Category: Finance

IRS Now Using Private Collection Agencies for Certain Tax Debts

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Consumers commonly receive phone calls from scammers impersonating government agents to collect money. The Internal Revenue Service (IRS) regularly warns consumers about falling victim to phone scams, especially those involving payment for back taxes. Under a new federal program, however, the IRS will assign certain overdue federal tax debts to four private collection agencies (PCAs). These private debt collectors will contact taxpayers on behalf of the IRS to collect certain outstanding tax debts. Consumers should familiarize themselves with the IRS’s private debt collection program to protect themselves against scams.

IRS Private Debt Collection Program

Federal law requires the IRS use private debt collection agencies to collect certain overdue tax debts. In December 2015, Congress passed the Fixing America’s Surface Transportation Act (FAST Act). Although the primary purpose of the FAST Act is to fund transportation projects, Section 32102 requires the IRS to use PCAs to collect inactive tax receivables. Accordingly, the IRS implemented a new private debt collection program in April 2017.

The IRS assigns only certain accounts to private debt collection agencies. These accounts involve “inactive tax receivables,” meaning any tax receivable:

  • That has been removed from the IRS’s active inventory for lack of resources or an inability to find the taxpayer;
  • For which more than one-third of the applicable limitation period has passed and no IRS employee has been assigned to collect the receivable; or
  • That has been assigned but more than 365 days have passed without interaction between the IRS and the taxpayer or a third party.

The IRS does not assign accounts to PCAs if the taxpayer is:

  • Deceased;
  • Under the age of 18;
  • In designated combat zones;
  • Victims of tax-related identity theft;
  • Currently under examination, litigation, criminal investigation or levy;
  • Subject to pending or active offers in compromise;
  • Subject to an installment agreement;
  • Subject to a right of appeal;
  • Classified as innocent spouse cases; or
  • In presidentially declared disaster areas and requesting relief from collection.

Only four PCAs are designated to collect the tax debt on behalf of the IRS: CBE, Conserve, Performant, and Pioneer. Taxpayers will be notified in writing by the IRS and the PCA when an account has been transferred from the IRS to a collection agency.

Because the IRS uses only these four designated PCAs to collect a specific type of tax debt, consumers must remain cautious if they receive debt collection calls pertaining to other types of tax debt.

Other Tips to Avoid Being Scammed

Concerned consumers who receive contact attempts from someone they suspect is impersonating the IRS and requesting money can take the following steps to avoid being scammed:

  • If you know you owe taxes or think you might owe, call the IRS at 1-800-829-1040. The IRS workers can help with a payment issue.
  • If you know you do not owe taxes or have no reason to believe that you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 1-800-366-4484 or at tigta.gov.
  • You can file a complaint using the FTC Complaint Assistant, choose “Scams and Rip-Offs” and then “Impostor Scams.”

 

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5 Ways $1,000 Can Make a Big Impact on Your Debt

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If you’re struggling with debt, you may feel overwhelmed. And when that happens, you may feel like putting money towards seemingly insurmountable balances is fruitless.

But that’s not really the case. In fact, with just $1,000 there are many steps you can take that will have a big impact on your debt, and therefore your credit.

Because your credit score can affect so many aspects of your life — from loan approval to getting the job you want — it’s important to begin to repair it as soon as possible and to get your debts under control before your credit score takes a serious dive.

Here are five things you can do with $1,000 or less that will make a big impact on reducing your debt, and improving your credit score as a result.

  1. Catch up on any late payments

    Missing one payment can cause your credit score to fall as much as 100 points. That’s because payment history is one of the main criteria lenders use to determine creditworthiness. Once a payment is more than 30 days late, it will definitely impact your credit score in a negative way.

    If you have a delinquent payment (or payments), taking care of those and bringing them current is the most important thing you need to do to begin to see your credit score rise. With $1,000 you should be able to pay missed or late payments and any late payment fees imposed from having missed the payment when it was originally due.

    Remember that reported lates on your credit report, as well as fees, continue to pile up month after month on any accounts as long as they remain delinquent.

  2. Knock out your smaller balances

    When your credit is maxed out, you may think that the bigger balances should get more attention. But in reality, paying off smaller balances entirely can make a big difference in your score.

    “If you’re able to eliminate the lower ‘nuisance’ balances, then your scores will also improve even if you still have other cards with balances,” credit expert John Ulzheimer, who was previously with FICO and Equifax, told GoBankingRates in a recent article.

    Start by paying off your smallest card balance, and then the next highest, and so on. If you have several retail store cards with smaller balances, for example, you may be able to wipe out two or more of them, which will have a positive impact on your score even while you carry balances on other cards.

    After those smaller balances are paid off, you can further improve your credit and chip away at debt by applying the total of the minimum payments you were making on those smaller accounts to those with larger balances.

  1. Pay off a high interest card

    If you don’t have a lot of little balances you can wipe out with $1,000, then you should evaluate the interest rates on all of your cards and loans. If you have a single card with a balance of $1,000 or less but it has a higher interest rate, consider paying it off in full. Not only will this bump up your credit score, it will save you money in the long run considering that a $1,000 balance on a card with a 20 percent interest rate could end up costing you over $165 per year in interest if you’re making only the minimum payment.

  2. Hire a credit repair service

    If your debt is out of control and your credit score is suffering, working with a trusted and reputable credit repair service is one of the best investments you can make.

    Working with a credit repair law firm will ensure you have a fair, accurate, and substantiated credit report. A law firm can help you understand your legal rights and show you how to leverage them to improve your credit. It can also significantly expedite the credit repair process, while providing many benefits and additional services to not only improve your credit now, but protect it in the future. It’s best to select a firm that has direct relationships with all three credit reporting bureaus — Experian, TransUnion, and Equifax.

  1. Make an early payment

    Even if you are making your loan and credit card payments on time, if your payment due date falls at the end of the month, it could be negatively impacting your credit report. Many credit card companies report balances at the end of the billing cycle, which may end before you make your monthly payment. In this case, the balance reported to the credit bureaus can be higher than the balance you’d expect to show up based on your payment.

    It’s important to be aware of this, particularly if you are using a rewards-based card, where consumers typically charge up the highest balances each month in order to reap rewards such as cash back. Depending on payment times with these cards, large balances may be reported to credit bureaus. Making your payment earlier in the month, and before the end of the billing cycle, will reduce the balance that will be reported to credit reporting agencies.

While $1,000 may not solve all of your debt and credit issues, if applied wisely it’s a big enough amount to make a positive impact.

If you have questions about other ways you can begin to repair your credit, or credit repair services in general, contact us today.

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10 Habits of Financially Secure People

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Income isn’t a direct factor in credit scoring. That said, financial management plays a vital role in your ability to pay bills, reduce long-term debt, save, and avoid credit damage. If you crave the taste of financial freedom, adopt these habits followed by the financially secure.

  1. Save As Much As Possible:

    It’s not flashy or even fun, but saving as much as possible can help you create financial safeguards now and in the future. Begin with:

    • Income: Saving for emergencies and for long-term retirement is crucial. Talk to your financial planner about how to split your savings into liquid and growth accounts, and consider using direct deposit. This strategy allows you to automate the saving process in order to achieve your annual goals.
    • Necessities: The financially savvy aren’t blessed with luck: they simply know how to use their resources. From negotiating lower service prices to using coupons for every purchase, there are several ways to save on your monthly bills. Don’t miss an opportunity to preserve your income.
    • Interest Rates: Borrowing money is usually unavoidable when it comes to buying a home or car, but it’s a good idea to think twice about paying interest on affordable items. For example, rather than charging a $1,500 sofa on your credit card, why not save and pay cash rather than accruing unnecessary interest?
  2. Change Your Credit Perspective:

    You view credit as a tool rather than a bottomless bank account. You don’t carry revolving balances from month to month and you pay attention to your budget. You understand that a high credit score can open financial doors and provide savings where none existed before. You’re no stranger to ordering free annual copies of your credit reports and reviewing your credit scores to spot room for improvement.

  3. Pay Off Your Credit Balances:

    As a tool, you understand that credit use should never become a burden. You are committed to assigning expenses to each credit card and paying off your balances every month to establish positive habits.

  1. Be Proactive…About Everything:

    When it comes to life, nothing gets past you. You visit the doctor for annual check-ups. You never miss a car tune-up. When your bills arrive, you pay them immediately. Put simply, you are proactive about everything. While this may sound exhausting to some, it also eliminates your chances of losing money to unexpected circumstances.

  2. Live Below Your Means:

    Affordability is relative, and it’s wise to keep an eye on your long-term goals rather than using all your extra cash on unnecessary expenses. Sure, you can afford a 3,000 square-foot home, but 2,500 square feet will suit your family just fine. You’d rather give your budget a little wiggle room to avoid financial risk and potential credit damage.

  3. Don’t Be Enticed by Labels:

    Keeping up with the Joneses is an expensive pursuit, and it’s easy to drown in debt in the process. Financially secure people understand that living large comes at a greater cost. You temper expensive taste by mixing affordable things with a few prized items to create balance in your life.

  4. Prioritize Health:

    Less than 3% of American adults live a healthy lifestyle according to a 2016 Mayo Clinic study. Diet, obesity, alcohol abuse and smoking all contribute to poor—and costly—health conditions. While you may not be a star athlete, you take care of yourself and seek preventative and active treatments for your ailments. You also keep tabs on short and long-term disability benefits provided through your employer.

  5. Focus on a Pay Raise:

    A steady and lucrative job is important, and you pursue career mobility as another way of maintaining financial strength. An annual raise can help you keep up with inflation and upgrade your lifestyle without threatening your budget.

  6. …But Don’t Fear a Pay Cut:

    You won’t fear financial collapse if you are laid off or suddenly forced to work for less income. In fact, you’ve saved six months’ worth of liquid income to prepare for life’s financial surprises. This safety net allows you to find a new job without worrying about overdue balances and feeding your family.

  7. Take Control:

    The value of control can be felt when you plan expenses, learn to invest and generally feel comfortable in your lifestyle. While you may not live a life of opulence, you understand that living well is the ultimate goal.

If you’re looking to improve your credit situation, learn about our services here. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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What Does The Lack in Savings of 3 in 10 Americans Say About Debt and Credit

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Recently I was out on the town with a few of my friends enjoying some food and good conversation. A topic came up about a friend of a friend who suffered an unexpected financial emergency and could not come with the funds to cover the cost. This got me to thinking – How many people really have enough extra money saved to weather an unexpected emergency? I’m taking about available cash – not just using available credit on a credit card.

According to a study released by the Federal Reserve Bank of New York in February 2017, just over 30 percent of responders felt they might need $2,000 to cover an unexpected expense in the coming month, but said they could not come up with the money to pay for it. To put that into perspective, 3 out of every 10 people would not be able to come up with $2,000 in 30 days to deal with an emergency such as a home repair, visit to the veterinarian, root canal, or a trip to the emergency room.

One of the most common financial emergencies is an unexpected medical expense. In a study by Amino, 37 percent of people said they could not afford an unexpected medical bill greater than $100 without going into debt. Only 23 percent of Americans said they were able to cover an unexpected medical bill of more than $2,000. That is a very sobering statistic – not only on the state of our health care (a topic for another day), but also on the state of our ability to save money.

So, what does this all say about our finances? Does this only affect the middle to lower class workers or does this also pertain to the upper class as well? With so many Americans living so close to the edge, financially, how does this affect other aspects of everyday life?

Lack of Savings Can Increase Your Debt

When someone does not have enough available cash in a savings or checking account, paying for an unexpected expense may have to be dealt with by using a credit card. Using credit cards has become a type of “safety net” for those unable to save money for a rainy day. The problem with using credit cards for these types of expenses is that it may negatively affect your FICO Score. According to myFICO, the amount you owe on all accounts (your credit utilization) makes up 30 percent of your credit score. Therefore, if you have a lot of debt on a lot of different credit card accounts, your credit score is going to take a hit. Taking credit utilization to the extreme, maxing out your credit cards to pay for these expenses can drop your score by up to 100 points.

Same holds true for paying for emergencies by taking out a home equity loan, for example. This is just another way of getting further into debt and possibly lowering your credit score. As stated by Bruce McClary of National Foundation for Credit Counseling, “When you combine high debt with low savings, what you get is a large swath of the population that can’t afford a financial emergency.”

Lack of Savings Can Cause Late Payments

When faced with a large unexpected expense and no savings to pay for it, one is forced to do a juggling act with available money and bills due. Living paycheck to paycheck, as many working Americans are doing these days, leaves very little wiggle room when it comes to fitting in another bill to pay. Next comes the decision on whether or not to pay a bill on time or maybe leave it go until next month. But choosing to make a late payment is probably one of the worst things you can do for your credit. Payment history is the biggest factor of your credit score (35%) so having just one 30-day late payment may cause your score to decrease. Once you break the rule of always paying your bills on time, you might fall into the habit of making other payments late or not at all. As you can see, there is a downward spiraling effect going on and it will only go further down from there.

Could You Raise $2,000 in 30 Days?

The National Bureau of Economic Research published a paper based on this simple question, “If you were to face a $2,000 unexpected expense in the next month, would you be able to get the funds you need?” Here is what they found:

  • 9% of respondents reported they would be able
  • 1% probably able
  • 2% probably unable
  • 9% certainly unable

It makes you stop and think – what would you need to do to raise $2,000 in 30 days? Sell some jewelry, your vintage guitar, or liquidate some other personal possessions? Or would you be able to dip into your savings account and come up with the cash? If you can relate to the first scenario, then it may be time to re-evaluate your financial goals.

If you had started an emergency fund three years ago by saving $50 per month, you would have almost $2,000 saved for unexpected emergencies. Having this emergency fund would keep you from adding new debt while trying to pay down the old debt. It would mean no more borrowing, no damage to your credit because you can pay your bills on time.

Even those of you making a six-figure salary are not immune to this lack of better judgment. David Johnson, an economist at the University of Michigan who studies income and wealth inequality, sees that when people get money – a bonus, inheritance, high salary – they are more likely to spend it than to save it. So, no matter if you earn $20,000 year or $200,000, the struggle to save money is the same. If you don’t have an emergency fund, it’s not too late to start one. Make a plan to start saving and stick to it – before you know it you will have a nice little nest egg all ready for the next unexpected emergency that may come up in your life.

If you’ve had trouble saving money in order to cushion yourself from emergencies and your credit is suffering as a result of missed payments or high credit utilization, it may be time for professional credit repair services. You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

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Should You Pay Down Debt or Save for Retirement?

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While establishing a comprehensive, workable budget is undeniably one of the most important factors in maintaining a healthy financial life, it can also be one of the most difficult. For those who are struggling with personal debt, building a budget can be particularly challenging. When the money coming in has to stretch like a contortionist to cover expenses, it can be hard to determine where to focus — and where to trim.

Sometimes, the battle of the budget can come down to a choice between dealing with the present — and thinking about the future. When your income is running out of stretch, do you pay off your existing debt, or do you start saving for retirement? At the end of the day, the solution to that particular dilemma depends on the type of debt you have and how far you are from retiring.

If You Have High-Interest Debt, Pay it Down

When considering how to allocate your budget, it’s important to understand the different kinds of debt you may have. Consumer debt can be categorized into two basic types: low-interest debt and high-interest debt, each with its own impact on your credit (and your budget).

In general, low-interest debt consists of long-term or secured loans that carry a single-digit interest rate, such as a mortgage or auto loan. Though no debt is the only real form of good debt, low-interest debt can be useful to carry. For instance, purchasing a home with a low-interest mortgage can actually save you money on housing costs if you do your homework and buy a house well within your price range.

High-interest debt, on the other hand, typically has a hefty double-digit interest rate and shorter loan terms, such as that of a credit card or payday loan. High-interest debt is the most expensive kind of debt to carry from month to month and should always be priority number one when building a budget.

To illustrate why you should focus on high-interest debt above everything else, consider a credit card carrying the average 19% APR and a $10,000 balance. If the balance goes unpaid, that high-interest credit card debt will cost $1,900 a year in interest payments alone. Now, compare that to the stock market’s average annual return of 7%, and it becomes clear that you’ll see significantly more bang for your buck by putting any extra funds into your high-interest debt instead of an investment account.

If you are having trouble paying off your high-interest debt, there may be some steps you can take to make it more manageable. For example, transferring your credit card balances from high-interest cards to ones offering an introductory 0% APR can eliminate interest payments for 12 months or more. While many of the best balance transfer cards won’t charge you an annual fee, they may charge a balance transfer fee, so do your research. You’ll also want to make sure you have a plan to pay off the new card before your introductory period ends.

Most balance transfer offers will require you to have at least fair credit, so if your credit score needs some work, you may not qualify. In this case, refinancing your high-interest debt with a personal loan that has a lower interest rate may be your best bet. Make sure to compare all of the top bad credit loans to find the best interest rate and loan terms.

If You’re Nearing Retirement, Start to Save

The closer you get to retirement age, the more important it becomes to ensure you have adequate retirement savings — and the more pressure you may feel to invest every spare penny into your retirement fund. No matter your age, however, paying off your high-interest debt should always remain the priority, as it will always provide the best rate of return (as well as likely provide a credit score boost).

Indeed, no matter how tempting it becomes, you should avoid reallocating money you’ve dedicated to paying off high-interest debt to save for retirement. Instead, the focus should be on re-evaluating your budget to find any additional savings you can. To be successful, you will need to make a strong distinction between want and need — and, perhaps, make some tough lifestyle choices.

Though simply eliminating your daily coffee drink won’t magically provide a solid retirement fund, saving a few bucks by homebrewing while also eliminating a pricey cable bill in favor of an inexpensive streaming service — or, better yet, free library rentals — can add up to big savings over the course of the year. The ideal strategy will involve overhauling every aspect of your lifestyle, combining both large and small cuts to develop a lean budget structured around your long-term goals.

Of course, while you should never allocate debt money to your retirement savings, the reverse is also true. It is almost always a horrible idea to remove money from your retirement account before you hit retirement age — for any reason. Withdrawing early means you will be stuck paying hefty fees for withdrawing money early and, depending on the type of account, you may also have to pay significant taxes.

Aim for Both Goals by Improving Income

As you take the necessary steps to pay off debt and save for retirement, you may have already stretched the budget so thin it’s practically transparent. In this case, it is time to consider ways to improve your overall income. Increasing the amount you have coming in not only provides extra savings to put toward your retirement, but may also speed up your journey to becoming debt-free.

The easiest solution may be to look for ways to increase your income through your current job; think about taking on additional shifts or overtime hours to earn some extra cash. Depending on your position — and the time you’ve been with the company — consider asking for a pay raise or promotion, as well.

If you do not have options to make more money at your day job, it may be time to find a second job. Look for opportunities that provide flexible schedules that will accommodate your regular job; many work-from-home positions, for example, can easily fit into most work schedules. Doing neighborhood odd jobs, such as babysitting and dog walking, may also provide a solid income boost without interfering with your existing job.

For some, the need to pay off debt and improve retirement savings can be more than just a source of stress — but a hidden opportunity to begin a new career adventure. Instead of being weighed down by yet more work, use the desire to better your budget as a reason to explore the profit potential of a passion or hobby. Starting a small online store, part-time consulting service, or other small business can be a great way to improve your income and your overall happiness.

While it may sound intimidating, starting a side business can be as simple as putting together a professional looking website and doing a little marketing legwork to spread the word. And no, building a website isn’t as scary — or expensive — as it seems, either. A number of the top website builders now offer simple drag-and-drop interfaces perfect for putting together a professional-looking web page in minutes (without breaking the bank).

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