an actual employee of whoever sent you the 1099, you’ll have to fill out a 1040 schedule C and report your income from the 1099. In addition, you will need to fill out a form 1040, schedule SE to report your self employment tax. Self employment tax is basically the matching part of your Social Security that your employer usually pays.

One thing to know about fixing mistakes with the ‘1040 X’ form is that these forms can’t be filed electronically. You have to actually fill them out with a pen, put them in an envelope and use the old fashioned mail, if you remember how.

Tax Return Question 4 -
How do I find out what has changed from last year? IRS forms have a “what’s new” section in their instruction books. They will have a list of all changes from the previous year.

Tax Return Question 5 -
I can’t pay the taxes I owe. What do I do now? You might try calling Wesley’s legal team. After all, they got him off on most of the charges. Seriously, you have alternatives if you just can’t come up with the money the Feds are looking for. They will allow you to pay with a credit card. You can also make payment arrangements with the IRS. I went over this in my post on what to do if you can’t pay your taxes.

Tax Return Question 6 -
If you’re a student, do you have to file a tax return? It depends on how much money you earned, and if you can be claimed as dependent by another tax payer. You’ll be a‘filin’ if you are a dependent and:

1.      Your unearned income was more than $850.

2.      Your earned income was more than $5,350.

3.      Your gross income was more than the larger of —

a.       $850, or

b.      You earned income (up to $5,050) plus $300.

Students, you should note that many fellowship grants and scholarships are considered taxable income by the IRS, so they’re not as free as you first thought.

It’s pretty common to have questions when you’re filing out or filing your tax return. That’s why we in the U.S. have an entire industry dedicated to helping you out in this endeavor. It helps explain why franchises such as Liberty Tax Services (started by Jackson Hewitt alum John Hewitt) have grown to over 1,700 locations in only 7 years, and H&R Block had revenues of $4 billion in FY 2007.

So, if you have tax return questions, don’t feel bad. If you can’t find answers here, check the FAQs at the IRS website

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A foreclosure is a proceeding that occurs when a mortgage loan is in default. Default means that the lender hasn't received a payment on the loan for a specified time period, usually 30 days after the payment due date. Typically the borrower will be assessed a late fee after the first 16 days with no payment, but the loan will not actually be declared in default until the 30 day mark has been reached.

The First 30 Days of the Foreclosure Process
Once the mortgage is in default the lender will make attempts to collect the past due balance, normally by initiating a series of phone calls to the borrower. You will also get one or more late payment notices sent by mail from your lender. Be aware that as soon as the 30 day period is reached and collection proceedings begin the lender will begin to assess additional fees and charges for collection and legal proceedings. This means that not only will you owe the past due balance on your mortgage, you will also have to contend with late fees, collection charges, and possible legal bills.

The Second 30 Days of the Foreclosure Process
The second 30 days with no payments received is where the foreclosure process begins in earnest. The lender will send a formal notice of default. This is usually done by certified mail. The notice of default will demand payment in full for the amount the loan is in arrears and any outstanding fees and other charges. There will be a specified time period by which the mortgage must be made current. Some lenders will accept partial payments, while others will demand payment in full. Many mortgages have an acceleration clause that allows the lender to demand full payment once a certain number of payments have been missed or amount time has passed with no payment being received.

This is when the lender will pass the defaulted mortgage from their collection department to their legal department. This means that you will owe even more fees before your mortgage will be considered current again. The purpose of sending the defaulted mortgage to the legal department is so that formal foreclosure proceedings can begin.

The Third 30 Days of the Foreclosure Process
The lender's legal department will forward the information associated with your mortgage to an attorney that will begin the actual legal foreclosure proceedings. Specific things must happen once this stage is reached. A notice of the impending foreclosure must be advertised in a public place, such as a local newspaper. You will get a Notice of Intent to Foreclose by certified mail.

There will be a court hearing to determine the validity of the lender's claim of non-payment. If their claim is upheld by the court, the lender will be permitted to foreclose on the property. A date for the foreclosure auction is set. At this point in the process another notice will be advertised, this one of the actual foreclosure sale of the property.

It is important to realize that you are not legally compelled to move out of your house at any point in the foreclosure process. Only after the property has been sold at auction will you receive a formal notice of eviction. This notice is normally sent within 72 hours after the sale. If you fail to abide by the notice, you can be forcibly evicted by the sheriff's department. In some cases the new owner will allow you to pay rent in order to remain in the home for a longer period of time. If you fail to move, eventually the sheriff will evict you by force and you can be arrested. This can take 6 – 10 weeks from the time you are sent the formal eviction notice, but in some locations can be as little as 1 week. Normally the new owner must go in front of a judge to actually have you evicted from his new house, but you can appeal the decision, granting you even more time.

The most important thing you can do to avoid such unpleasantnesses is to never let it get this far. Do not ignore the lender's communications. They will have little to gain from beginning the foreclosure process against you. They're a lender, not a real estate company. See my previous post on how to avoid foreclosure for more on how to keep your home.

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Actually yes, there are debt relief programs that can help you do that, but it's not really that simple. After all, you don't get something for nothing, although it could be argued that if you get a portion of your debt eliminated, you actually did.

There is some confusion among many debtors about the differences between the various debt relief programs. Are debt settlement, debt relief and debt counseling all synonymous? Actually no, they're not. They actually mean different things, and if you choose to avail yourself of one of these options to handle your debt, the option you actually choose could have long lasting effects on your credit and future financial picture.

Debt settlement is a term that most often refers to the process of negotiating with creditors to only repay a portion of a debt. Although that may sound like a fantastic option to many creditors, remember the whole free lunch thing. Using debt settlement services will impact your credit in a negative way and affect your ability to secure future credit, and the interest rates you pay for years to come. There are a few basic ways that these programs work, and before you enter into any such program you absolutely must go over any agreement with a fine toothed comb, preferably with the advice of an attorney who's well versed in such matters. It may seem like spending money to seek the advice of an attorney may just be compounding your debt problems, but a few hundred dollars up front may save you thousands of dollars and some financial migraines later.

Some debt settlement firms will simply charge you a flat fee for their services, but the more common scenario is for them to charge you either a percentage of the total outstanding debt or a portion of the savings they provide through the negotiated settlement. With most debt relief negotiations, the debt relief company will negotiate a settlement with each of your creditors that will represent between 40% - 50% of the original debt amount. They must negotiate independently with each credit card account. Debt relief companies can handle other types of debt as well, but credit cards are far and away the most common. Typically only unsecured debt is negotiated through this process, as unpaid secured debt will be satisfied by the creditor repossessing the security for the debt, such as a vehicle or land.

As the debtor, you will be required to set up a debt repayment plan for the agreed upon amount with each open account. This will include the payment to the debt relief company, the creditor, and the time frame for the repayment plan. You will then make payments either into an account set up by you, or an escrow account set up by the debt relief company. Once you have accumulated the requisite amount your debt will be satisfied. The process repeats with each debt until all your debts are paid at the individually agreed upon amount.

This is one of the places where things can go wrong for you as the creditor. Stories abound of less than scrupulous debt settlement companies simply keeping all the funds you've already paid should you miss a payment. This does happen, and needless to say that could cost you a bundle. If you feel that you realistically will not have the money to maintain such a settlement plan, you may want to consider another option, but even more important is to thoroughly evaluate any such agreement before you enter into it.

This highlights the importance of having a qualified, independent party look over the contract before you sign it. If you sign a contract that permits the firm to keep any funds paid to date should you miss a single payment, it's really your fault for such a debacle. If you feel such a clause is worth it in order to secure a substantial reduction in the amount of your debt, that's a decision only you can make. Remember that you will have your debt reduced a substantial amount, but there is also the debt company's fee to consider when calculating your total savings. In total, the savings may not be as large as you think.

The process lasts from 1 – 4 years in the majority of cases. It is exceedingly rare for the debt relief company to offer any sort of guarantee for their services. The key is that you should be using this technique as a way to avoid bankruptcy.

Debt Settlement Pros -

• Debt settlement / relief / negotiation can help you avoid bankruptcy.

• Debt relief companies can make creditors stop hounding you.

• Debt relief companies can get you debt free in less time than if you simply tried to repay your debts on your own.

• Debt relief will improve your credit in the long term because you will have no outstanding debt. It's up to you to stay debt free, however. Since about 30% of your FICO score is your amount of outstanding debt, reducing it to zero will improve your score.

Ah, but with anything there is also the not-so-bright.
Here are the -

Debt Relief Cons -

• Debt relief will give you a big drop in your credit score in the short term, however it will not be as bad for your credit as declaring bankruptcy.

• Debt relief programs require you to pay as agreed. If you fail to stick to the debt relief plan, you could lose every cent you've paid to date. Think of the rent to own scenario. Miss a payment, and there goes your TV. If you don't have the requisite amount of money in a single lump sum, it's time for some negotiation of your own. Before you enter into the debt relief arrangement, have the contract stipulate an installment payment system.

• You will owe more taxes to the IRS and possible the state department of revenue. In a spectacular example of hitting you when you're down the IRS views forgiven debt as taxable income. For example, that means that if you are in the 10% tax bracket and owe $18,000 in credit card debt, of which $9,000 is forgiven through the debt relief settlement, you will incur a $900 income tax liability. This will be reported to the IRS with a 1099 form. If you've ever been an independent contractor, you'll be familiar with such a form, as it's the same one used by those that hired you to report the income they paid you. Make sure you figure the increased tax liability into your calculations when deciding to use a debt relief or settlement company's services. This is an area where consulting a professional is vital, because you may be able to eliminate all your tax liability due to your financial status.

• The same process used by the debt relief companies to make the credit card companies stop hounding you, will also prohibit them from contacting you for anything positive. You may be able to do some debt negotiation on your own, but try this before you make the decision to use a debt relief company, because they will probably prevent the creditor from initiating any further contact with you.

Debt settlement or debt relief is not the same thing as credit counseling. Credit counseling is usually a precess whereby you meet with a person or team who looks at you financial state and makes recommendations about how you can improve it, and get debt free. There are for profit and non profit credit counseling services, although the non profit services are not necessarily free. See a post I did last year on non profit credit counseling for more information. It details 6 questions you must ask a credit counseling service to help make sure you're making the right decision.

Your credit is nothing to mess around with. There are pros and cons to any decision and the decision on weather or not to use a debt relief company as a solution to your financial problems is a mighty big one. They may be just the solution you've been looking for. On the other hand they could plunge you deeper into a financial pit of despair. Just make sure you go into a debt relief agreement, as with any of life's big decisions, with both eyes open. Don't make such a decision on emotion. To help avoid an emotion based decision it's sometimes better to take a few days to make your decision.

Here's to getting debt free, no matter what plan you use to get there.

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