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how divorce affects your credit

Finances After a Divorce: 6 Things to Know

By | Personal Finance, Your Credit

Divorce can be a trying period in your life, but you’ll feel like life is a little closer to normal if you can regain your financial footing as quickly as possible. Read these tips to understand the impact on different areas of your finances after a divorce. In some cases, you may even discover a few perks depending on your situation or final divorce settlement.

1. You Can Access Retirement Funds Penalty-Free

If you receive a qualified relations domestic order as part of your divorce proceedings, you can take out an early withdrawal from your retirement account without being assessed for a penalty. Typically, you’d be charged a 10% fee on any distribution before the age of 59 ½. You will, however, be responsible for paying income taxes on anything you withdraw as part of your divorce. You can avoid taxes if you choose to roll your retirement funds into an IRA. Just be cautious not to jeopardize your financial future. Accessing retirement funds penalty-free can help improve credit if you’re trying to avoid debt or collections while going through a divorce.

2. Alimony Tax Laws Have Changed

If your divorce settlement is finalized post-2018, you’ll see some drastic changes in how alimony and child support are treated in terms of taxation. Pre-2019 agreements allow for alimony to be used as a tax deduction for the payer and counts as taxable income for the recipient. Under the new tax law, however, these rules are completely eliminated. There is no allowance for using alimony payments as a tax deduction and recipients do not have to include these payments as part of their taxable income. In short, this is a win if you’re on the receiving end, but could be a minor financial blow if you’re hoping to get a tax deduction for your upcoming divorce settlement.

3. College Financial Aid Goes Through the Custodial Parent

If your children are approaching college age, it’s important to understand how financial aid works when the parents are divorced. Rather than having to count both parents’ income on the Free Application for Federal Student Aid (FAFSA), only the custodial parent’s income must be included, which can potentially increase your child’s chance of receiving federal aid. Note, however, that child-support and alimony payments received from the non-custodial parents also have to be included as part of the FAFSA paperwork. If parents have a 50% custody agreement, the custodial parent is considered the one with whom the child stayed the most number of days in the preceding 12 months. With a bit of planning with your ex-spouse, you may be able to minimize your family’s financial responsibility by making the person with less income the custodial parent.

4. Joint Debt Can Be Assigned to One Person

You may feel happy that the judge assigns joint debt like a car loan or personal loan to your ex-spouse, but the situation has the potential to seriously damage your credit score. If your ex-spouse fails to make payments on the loan, whether on purpose or out of financial hardship, those missed payments will be reflected on your credit report. It can take up to seven years for a single late payment to naturally drop off your report unless you’re able to successfully initiate a credit dispute and get it removed before then.

5. Set Yourself Up for Credit Protection

In order to protect your credit score and financial future after divorce, check your credit report for any errors. You may want to sign up for credit monitoring services to track payments for accounts that still have your name on them. Additionally, remove your ex as an authorized user on all of your credit cards and any other lines of credit you may have. Look into refinancing joint loans so you can eventually separate your credit from your ex’s for good.

6. Hire a Pro to Expedite Credit Repair

If you’ve already experienced credit damage as a result of your divorce, consider hiring a professional credit repair firm to help get it back on track. Whether you’re feeling overwhelmed or simply want to move on to the next stage of your life, fixing your credit is a great first step to a clean slate. You can even sign up for a free consultation with Ovation to find out if you’re a good candidate for credit repair.

A divorce usually isn’t a walk in the park. But with a bit of background knowledge and some advance planning, you can minimize its financial impact and move on to brighter days.

Sources:

http://www.finaid.org/questions/divorce.phtml

leasing or buying a car is better for your credit

Is Leasing or Buying a Car Better for Your Credit?

By | Personal Finance

You need a new car, but you either don’t have the cash or need something better than a clunker. At the same time, you might also be working on your credit repair. With competitive leasing options available these days, you may be wondering if you’re better off going that route or financing your car with a traditional auto loan.

Keep reading to find out how to finance your next vehicle while simultaneously fixing your credit.

Both Monthly Payments Count as Debt

If you’re looking to lower your credit utilization, it doesn’t make a difference if you choose to lease or buy your next car. They’ll both count as debt on your credit report, with either balance showing up. If you ever need other types of loans, lease and loan payments also count toward your monthly debt-to-income ratio, which can result in higher interest payments or even not getting approved.

However, when you purchase a car, your entire financed amount shows up on your credit report. If your loan is for $25,000, that is the amount of debt reported to the credit bureaus. With a leased car, on the other hand, the residual value of the vehicle after your lease term doesn’t show up. Say that same $25,000 vehicle will be worth $15,000 after your three-year lease. In that instance, only $10,000 shows up as your borrowed amount on your credit report. In that sense, it could help you with your credit repair journey.

Leasing May Result in Fewer Inquiries and Improved Credit

Another factor to consider is how inquiries are handled during the leasing and car loan application process. Lease financing generally goes directly through the dealer, so only one inquiry shows up on your credit report. If you apply for an auto loan through a car dealership, on the other hand, your loan request may be sent to multiple lenders.

If you’re doing all of your car shopping within a couple of weeks, all of those inquiries may just be counted as one, since you’re clearly just rate shopping. However, if you need to take longer with your car shopping, you could end up unraveling some of your credit repair success with multiple inquiries spread out over time. Even after you’ve applied for a car loan, it’s smart to check your report for any potential credit errors from the application process.

Your Lease May Show Up as Completed Contract

Depending on how long you plan on spreading out your car loan, a shorter lease may help boost your credit score significantly when you’ve successfully completed payments. A finished contract on your report is a strong asset to have, and leases generally come with shorter repayment periods. If you’re comparing a 36-month lease to a 60-month car loan, for example, you’ll reach that stage of completion a full two years before your car payments are finished.

Lease Maintenance May Be Covered

With a lease, you may be able to spend less on maintenance and covered repairs. Check your contract to see what’s included in your coverage. How does this help fix your credit? The less you spend on these unexpected expenses, the more you can put toward debt or emergency savings. You can also use that extra cash to avoid having to borrow money or charge up credit cards in the future.

Both of these things help protect your credit in the future. While you definitely want to proactively work on your credit repair, you should also have a plan to create a safety net to avoid future financial pitfalls as much as possible.

Buying vs. Leasing: Bottom Line

While many of these credit-related issues tend to favor a lease over a car loan, there are lots of other factors to consider. These include things like affordability, whether or not you need a down payment and costs at the end of your lease contract. A lease may be more expensive on a monthly basis if you choose a shorter term. You can lower that amount by making a down payment, but that’s not always the best choice, especially if you don’t plan on buying the car at the end of your lease. If you drive a lot, you may also have to pay extra if you go over your allotted mileage during your lease.

Consider your options holistically to get the best deal both from a financial and a credit perspective. Also, think about both choices from both a short-term and long-term point of view.

Looking for other ways to improve your credit? Sign up for a free consultation with Ovation Credit. We can help you efficiently navigate credit disputes to improve your credit report.

6 Ways to Teach Your Kids Financial Literacy

By | Personal Finance

Now that the kids are back in school mode, it’s an excellent time to introduce some real-world lessons about money management. Financial literacy is a topic that isn’t covered much in the classroom, and many adults find it difficult to explain money issues in a way that youngsters can understand. However, kids can generally pick up the basic concepts. Planning these exercises for after school or weekend activities keeps their critical thinking skills sharp. Especially now, when most financial transactions take place through a screen, it’s more important than ever that kids understand the value of a dollar. Here are six fun ways to teach your kids financial literacy.

1. Set Up a Lemonade Stand

Lemonade stands have stood the test of time for a reason—they’re an invaluable tool for kids to practice their entrepreneurial skills and learn about the value of money. Before they set up shop, dole out a few dollars to spend on supplies and advertising/marketing. Suggest ways to keep expenses down (such as visiting the dollar store for supplies like chalk and signs, and making a homemade recipe) and explain that the lower the expense, the more cash their enterprise will earn. Let them handle the money, which also offers a great real-life example of math skills. Running a lemonade stand requires patience and hard work—but kids will learn that if they practice those values, they will be able to earn money.

2. Use Physical Tools for Savings

Handing out an allowance is a major first step to teach yours kids financial literacy. Since most parents tie allowance to completed chores, take the chore routine outside and show kids how they can earn money for tasks such as watering the garden, cleaning up outdoor toys, and washing the car. When you distribute their earnings, provide them with two clear jars—with instructions to use one jar for spending money and one for saving. This introduces them to the basics of budgeting.

3. Take Them Shopping With Their Own Money

Kids need to understand that everything costs money and that decisions must be made for wants versus needs. The key is to make the process as visual as possible. When they want to buy something, help them count out money from their spending jar. At the store, explain how much the desired item costs and whether or not they have enough funds available to afford it. If they don’t have enough money, they will have to consider whether to dip into their savings—which also forces them to prioritize what they really want.

4. Play Money Games

Introducing money into your children’s gameplay is another way to help them practice their financial savvy. One idea is to assemble a “store,” including toys or stuffed animals, and label each item with a price tag (under a dollar). Provide them with a bowl of coins in different denominations, and encourage them to count out the coins to the correct amount for their “purchases.” The younger the child, the smaller the price tag (and pennies are easiest to use). For older kids, you can play board games such as Life, Monopoly, and the Allowance Game.

5. Involve Them in Financial Decisions

The best way to raise kids to use money responsibly? Set a good example. If they question why you can’t afford to make a large purchase, peel back the curtain of how adulthood works—showing them your own budget, or a printout of your monthly expenses for mortgage or rent, car, food, insurance, and so on. If you do happen to splurge on an item, explain how other sacrifices were made in order to allow you to do so.

6. Make Saving a Team Effort

Introduce your kids to the reality of paying bills and economizing. Choose one of your monthly bills, such as electricity, water, or phone, and challenge your kids to come up with ways to reduce it. For example, encourage them to use less water or to turn off the lights each time they exit a room. Review some of the bills with them and explain how certain practices add up to higher charges. You can also turn the savings into a competition. If they manage to shave some dollars off the bill in the following month, let them come up with a reward to spend the savings on.

It takes time to teach your kids financial literacy, it won’t happen overnight. But by devoting a small part of your days with these fun exercises, you will be setting the groundwork for their futures as responsible adults.

Discuss Finances Before Marriage: 6 Things You Should Talk About

By | Personal Finance

You think you know everything about your fiancé? Think again. Before you get married, you and your future spouse need to discuss finances before marriage. It won’t affect whether or not you both say “I do,” but it might change whether you both agree to get a shared bank account.

In addition to maybe getting a shared account, here are six things you should talk about.

1. What kind of debt do you both have?

Did you both rack up a lot of debt going to college? What are your monthly car and student loan payments like? What is your debt-to-income ratio? If either of you has a lot, it’s best to say so before you tie the knot. Having the infamous “Where did all of our money go?” conversation is never fun and can lead to problems that extend beyond finances in a heartbeat. Know what kind of debt your future spouse has. It may suggest that you should either have separate bank accounts, or that one of you should be in charge of all finances so that credit repair can take place.

2. Know each other’s credit scores and histories.

A strong credit score is needed if you want to buy a house one day. If your spouse frequently misses payments because he or she doesn’t manage money well (and might need to fix his or her credit), it can put a big strain on your relationship. You should know what each other’s score is because it might change your respective responsibilities. Maybe one of you agrees to make all payments, or you add your spouse as an authorized user on an account to improve their credit score.

Looking over each other’s histories might also reveal credit errors. If you spot any, you’ll want to start a credit dispute as soon as possible. One reason is, if you plan on having kids, it’s a lot easier to fix a credit score when it’s just the two of you because you’ll have more cash every month to put toward payments. Another reason is that credit disputes and credit repair can take time. The sooner you begin the process, the better.

3. Will you need to work together to improve credit?

Do both of you suffer from low credit scores? If you need a loan, will either of you qualify? As stated, credit disputes and errors take time. To fix credit (or just improve credit), it may require a joint effort. To do so, you’ll both need to make a concerted effort. Not only will all bills need to be paid on time, but one or both of you might need to take out a secured loan or line of credit to begin the credit repair process. From there you’ll both need to diversify your lines of credit and begin paying down your debt.

Many experts suggest paying off debt from smallest to largest. This will remove some of your monthly obligations and free up more cash to throw at your larger debt.

4. What are your long-term goals?

Do you want to travel? Buy a house? Have kids? All of these are big financial commitments, and you need to know about them so you can start budgeting. Depending on the goals, one or both of you might need to make some spending changes. Impulse and fluff buys may need to be scaled back and a monthly budget put in place. If it’s a struggle to put away money each month, then you’ll need to establish a savings plan as soon as possible.

5. Should you have a prenup?

Unfortunately, approximately half of all marriages end in divorce. If either of you has worked hard to establish a strong financial portfolio, then a prenup may save you at least a little heartache if or when you two do decide to call it quits.

6. Establish a monthly budget and savings goal.

Come up with a list of non-negotiable monthly items—mortgage, car payments, credit card payments, utilities, etc. How much money must absolutely be set aside to cover everything? Look at how much is left over, and put a little aside for both of you to spend on fun items. The rest needs to go into savings. How much you spend on your fun (or unnecessary) purchases is up to you. If your partner considers something to be a must-have, but you don’t see it that way, consider not pushing it if it’s not too much every month. Everyone has their own quirks. However, if you are just scraping by every month and accumulating credit card debt in the process, it may be time to have a talk.

Discuss Finances Before Marriage & Get Expert Advice

Marriage is just the beginning, having a solid financial background and excellent credit profile will open many doors in your future.  Planning to discuss finances before marriage gives you the ability to see where you may need financial help. Luckily, it doesn’t just have to be the two of you working on it. At Ovation Credit, we’re here to help, too. We offer a free credit consultation and also a 20% discount for couples. Why not start off your marriage with a better credit life. We can help you improve your credit, fix any credit errors, and resolve any credit disputes.

Sources:

https://www.workandmoney.com/s/financial-topics-before-getting-married-aa006eb785e94537

https://www.dealnews.com/features/Money-Topics-to-Discuss-Before-Marriage-and-Ways-to-Start-the-Conversation/

College Students – Don’t Make These Common Financial Mistakes

By | Personal Finance, Uncategorized

College can be expensive, and some college students add to the price tag when they make financial mistakes such as using student loan money for a trip. Another mistake some make is going to a pricey college for four years when they could go elsewhere for two years and transfer. Here is an exploration of these mistakes.

College students financial mistakes

Using Student Loan Money for Unintended Purposes

Many times, students have money left over from their loans after tuition, room and board, and other direct expenses are taken care of. These loans are supposed to cover educational expenses and educational expenses only. Related expenses such as essentials for a dorm room could be okay. But a vacation during spring break or splurging on renting a high-end place — most likely not. Yet, quite a few college students see that leftover money as “free money,” not realizing that years of compounding interest rates could end up doubling the price tag of that spring break trip.

The solution is usually to anticipate your expenses well and to accept only that amount of student loan money. If you don’t have the money, you won’t spend it.

Not Taking Advantage of Financial Opportunities

Going to college inexpensively has become trickier, but there are still some ways, especially if you live in certain states. For example, community college students in Tennessee, Rhode Island, Oregon and New York will be able to attend for free by 2018 (or are already able to), provided that they meet residency requirements, GPA requirements, income requirements (sometimes) and a few other regulations.

Some other states also have similar programs. For example, tuition in Minnesota is free if you study a high-demand subject. California also gives one year of community college free, and low-income students have been able to attend with their per-credit fees waived since 1986. Virginia’s community college students get a $3,000 annual grant when they transfer from a state community college to a participating four-year college. In short, ways to save can be found in many places, cities and states.

What does all this mean? It means that some college students who aim for four-year degrees should seriously consider attending community college first and then transferring to a school offering a bachelor’s program. The difference could be many tens of thousands of dollars and paying off student loans much more quickly.

College Students Using Credit Cards Irresponsibly

Some students graduate owing as much as $7,000 on their credit cards; the average student graduates with $3,000 in the negative column and has four or more cards, according to Sallie Mae. College is the first taste of freedom for many students, and even those who charge only $20 here and there, or even just $500 a few times a year, could find themselves at risk of hurting their credit scores sooner rather than later.

After they graduate, they may be looking for work while juggling obligations in the way of rent, student loans and credit cards. It takes just one missed payment for a credit score to suffer.

Responsible credit card use in college often means:

  • Having a sound reason for getting a card
  • Using a card with low credit limits and interest rates, and no annual fee
  • Paying your balance fully every month
  • Having one card
  • Charging something only when you know you can afford it
  • Being the sole user of your card (not lending it out to friends)
  • Not getting cash advances

If you think you may be prone to abusing your credit card, go ahead and close the account. On the other hand, if you have already graduated, credit repair services could help you get back on track.

College should be a time of great freedom and learning. Making good decisions can set you up for life, but it can take only one financial misstep to hurt you.

 

Sources:

www.thebalance.com/what-can-i-use-my-loan-money-for-315568

money.cnn.com/2017/05/16/pf/college/states-tuition-free-college/index.html

money.cnn.com/2017/10/16/pf/college/california-free-community-college/index.html

www.thebalance.com/smart-ways-for-college-students-to-use-credit-cards-960105

www.vccs.edu/vccsblog_post/community-college-awareness-month-virginias-community-college-students-pull-back-the-curtain-on-cost-cutting-strategies/

Personal Finances – Mobile Evolution Improving Success

By | Personal Finance

Since the dawn of the Internet – and followed by the launch of smartphones – everything has changed. Being able to communicate in ways that we never imagined, it became possible to instantly have a face-to-face conversation with someone halfway across the world, map directions and even manage your bank account on your mobile phone.

This evolution is improving the ability to track budgets, manage personal finances and build credit more securely than ever before.

Personal Finances Mobile Apps

 

The Relationship Between Mobile Phones and Money Management

The online world and the rise of mobile phones dramatically changed the way we communicate with one another, share critical information and even how we manage our day-to-day lives. This is particularly true in relation to money management.

When it comes to personal finances, in a matter of seconds, you can check balances, transfer money, access your statements, budget and even work towards a healthier credit score — all through the use of your mobile phone. Whether you want to pay a utility bill while you’re at the coffee shop or transfer a portion of your paycheck into a savings account, so much can now be accomplished through a mobile screen.

When it comes to banking services, for instance, mobile phones changed the efficiency of financial institutions forever. In fact, there are now some banks that are only accessible online — which means that you no longer need to waste 30 minutes of your lunch break to wait in a physical bank queue.

The Rise of Managing Personal Finances on Mobile

As mobile apps continued to develop and evolve, our finances became that much more accessible. In fact, based on a 2015 survey, 53 percent of people with a bank account and smartphone utilize mobile banking. When using banking services, the three most common mobile banking activities include:

•   Checking recent transactions (94 percent)

•   Transferring money between accounts (58 percent)

•   Receiving notifications from their bank (56 percent)

With so many specialized apps, independent of standard bank institution apps, managing funds and even investing has never been easier. Although there are many benefits associated with these apps based on convenience, none are more significant than the level of control you gain over your personal finances.

Mobile apps have allowed you to do much more than bank online. When you have access to various apps, you can do anything from pay your student loan to check your credit card balance. Whether you’re investing or banking, your goals can be achieved in a matter of minutes, helping you improve your long-term financial health.

As these changes continue to occur, companies are developing apps that are more powerful, higher in terms of security and are much more flexible than ever before. In fact, mobile apps can allow you to:

•   Better manage your money

•   Maintain a budget

•   Support debt repayment

•   Track expenses

•   Improve financial behavior so that you can save

Repairing Poor Credit Through Improved Daily Habits

When it comes to paying bills on time, there’s one factor that we’re all aware of — our credit score.

While focusing on credit card debt, for instance, for American households who carry credit card debt, it costs them an average of $1,300 per year in interest. With the average U.S. household carrying approximately $16,425 in credit card debt, mobile apps can help consumers not only make payments on time, but improve their current financial state by altering their spending habits.

As you become more aware of your daily habits, seeking the type of credit repair support you require, you will then be on your way to greater financial freedom. It’s all about setting small goals in order to make minor changes in your day-to-day routine.

Once you focus on making your monthly debt payments, budgeting is the next major step. After all, what’s the point of making a payment, just to drive your debt back up? When you learn to properly budget your personal finances, you can avoid this vicious cycle. This is when mobile apps come into play.

Mobile phones are on us at all hours of the day, so when accessing a budgeting app, you will become more aware on a day-to-day basis. Just like a 100-percent cash budget, which makes you more conscious of your spending, a budgeting app can do the same.

Within one survey, of the 3,600 smartphone users who use their phone to bank, 18 percent do so in order to budget, and of those, 69 percent strongly agree that the budgeting apps support healthier spending habits. Whether you want to create budgets, track your spending or pay bills, mobile apps can help you repair your credit over time.

Increase Your Knowledge to Improve Your Financial Health

As we look ahead, there’s no doubt that your personal finances will continue to evolve. As new software programs and online services are developed, the ability to manage our money will continue to become even more practical and convenient.

Whether you want to save more or repair your credit score, one thing is certain — education is imperative. Understanding your options and taking informed action will always pay off. After all, Benjamin Franklin said it best, “An investment in knowledge, always pays the best interest.”

Sources

https://www.nerdwallet.com/blog/average-credit-card-debt-household/

https://www.pressreader.com/usa/usa-today-international-edition/20150429/281788512610586/TextView

https://www.federalreserve.gov/econresdata/consumers-and-mobile-financial-services-report-201603.pdf

Financial Milestones – Roadmap For Success

By | Personal Finance

While there are many financial milestones to celebrate at every age, some of the most significant milestones could be life-changing.

From getting that first paying job to putting a college degree into practice, these milestones can form some of the greatest memories and set a financial foundation for success later in life.

Knowing what financial milestones are important will help you get a head start on planning and be able to work toward a successful financial life.

Your Financial Milestones Roadmap

Financial Milestones

Becoming an Adult (18-29)

What many people don’t realize is that between the ages of 18 and 29, you should be working on your first financial milestones. On top of landing your first job and buying a new car, you may take out student loans to attend college. To qualify for good interest rates, you’ll need to start building your credit. You could take out a line of credit or get your first credit card, as long as you use it responsibly. If you’ve already made some mistakes with credit, don’t stress too much, you are still fresh in the financial path so use this time to invest in credit repair to get yourself back on track.

Pay any loans or student debt on time each month, and be mindful that any debt you obtain will need to be paid back in the end. You may also plan to move out of your parents’ house and want to start looking for a home to rent or buy. Having good credit will make these goals easier to obtain. A great way to build credit while paying rent, is to use a rent-reporting service to get your rent payments on your credit report.

You should also start planning a budget and learn about investing. You may have the opportunity to start a 401(k) — especially if it is available through your employer and sometimes they will match a certain percentage, you should definitely take advantage of this. If a 401(k) is not provided through your employer you can look into a Roth IRA for your investments, if you have the option to do both, you should. This will give you a solid financial foundation that will carry you far later in life.

In Your 30s

By your 30s, you should be enjoying a comfortable place to live and perhaps owning your own home. You may have several retirement accounts, whether you have a 401(k) or a Roth IRA, continue making contributions to those funds and increasing that amount when you can in order to get the most return. If I said I would give you free money wouldn’t you take it? Keep improve your knowledge of investing by studying up on exchange-traded funds, stocks and bonds, as well as funds that can be matched by your employer. If you are fortunate enough to work for a company that has matching 401(k) make sure you are maxing out that opportunity.

This may be a good time to diversify your investments, choosing from a variety of stock options and markets, such as real estate or commodities. You should also be investing in yourself, pursuing an advanced degree or professional development that will accelerate your career.

In Your 40s

By your 40s, your retirement accounts will continue to accrue, and you should have started investing or saving money for your children’s college expenses. Look into a 529 plan or other college savings plans to see which one suits you best. Max out your retirement funds so that you can leverage them later in life, and contribute up to 6-8 percent of your earnings to get the most out of employer matches.

Reward yourself for achieving financial stability, make sure to make a “vacation” savings account so you can be enjoying this hard work you have been doing. Discuss health care needs with your parents in order to avoid surprises later on. Also it may be a good idea to start an investment account that is separate from other accounts, and set it up to automatically draw funds. With the help of a financial advisor, you can turn these funds into moderate-risk investments that you’ll benefit from down the road.



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In Your 50s

By your 50s, you may have started thinking about retirement and be counting down the years to the big day. Sit down and make some calculations to determine your family’s current financial needs, how much you will need in your retirement, and what your goals are for this stage and on in your life.

For your financial milestones, consider buying a vacation home, timeshare or rental property, which you can lease out in order to generate extra income. Learn about financial options available, such as Social Security, Medicare and pension benefits. Resist the urge to withdraw funds from your retirement accounts prematurely, unless you are prepared to pay large penalties.

In Your 60s

By your 60s, you may decide to retire. Your golden years can also be a time of resilience or unpredictable life changes, so each individual will face something different at this stage. You can start collecting Social Security and planning for the long term, so your retirement and health care funds last as long as you need them. Make sure your will is filed and updated. You may also want to consider changes at home, whether that means modifying your house to age in place or moving to a retirement home or supported community.

In Your 70s and Older

By your 70s, you will likely be well into your retirement years. It might even be beneficial to produce hobby work on the side and sell it at community fairs. This is a crucial time to look at your finances to decide if you need to cut back on spending or if you can be generous with charitable gifts. Ensure that any withdrawals follow a predictable, stable plan, and use your money wisely. By your 80s or 90s, your life will have changed more than you ever imagined it could. This might be a good time to downsize and move into a smaller home that suits your life as it is now. If your retirement funds have made it this far and you can still afford some degree of charitable giving, you’ve done well.

Tracking your financial milestones and setting goals, will help relieve the financial stress that pursues when you have not prepared yourself. With careful planning, saving and investing, you can ensure that both you and your family will be cared for well into the future.

Resources:
Reuters
Money
The Balance
Clark

4 Tips to Prevent Personal Liability With Business Credit Cards

By | Credit Cards, Personal Finance

Personal Liability Business Credit Cards

Are you starting up a small business? If so, there are many things you have to think about. You must consider variables like accounting, legal and tax concerns, and even what exact type of business you need to register. So it should come as no surprise that you could make a mistake that you will regret in hindsight.

The perfect example of a common “fork in the road” for business owners comes when getting business credit cards. This is a potential roadblock that many new business owners do not expect. Yet, the problems that could come up are sometimes extreme, which is why you must know what to expect ahead of time. One particular risk relates to putting yourself personally liable for your business debts. While this is fairly standard and most business card providers require a personal guarantee, you can find some workarounds to avoid this issue.

Personal Liability and Business Credit Cards

You might not be aware yet, but you usually qualify for business credit cards based on your personal credit. As a small business owner, this means you need to have good enough credit to qualify for a business credit card in the first place. Otherwise, it would be necessary to secure the credit card by giving a deposit of up to 100 percent of the card’s limit.

Even if you go the unsecured route, it’s possible that the card issuer reports your account to the major credit bureaus. Most of the time, this means Equifax, Experian and TransUnion factor your business card into your credit report and score. While you might think of this as a plus, it’s unfortunately a big problem.

How Business Credit Cards Can Destroy You

Say you took out a mortgage that’s fixed for five years, four years ago. What happens when you go to refinance?

Well, unfortunately, that all depends on the specifics of your business credit. Worst case scenario, you are unable to refinance your home because your credit rating suffers a dramatic drop. You can expect to see your score fall by upwards of 50 points just because of the new accounts. Even worse, if your running costs are sky-high, the card you need (even if secured) will cause your total debts to read sky-high.

Simply put, you DO NOT want your business credit card to mix with your personal credit information.

Avoid Personal Liability at All Costs!

This is not something you want to push aside, because chances are you will seriously regret doing so in the future.

Even if you have a $300 card for your business, you might find yourself increasing the limit later. This will just increase the amount of damage done to your FICO score. You cannot create a net-positive impact this way; surprisingly, this is the one scenario where it’s understandable for your credit rating to go up if you were to close your account.

Remember: Just because it’s a “business credit card” doesn’t mean they report to business bureaus!

Nevertheless, your business credit card is incredibly important. You will need to apply for one either way, but at least consider the workarounds that are available. Since there are many solutions, you do not need to assign personal liability to get a credit card for your small business.

Here are four quick tips that can help you out:

1. Find Card Issuers That Report to Business Credit Bureaus Only

You can get a card and only have it show up under one of the major business credit bureaus. To do this, you need to have a DUNS number for your business. DUNS stands for Data Universal Numbering System. This was created by Dun & Bradstreet, one of the major business credit bureaus. The other two major bureaus are Equifax Business and Experian Business.

2. Consider Alternative Financing Methods Instead

There are always other financing options available. One great workaround for small business owners is Amazon.com’s Corporate Credit Line. But when you get into these alternative options, you always have to consider whether the higher interest rate is really worth it. If you choose this option, look specifically for corporate credit lines through lenders authenticated by the Small Business Administration.

3. Incorporate or Register as an LLC

If your business is an LLC (Limited Liability Company) or a corporation, you can exempt yourself of some liability. This will not save you if your business credit card defaults. However, if you ever get sued it will exempt you from being financially liable. If you do not incorporate or register as an LLC, you will not get this protection.

However, things can get a little hazy. If you do get sued and you expect to lose big time, your business credit cards should be paid off and canceled. Doing this will prevent your credit from getting hurt if the claimant wins the lawsuit and your business debts default. This is a rare scenario and generally not something to worry about.

4. Move on to a Commercial Liability Card Later

It is possible to qualify for a commercial liability credit card once your business establishes a quality borrowing history. But you will need both a good personal credit record and a good credit report under your business’s file. This type of business credit card is backed by your business in the event of a default. Typically, you would do this if you run a larger business and you have major assets to back your corporate cards. After your small business develops a credit history and gains traction, it might be worth applying for a commercial card.

Sources:

https://www.smallbusiness.dnb.com

https://www.nerdwallet.com/blog/credit-cards/business-credit-card-personal-guarantee-explained/

Keep a Tax Debt From Ruining Your Credit

By | Credit Reports, Credit Scores, Personal Finance, Your Credit

Keep Tax Debt from Ruining Credit

The IRS has more power than any other creditor. Unlike private creditors, the IRS can directly garnish your wages and levy your bank accounts. Tax liens are also one of the biggest negative items for credit scoring purposes. If you owe taxes that you can’t pay, here are your options and how they affect your credit.

Not Filing a Tax Return

Not filing a tax return to try to keep the IRS from finding out you owe taxes is one of the worst things you can do. It doesn’t even work because the IRS will receive copies of your W2s and 1099s from your employers and banks.

When the IRS realizes that you owed taxes and failed to file returns, the penalties are typically ten times greater than if you filed but paid late. The IRS will also be less willing to work with you after you’ve attempted to evade taxes. For large debts or multiple un-filed returns, you may also face criminal prosecution.

As far as your credit score is concerned, the IRS will begin the collections process and issue a tax lien as quickly as possible.

Not Paying When Filing

If you don’t pay your taxes in full by the time your return is due, you will be charged late fees and interest starting from the due date. However, if you still filed a return on time, the IRS takes a slightly friendlier approach to collections.

You will receive a bill and at least a second notice before the IRS files a tax lien. As long as you meet the deadline to avoid the lien, your credit report will never be affected.

Typically, your options will either be to arrange full payment within 120 days of the due date or to enter into an installment agreement.

Personal Loan/Credit Card

The IRS recommends that you take out a personal loan or charge your taxes to a credit card instead of using IRS repayment options. They gain the advantage of receiving immediate payment in full.

Your advantage is less clear. You avoid IRS penalties and interest, but your loan or credit card interest charges might be higher. You’ll also avoid the IRS collections process, but IRS collections don’t impact your credit if you follow the steps to avoid the lien.

When you apply for a loan or credit card, the credit inquiry will lower your credit score, and your average age of accounts credit score factor will be reduced. The increase in your credit balance will also lower your credit score. However, once you pay off the debt, you’ll have additional positive payment history on your credit report.

Installment Agreement

An installment agreement is a payment plan directly with the IRS. It may be advantageous if you can’t get a good rate on a loan or credit card.

Installment agreements never show up on your credit report, so it won’t affect your credit score. If you sign up for automatic payments, you’ll also avoid a tax lien.

However, if you default on an installment agreement, the IRS may cancel the agreement and issue a tax lien. There are several ways to default, including the following.

•     Late payments

•     Bounced payments

•     Failure to have adequate withholding or estimated tax payments  for the current tax year

•     Any other late taxes

Offer in Compromise

An offer in compromise is an agreement to settle a tax debt for less than it’s worth. The offer can be either a lump sum payment or a payment plan.

Unlike settlements or charge offs on credit card accounts, offers in compromise are not reflected on your credit report. Because the tax is considered to be settled in full, the IRS will withdraw any liens once you’ve completed the offer.

The downside is that it’s incredibly difficult to be approved for an offer in compromise. The IRS must believe that you have almost no chance of ever paying in full. This is typically only when you are disabled or well past retirement age.



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Tax Lien

If you can’t pay your taxes in full, make payment arrangements or complete your payment plan, the IRS will issue a tax lien. Tax liens will destroy even a nearly perfect credit score. They’re also automatically disqualifying for many loans, jobs and rentals.

The good news is that the IRS almost never issues liens for tax debts under $10,000. They believe the negative effect on your credit report will make it harder for you to pay back a tax debt at that level.

If you have a tax lien, there are three ways to get it off of your credit report:

  • Paying in full: Once your tax debt is paid in full, whether in a single payment or through installments, the lien will be released within 30 days. At that time, you can request the lien be withdrawn.
  • Discharge of property: If you need to sell your home or a vehicle, you can apply to have the lien discharged on that specific piece of property. Typically, the IRS will expect a portion of the sale proceeds to approve your application.
  • Withdrawal: You may also be eligible to have a tax lien withdrawn and removed from your credit report before you pay in full. Requirements include being current on all tax returns and estimated taxes as well as having a direct debit installment agreement to satisfy your past-due taxes.

Unlike other negative credit report items that stay on for seven years, once liens are withdrawn, they are completely erased from your credit report as if they never happened.

Sources:

  • https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Understanding-a-Federal-Tax-Lien
  • https://www.irs.gov/taxtopics/tc201.html
  • https://www.irs.gov/Individuals/Payment-Plans-Installment-Agreements
  • https://www.irs.gov/Individuals/Offer-in-Compromise-1
  • https://www.irs.gov/taxtopics/tc653.html
  • https://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/IRS-Procedures/Collection-Procedural-Questions/Collection-Procedural-Questions-3
  • https://www.irs.gov/uac/What-to-Know-about-Late-Filing-and-Late-Paying-Penalties
  • http://www.taxpayeradvocate.irs.gov/get-help/i-can-t-pay-my-taxes
  • http://www.cbsnews.com/news/stop-the-irs-from-destroying-your-credit-4-moves/

Choosing the Right Credit Card for You

By | Ask a Credit Expert, Credit Cards, Credit Repair, Credit Reports, Credit Scores, Personal Finance, Your Credit

Choose credit cards

There are dozens of credit cards on the market, so choosing the right one may be difficult. Do you want a card that gives you airline miles, or would you prefer cash back when you shop for groceries or buy gas? The options are almost limitless, so be sure to get a card that suits your needs. Credit comparison sites such as CardRatings can help you choose a card that’s right for you.

Cards and Your Credit Score

One of the most important things to keep in mind before you get a credit card is how it will affect your credit score. Also, depending on your credit score, you may not qualify for every card out there. Always keep in mind that credit cards report to the credit bureaus, so if you don’t pay your bills on time, it will negatively impact your credit score.

Types of Credit Cards

According to the American Bankers Association, 83 percent of people with a credit card have at least one rewards card. Why are they so popular? People like getting rewards for purchases they’re making anyway. You can earn free hotel stays and airline miles just for using the right card.

Here are a few types of credit cards that you may want to consider:

  • Cash-Back Rewards – As the name suggests, you earn cash back each time you make a purchase. These are growing in popularity, and there are a lot of options out there. Some flat-rate cards will give you 1.5 percent cash back on all purchases, while others offer accelerated cash back earnings in certain categories. If you like cash back, look for a card that offers generous rewards and bonuses in categories that you spend more on, such as gas or restaurant purchases.
  • Co-Branded Cards – These are often called partner cards and give you extra rewards at a retailer that you frequent while giving you rewards on all other purchases. These are great if you frequent a particular retailer.
  • Secured Cards – Secured cards are a bit different and are generally used to help people establish or fix their credit score. The idea is simple: You deposit money in a savings account at a bank, and the bank gives you a credit line up to that amount. Secured cards offer a couple of advantages. First, the money that you put in your savings account stays there. Secured cards aren’t debit cards. Second, secured cards report to the credit bureaus, which can help improve your credit score if you pay your bills on time. A credit repair service may recommend that you get a secured credit card to reestablish your credit.

Words to the Wise

A few years ago, a survey found that as much as $16 billion in rewards go unredeemed every year. Make sure that you take advantage of the rewards you earn. You should also review your monthly statements and take advantage of bonuses that card issuers sometimes offer. Also remember that miles and points may expire. Don’t let your hard-earned miles go to waste.

Read the fine print. Some credit cards require that you register for revolving rewards every quarter, while other cards place restrictions on the miles that you can use. Before applying for a credit card, make sure that you’ve read the fine print and get a card that matches your spending habits and lifestyle.

Lastly, watch out for fees. Check the benefits and rewards that a card offers and determine whether they’re worth the amount of the annual fee. Also look out for other fees, such as foreign transaction fees if you travel overseas.

Credit cards can be a great way to improve your credit score while being rewarded for purchases. The best advice is to read the fine print on the card that you’re looking at and use the card wisely to maintain a good credit score.

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