Thorough credit repair doesn’t happen overnight, but what if you need a better credit score now? Sure, hiring expert legal help may help tremendously, but there are things you can do now, on your own, that may provide a little score boost before applying for a new loan that may save thousands over time. Consider these tips for a quick fix:
We’re well into Spring, the season where so many well-intentioned New Year’s resolutions erode as quickly as the temperatures rise. Have “I will lose 10 pounds by March,” and “I will stop watching too much TV” become broken promises already? Unfortunately, although the point of a resolution is to evoke positive change, rarely is the end-goal achieved. This year, though, why not make a Spring resolution that could change your life? Credit repair has the potential to improve your credit score, lower your interest rates, and generally enhance overall financial freedom. Consider shaking Winter’s doldrums with these financial resolutions:
Tax refunds can be a welcome relief for families each year, especially for those living from paycheck to paycheck. You might have big plans for that money already—a trip to warmer climates or a down-payment on a new car. But what about credit repair services? Sure, the alternatives might be more fun, but regaining control over your financial reputation is a long-term goal amidst short-term frills. Consider investing some of your return into the following areas. Your credit repair efforts will thank you.
1. Tackle debt. The majority of people have debt. It’s part of life, right? Maybe, but struggling under a mountain of unpaid bills is not. Take the opportunity to get ahead by tackling debt with your tax return. Remember: Paying down revolving credit is almost always rewarded with higher credit scores. Start by paying off credit cards with the highest interest rates, and work your way down. Not only will you likely improve your credit repair efforts by improving your credit scores, you’ll also reduce your monthly payments and free up cash each month to enjoy life. It’s a win-win-win.
2. Bulk up the emergency fund. Credit repair services can help you pick up the pieces after unexpected events. The roof caved in, you lost your job, or maybe your kid just needed braces—whatever the reason, you needed cash and perhaps fell short. Building an emergency fund can shield you when times get hard. Avoid credit repair problems in the future by sending some of your tax refund straight to the savings account.
3. Invest in education. Student loans are one of the highest causes of chronic indebtedness and bankruptcy in the U.S. The financial challenges that new grads face today are likely to continue despite any economic recovery or government reform. So don’t rely on the system to fix itself in time for Junior’s freshman year. Help your kids avoid their own need for credit repair by helping them save for school now. IRAs and 529 savings plans can help you build a college fund and reduce their dependence on federal or private aid. What better reason to invest your money?
4. Save for retirement. Here’s a worst-case scenario for you: You are 65 years old, married with three kids, and completely tired of working. You would love to retire, but you have only saved about 10 years’ worth of income. This scenario is a reality for many Americans who cannot afford to retire. Whatever your financial situation, saving for retirement is critical. The earlier you save, the more compounding interest will work for you instead of against you. Use your return to invest in a Roth IRA or other vehicle that will allow you to withdraw money tax-free. Your golden years may be decades away, but planning for them begins now.
5. Improve your “stuff.” No, not your TV or wardrobe. Think of the “stuff” that sustains your life and could actually improve it. What about the resale value of your home? Would an updated kitchen help you in the real estate market down the road? What about your car? Are you spending an arm and a leg commuting to work each week? Why not invest in an efficient model to save money and help the planet? Cost-cutting doesn’t always mean cutting back. Use your tax return to make lasting changes in your lifestyle. The opportunity is there—make sure you take it.
Unfortunately, many Americans will see a bill from Uncle Sam instead of a refund this tax season. Underpaying throughout the year can lead to a hefty sum by April 17, one that is difficult to bear. If you are wondering, “How can I fix my credit and pay my tax bill?” you may be looking for a way out. In the height of panic, some people use their credit cards to stifle anxiety. Don’t let stress overshadow your judgment, however.
Working toward credit repair is a multifaceted process, one that can be sabotaged with poor decisions. In that regard, choosing to pay bills with a credit card is risky, especially as a means to an end. Taking on one debt to cover another is never the answer. That said, there are certain benefits and considerations to doing so. Consider the following dos and don’ts of charging your tax bill.
• Consider the long-term commitment. The main benefit of charging your tax bill is time. If you cannot afford the full balance today, smaller credit card payments may be the answer you seek. Although this is true, you will also be paying interest on the total balance, stretching your debt further and leading to a larger commitment over time. That means less money for savings and credit repair. If you can’t afford to pay your taxes, consider a credit card as your last resort.
• Remember your credit utilization ratio. Even if you can afford to pay off your credit card balance in a timely and efficient manner, there is another factor that threatens every credit score. Your credit utilization ratio, or the amount you owe on all revolving credit accounts vs. your summed credit limits, accounts for a large portion of your financial reputation. Ideally, you should never charge more than 25% of your total limit. Do the math to determine how charging your taxes will affect that ratio. If your debt exceeds the recommended percentage, your credit score is at risk.
• Review the perks. Some taxpayers choose to charge their bills for the sole purpose of rewards. Airline miles, “cash back,” and corporate status are all valid reasons to whip out the plastic. If you are part of the latter group, make sure to pay off your balance immediately. Without proper execution, even the best laid plans can result in unforeseen trouble.
• Forget about the mandatory fees. The IRS isn’t selfless in their payment options. Expect a mandatory processing fee of about 2.5% when you pay by credit card. Therefore, if your tax bill is $5,000, the final tally will actually cost $5,125. Before charging your tax bill, compare the fees you’ll pay to the perks you’ll accrue by paying your tax due with plastic. Unfortunately, you could end up losing money.
• Forget about IRS extensions and payment plans. Inability to pay is among the top reasons for charging a tax bill. However, the IRS offers other, more credit repair-friendly options.
o Extensions. Filing for an extension provides several months of relief, allowing you to pay last year’s taxes as late as October. The best part? A fee of only 1% is added to the balance due, meaning that you’ll only pay an extra $20 on a $2,000 tax bill. Not only will you have time to save, but your credit repair efforts are protected.
o Payment plans. If an extension won’t cover your needs, signing up for a payment plan could be the solution. Rather than relying on your credit card, establishing a payment schedule with the IRS can help you chip away at your debt in manageable increments. After a one-time fee of $105, monthly interest is applied. Compare the IRS terms to your credit provider’s to determine the better deal.
April 17 is fast-approaching, and now is the time to get serious about your tax return. Just like credit repair, the power to save money and strengthen your financial life begins with decisive action. Incorporate the following tips into your routine this season. The results may afford you additional savings.
1. Skip the accountant. Sure, you may be nervous about filing taxes solo, but the cost of accounting services can be steep, especially close to tax time. Avoid the extra expense, and put some faith in your own abilities. Go to the IRS website to take advantage of their free filing instructions and e-forms. If you are looking for long-term solutions, invest in commcercial software to help you file for years to come. The bottom line: why pay for something you can do yourself? Take a page from the credit repair handbook, and practice some initiative.
2. Compare forms. Speaking of initiative, why not go the extra mile to save money? Complete the short and long forms this year and compare their totals side-by-side. Many people find larger refunds on the long form in lieu of the easier route. It may take more time, but the potential savings are worth it. Consider your efforts to be one more frugal credit repair goal, and just go for it.
3. Contribute and save. Investing in the future is a great way to save on taxes in the present. Contribute to your long-term savings plans, including retirement accounts (401k and IRAs) and college funds. If you are involved in charity, make sure to keep records of your monetary or itemized donations. It all adds up.
4. Keep receipts. Chances are, your year is filled with more than balancing a checkbook and fine-tuning a budget. Will you remember all the tax-deductible purchases from July? When it comes to saving money, keeping track of deductible expenses is critical. Organize your receipts this year by filing them in appropriate categories, e.g., “supplies,” “work expenses,” etc. Cashing in on savings is easier with the information at your fingertips.
5. Plan ahead. You may be regretting last year’s choices, thinking, “If only I had kept my receipts or paid more attention to my savings.” While you can’t change the past, now is an excellent time to begin planning for the future. If credit repair is on your to-do list, your bank account likely needs all the help it can get. Remember, strong finances are built on:
• Organization. Don’t dump your receipts into messy shoe box. Begin your saving efforts by organizing them from Day 1.
• Savings. Retirement funds are essential. Contribute to your accounts regularly throughout the year.
• Education. If you can learn about and start a credit repair program, you can learn about taxes. Make an effort to educate yourself now about deductible expenses, exemptions, etc. Preparing for 2013 starts today.
Our clients saw over 4,800,000 negative
items removed from their combined credit reports last year.