Medical Bills Often At The Heart Of Financial Troubles

Increasingly, employers are reducing medical insurance coverage, increasing premiums or dropping insurance benefits altogether because the cost of health care is so high. Combining with this are the facts that the cost of health care outpaces the rate of inflation, and real wages have been stagnant in the US for more than a decade.

What is the result of this? About half of people who declare bankruptcy seek relief from unpaid medical bills when they file their bankruptcy petitions. Americans are increasingly paying more for health care, but relatively few taxpayers qualify for breaks when it comes to deducting medical costs on their tax returns.

How can you limit the damage from unpaid medical bills? Often, quick action is the key to keeping medical debts both in line and in good standing.

Like credit card debts, hospitals and medical service providers will sell uncollected debts to collection agencies if they don’t hear from you when they attempt to collect. When you receive a bill you can’t pay right away, talk to the hospital or service provider immediately and see if you can work out a payment plan. If you can make regular payments on the debt, this is often enough to keep the bill from being sold to a collection agency. Avoiding a collections action is important because this kind of negative information will land on your credit report and will stay there for years to come.

Keep all documentation on your medical services or hospital visit. Correct errors immediately. Often, patients are charged for services they’ve never received or double billed by mistake. Keeping tabs on your tab can result in substantial savings. Additionally, if you have insurance and your insurer has refused to pay a claim, find out why. Sometimes, claims that have been submitted incorrectly can be resubmitted for payment.

If the insurance company still denies a claim that you believe should be covered, talk to the state agency that regulates insurers. Most often, these regulatory agencies will review the disputed claim and determine who should pay the bill. They may or may not find in your favor, but it’s worth the effort to make sure you’re getting the coverage to which you’re entitled.

Try to negotiate with the medical service provider to see if you can get the bill reduced or get enrolled in a non-standard payment plan. Often, if the provider believes that you can eventually resolve your debt, they’ll choose to offer you better payment terms to avoid selling the debt at a steep discount.

Avoid using credit cards, 401(k) plans, and home equity to pay down your medical bills if you can. Credit cards will consign you to paying very high interest rates on top of high medical bills. Since medical debt is dischargeable in bankruptcy and retirement savings are protected, there’s no reason to tap into your retirement to pay off medical debts.

Bringing Debt Into A Marriage

If you’re planning a trip down the aisle in the near future, there’s no time like the present to take a few moments to consider the way finances and spending will fit into your new life. Debt is one of the leading causes of marital strife and is at the root of many issues that eventually lead couples to divorce.

No one will advise you to start married life with a lot of debt, but many couples do just that. Often the combination of his-and-hers debt service can overwhelm the combined earning power of the couple, who may also be trying to purchase a new home or start a family.

Many young couples make the mistake of counting on future earnings to soften the blow of debts they accumulate at the beginning of their marriage. “When John gets this promotion…” or “When I finish my Master’s Degree…” isn’t exactly wishful thinking, but it also doesn’t justify the adoption of a more expensive lifestyle before these milestones are reached.

Certain debts, like student loans, can put a great deal of stress on monthly finances. These debts aren’t dischargeable in bankruptcy and enjoy special legal protections. There are few ways to eliminate student loan debts other than paying the loans back.

When you’ve just entered the workforce, it’s easy to believe that you can afford a $485/month car payment. Your $5,820 annual car expense will morph into a $9,000 annual expense when you take into consideration the cost of insurance, gas and maintenance.

You may also enter the workforce having accumulated a few thousand dollars worth of credit card debts in college. This debt service may produce a required minimum payment of $150-$200 each month, but payments of those minimums won’t allow you to decrease the debt much, if at all.

These seemingly small payments add up fast, and create ongoing problems for newly married couples. Before you marry, take stock of your current debts and explain them to your partner. Work out a monthly budget together that will cover all of your obligations. Determine what your plan of attack will be to reduce or eliminate debts, and figure out how you will handle new expenses in the future.

Write down the plan and review it annually. Tax time is as good as any, and a written plan will help you determine how to spend any refunds you may get, or how to apportion any taxes you may owe. Once you get your debts under control, spend some time with financial planners to help you and your spouse build a more solid financial foundation that will help you through tough times ahead.

Getting Ready For Tax Time?

If you’re one of those people who waits until the last minute to file your taxes, you should be collecting the paperwork you’ll need to file your forms. In 2009, April 15 falls mid-week, so there are no fortuitous extensions this year.

Whether you itemize your deductions or not, you’ll need to get your papers together. If you’re employed, you should have received a W-2 form from your employer for 2008. This statement should show all wages and taxes you earned and paid, plus any taxable benefits you received, non-taxed income you paid into retirement plans, medical or child care reimbursement accounts, and life insurance premiums that you paid, or were paid on your behalf.

You’ll also want a copy of last year’s tax form. You may need information from it to document the taxes you paid last year. This can help you avoid underpayment penalties. Last year’s tax forms will also have your social security number and those of your spouse and dependents.

This year, the IRS reports that many filers are being tripped up by the stimulus check that most taxpayers received last June. In some circumstances, you may be eligible for a larger stimulus payment. This may be particularly true if you welcomed a new child into your home in 2008.

If you completed a short sale of your primary residence in 2008 and the mortgage lender forgave a portion of the principal you owed on the home, you may receive a waiver on taxes that would ordinarily be due on that forgiven debt. This waiver applies only to original mortgage debt on the primary residence. Cash-out refinances, second mortgages, and mortgages on vacation or investment properties aren’t eligible for favorable tax treatment.

If some of your non-mortgage debt was forgiven, you should have received a 1099-C from the creditor. This forgiven debt will count as income on your taxes, so be prepare! You may owe a lot more in taxes than you thought you would.

If you can’t pay your taxes in full, contact the IRS to arrange payment plans. The IRS can waive late penalties for incomplete tax payments, but they cannot waive the interest that will accrue. Talking to the IRS is critical; they’ll be less willing to waive penalties if you don’t help them understand your financial situation. Even if you can’t make your 2008 tax payment on time, file your return on time. This will help demonstrate to the IRS that you intend to pay your 2008 tax obligation.

Debt Relief At Tax Time

More than two hundred years ago, Benjamin Franklin said: “Certainty? In this world nothing is certain but death and taxes.” As April 15 approaches, you may be looking for ways to pay taxes you may owe. You may also be looking for debt relief. Depending upon your circumstances, you might actually find some.

Taxes on income earned in the 2008 calendar year are due on April 15. While the filing date is immovable, the IRS is not. If you know that you will not be able to pay taxes you owe, contact the IRS. You’ll still need to file your paperwork by the deadline, but the IRS will work out payment plans that fit your budget. The agency cannot waive interest that accrues on unpaid taxes, but depending upon the circumstances, it may be able to waive penalties, provide a temporary extension on the due date for you, create an installment plan or work out a settlement amount. Each taxpayer’s circumstances will be different, so call the IRS at (800) 829-1040 for more information.

When you file your taxes, keep in mind that the IRS (for the most part) doesn’t make the rules. Congress is responsible for writing the tax code. It’s the IRS’ job to enforce the rules that Congress has made. In the past year, Congress has passed some relief for taxpayers that will show up on this year’s filings.

Notably, if you have lost a home to foreclosure, or completed a short sale to avoid foreclosure, the mortgage holder may have forgiven a portion of the mortgage debt you owed on the home. Under normal circumstances, this debt would be considered income. Thanks to the Mortgage Forgiveness Debt Relief Act of 2007, you will not have to pay income taxes on the forgiven portion of the debt. This provision sunsets at the end of 2009 – something to keep in mind if you’re currently considering a short sale on your primary residence. Note that the exemption does not apply to second homes, vacation homes or rental properties you might own.

If you sold your home in 2008 at a loss, you’re likely out of luck. You cannot claim a capital loss on personal property like a home or a vehicle that you sold for less than its paper value. Other capital losses may be eligible for a deduction of as much as $3,000. This limit applies to all capital losses over the year.

You’re also not going to get much help from the tax code when it comes to losses suffered by your retirement accounts. Generally, non-taxed retirement contributions already receive a favorable tax treatment from the IRS. A loss of these funds is generally not deductible, with a few very narrow exceptions.

If you have suffered an income loss in 2008, you may be eligible for the Earned Income Credit. This credit is reserved for lower-income taxpayers and is based on income and family size.

More Credit Card Debt Relief For Consumers May Be On The Way

A new bill in Congress may provide additional credit card debt relief to consumers who are already struggling with nearly $1 trillion in credit card debt. The Credit Cardholders’ Bill of Rights, if enacted, would cap credit card interest rates by tying them to interest rates on other loan products; require card issuers to use plain-English terms and conditions; create easy-to-understand payment schedules; eliminate the practice of issuing credit cards to minors; prevent credit card issuers from raising interest rates substantially on consumers who regularly pay their bills on time and maximizing the interest they collect by applying cardholder payments to the lowest interest rate debts first.

The bill is a reaction to the high volume of complaints that Congress has received from consumers who say that their interest rates and minimum payments have jumped as credit card companies attempt to cover losses incurred in other business areas. Sponsors of the bill say that the provisions will help stabilize the economy and provide needed economic stimulus. The sponsors say that consumer spending has ground to a halt because consumers are afraid to spend money, not knowing what impact the spending will have on their credit card bills.

Credit card companies have recently modified their minimum payment calculations, forcing consumers to pay more to retire their debts. Credit card interest rates have also doubled or sometimes tripled as issuers attempt to cover an increasing amount of loss in consumer and other markets, and adjust to other lending restrictions. The changes have caught many cardholders unprepared to pay their bills. With additional job losses expected, many consumers are concerned that they cannot make even the minimum payments on their credit accounts.

If you currently carry more than $10,000 in unsecured debts, unpaid medical bills or personal loans, you may be a good candidate for debt settlement. Unlike bankruptcy or other repayment plans, debt settlement reduces the amount you owe your creditors. Debt settlement erases debts for a fraction of their full value and allows borrowers to embark on a real fresh start.

Once a debt is settled, it is gone. There are no additional repayments you need to make, no creditors to pay, and no collection agencies to deal with. Credit debt settlement is easier on your credit report than bankruptcy is, and allows you to move on with your life and your plans.

Comparing Loan Modifications To Short Sales

Troubled homeowners are looking for just about anything that can help them either hold onto their home or salvage their credit when keeping the house isn’t possible. Loan modifications and short sales have emerged as two viable potential options for troubled homeowners. What are the pros and cons of each?

In the absence of other (read: better) options, some homeowners are turning to a short sale to divest themselves of a home. A short sale is a technique that is arranged with (approved by) the mortgage holder before it is attempted. A short sale attempts to recover the market value of a home, even if the market value is less than what is owed by the homeowner on the existing mortgage. In a short sale, the homeowner has no expectation of holding onto the home.

Under normal circumstances, the seller would be expected to make up the difference at closing. In a short sale, the bank or mortgage holder agrees to eat the difference, instead of requiring the seller to bring cash to settle the mortgage note. Also in normal circumstances, the seller would receive a 1099-C at the end of the year, effectively declaring the forgiven debt as income. At the least, the seller would owe income taxes on the forgiven debt.

In a loan modification, the borrower has every desire to hold onto the home, but lacks the financial means to do so, under the existing mortgage terms. The seller agrees to make changes in the terms of the note that will allow the homeowner to hang onto the property.

Loan modifications have gotten a lot of bad press lately for not providing the homeowner with what they really need to hang onto the property in question. Many banks agree to modify loan terms to help a homeowner catch up on missed payments, or otherwise bring the mortgage current, but are less enthusiastic about modifications that lower borrower’s monthly payments, interest rates or principal balance owed.

Which is better? Ultimately, if the borrower wants to remain in the home and avoid foreclosure, the loan modification is a better choice, provided that the modified loan terms actually help the homeowner accomplish that goal. Helpful modifications include lowering the interest rate on loans and reducing the principal balance owed, especially on properties that have experienced a sharp decline in value.

If the homeowner simply wants to get rid of the home – perhaps they’ve already moved, experienced a job change that required relocation, etc. – a loan modification will be of little help. In these circumstances, the homeowner simply wants to unload the property, and a short sale is better than a foreclosure for both the bank and the borrower.

Protecting Your Credit Rating In Difficult Times

Consumers are learning that maintaining a good credit score involves more than simply paying the bills on time. The rules of maintaining good credit haven’t changed per se, but there are now more elements in play.

Creditors are looking for ways to limit risk, and one way in which they can reduce their potential exposure is by reducing the available credit limits they’ve extended to their customers. Consumers with good credit are now finding that their credit limits are being reduced.

If a cardholder normally pays off his or her balance at the end of each month, a reduced limit may have little apparent consequence, as long as the new limit is sufficient to cover the cardholder’s credit transactions each month. For the consumer who carries a balance forward, however, a reduced credit limit may have a significant impact. By reducing a cardholder’s available credit limit, the issuer increases the ratio of used credit to available credit, which tends to lower a consumer’s credit score. If your credit issuer reduces your spending limits, but you have maintained an excellent credit history with them, call them and ask them to restore your limit to its former level.

Firms that calculate consumers’ credit scores don’t divulge much information about how a score is determined, but the formulas they develop aren’t static. In the past, closing a dormant account was considered a negative event and could impact a consumer’s ability to get new credit. Today, unused credit is a liability that creditors are willing to dump. If you have unused credit, voluntarily closing the account will have less of an impact on your credit report than an issuer initiated closure will. An alternative to closing a dormant account is to revive it. Even if the activity is minor, reactivating an account and paying it off monthly can help keep your credit score high.

New regulations will take effect in mid-summer 2010 that govern the way creditors calculate interest, assess interest on new credit purchases and disclose information about credit accounts. Creditors will also be barred from applying universal default provisions to consumer accounts. In the interim, however, current regulations still permit these practices, so consumers need to be aware of them.

As always, the best way to improve your credit score is to pay your bills on time each month. If you carry a balance, pay more than the minimum each month and stop using your credit cards until your balance is no more than one-third of your available credit. If making payments on time is a problem, enroll in an automatic payment plan to ensure that you avoid late payments and their accompanying fees.

More Consumers Defaulting On Credit Card Debts

New analysis by Fitch Ratings shows that more consumers are falling behind on credit card obligations. The overall 60-day delinquency rate reached 3.75 percent in December 2008. This figure eclipsed the previous high delinquency mark of 3.73% set in February 1998. Fitch Ratings monitors delinquencies as a way to predict charge-offs, which are normally reserved for accounts that are at least 90 days past due.

According to Fitch Ratings, banks charged off 7.5% of their delinquent consumer debt in December 2008. This write-off rate compared to those seen in the last quarter of 2005, when consumers rushed to declare bankruptcy in advance of changes to the bankruptcy code. Fitch analysts say that chargeoffs could reach 9 percent or more in the second half of 2009.

Some analysts attribute these record-setting delinquencies to the problems in the credit sector. In past recessions, consumers still had access to credit and could tap into the equity in their homes for help. Currently, consumers are struggling with extremely high unemployment, declining property values and limited access to borrowed funds. Banks, which are already risk-averse, may respond by reducing their lending volumes further, increasing fees and interest rates on existing debts, and cutting credit limits to prevent consumers from using their existing credit.

For some consumers, credit card debt relief may come in the form of debt settlement. Debt settlement agreements allow consumers to reduce the balance owed on credit cards without declaring bankruptcy, or walking away from their obligations altogether. The impact of debt settlement is also less pronounced than a bankruptcy on a borrower’s credit report, and allows the borrower to enjoy a fresh start on their debts.

Debt Settlement: There’s Nothing Positive About A Recession, Right?

The economic forecasts are in, and they’re not looking good. Retirement savings, investments and property values have all dwindled, and analysts say that the worst may not yet be here. There’s nothing positive about a recession, right?

Wrong. A recession can be a good opportunity to re-assess your debt obligations and reduce your overall exposure. In fact, the recession presents one of the best options to renegotiate deals with creditors of all kinds.

Exactly what can you negotiate? Just about everything is on the table when it comes to debt settlement. You can ask for (and get) lower interest rates, fee waivers, higher credit limits and lower balances. Depending upon your circumstances, one or more of these approaches may be effective.

Don’t be afraid to talk to your creditors again and again. Asking for this kind of help isn’t limited to a single shot. As your situation changes, you should be talking to your creditors about help.

Fee waivers are among the easiest to negotiate. If you have a card that has an annual fee, high over-limit or late fees, these add-ons are prime targets for removal and can often be accomplished with a single phone call.

Credit card companies offer a wide range of interest rates on cards. Your interest rate may change annually, or may still be at the same place it was when your account was opened. Worse, if you’ve missed a payment in the past, but have been on-time with payments more recently, you may be paying a higher “punitive” rate that was applied when you were having trouble with your payments. If your interest rate is above the prevailing rate, call your credit card issuer and ask that the rate be reduced to no more than the going rate at the time. Keep track of the prevailing rate and ask for reductions whenever they occur. Unlike refinances, there’s no cost to you to change the terms of your credit card agreements.

Don’t assume that there’s no incentive for a credit card company to say “yes.” In fact, just the opposite is true. Credit card companies are under enormous pressures – both competitive and legislative – to make it easier for people to pay their bills. The credit issuers try to be flexible wherever possible.

If negotiation just isn’t your thing, or you are seeking a balance reduction to settle a credit account, you may want to work with a reputable debt settlement company. Debt settlement companies are very familiar with the credit industry and can make a big difference when it comes to settlement agreements. These agreements may not only reduce your interest rate, but may also reduce the actual balance due on your credit cards. Work with a reputable company and make sure you understand all of the terms and costs before you sign up.

Knowing Financial Status Can Help You Make Debt Relief Decisions

If you’re trying to carry a significant personal debt load, you may be convinced that bankruptcy is the only option. That’s not always the case, but to make good decisions about debt relief, you need to have an accurate picture of your real financial circumstances.

Once a borrower falls behind in payments, he or she tends to push the reality of the situation aside. Late payments are ignored, and the borrower has a hard time seeing the true state of his or her finances, in part due to the collection activities that normally follow.

Having a clear picture of personal debt is important because it can help you determine which approach(es) to debt relief make the most sense. If your personal debt is relatively low – a few thousand dollars – your situation is likely to be highly manageable without major disruption to your finances or lifestyle. Simple budgeting and spending discipline can be applied to reduce the overall debt within months.

For many borrowers, the situation is significantly more dire. If your personal debt load – which includes credit card debt, student loan debts, car loans, and personal loans – reaches above $10,000, you may need to consider other debt relief options. At these levels of debt, other non-bankruptcy approaches may be more successful in lowering the amount of debt you’re carrying and the length of time it takes to settle the debt.

The success of non-bankruptcy debt relief relies upon the cooperation of the borrower and the creditor. In most cases, original creditors will cooperate with debt relief plans. Collection agencies, on the other hand, have nothing to gain by negotiating a debt settlement, and may try to collect even those debts that have been settled.

In part, that’s why it is important for borrowers to know their true financial picture and maintain contact with the original creditor. Preventing the sale of a debt is important because original creditors are more likely to work with borrowers on settlement arrangements than collection agencies are.

In a debt settlement agreement, the original creditor agrees to accept a lower payment for a debt and write off the remaining balance. While this isn’t the creditor’s first choice for resolution, it frequently generates more revenue than the sale of the debt to a collection agency would. Minimizing its loss is the creditor’s primary motive for working through a debt settlement agreement.

Debt settlement can work and is an effective form of debt relief for the borrower, and can produce more revenue for the creditor than a debt sale can.