Americans Are Dying With an Average of $62K of Debt

What happens to your debt after death? Learn how to keep creditors away from your family in a worst-case scenario.

You’re probably going to die with some debt to your name. Most people do. In fact, 73% of consumers had outstanding debt when they were reported as dead, according to December 2016 data provided to Credit.com by credit bureau Experian. Those consumers carried an average total balance of $61,554, including mortgage debt. Without home loans, the average balance was $12,875.

The data is based on Experian’s FileOne database, which includes 220 million consumers. (There are about 242 million adults in the U.S., according to 2015 estimates from the Census Bureau.) Among the 73% of consumers who had debt when they died, about 68% had credit card balances. The next most common kind of debt was mortgage debt (37%), followed by auto loans (25%), personal loans (12%) and student loans (6%).

These were the average unpaid balances: credit cards, $4,531; auto loans, $17,111; personal loans, $14,793; and student loans, $25,391.

That’s a lot of debt, and it doesn’t just disappear when someone dies.

What Does Happen to Debt After You Die?

For the most part, your debt dies with you, but that doesn’t mean it won’t affect the people you leave behind.

“Debt belongs to the deceased person or that person’s estate,” said Darra L. Rayndon, an estate planning attorney with Clark Hill in Scottsdale, Arizona. If someone has enough assets to cover their debts, the creditors get paid, and beneficiaries receive whatever remains. But if there aren’t enough assets to satisfy debts, creditors lose out (they may get some, but not all, of what they’re owed). Family members do not then become responsible for the debt, as some people worry they might.

That’s the general idea, but things are not always that straightforward. The type of debt you have, where you live and the value of your estate significantly affects the complexity of the situation. (For example, federal student loan debt is eligible for cancellation upon a borrower’s death, but private student loan companies tend not to offer the same benefit. They can go after the borrower’s estate for payment.)

There are lots of ways things can get messy. Say your only asset is a home other people live in. That asset must be used to satisfy debts, whether it’s the mortgage on that home or a lot of credit card debt, meaning the people who live there may have to take over the mortgage, or your family may need to sell the home in order to pay creditors. Accounts with co-signers or co-applicants can also result in the debt falling on someone else’s shoulders. Community property states, where spouses share ownership of property, also handle debts acquired during a marriage a little differently.

“It’s one thing if the beneficiaries are relatives that don’t need your money, but if your beneficiaries are a surviving spouse, minor children — people like that who depend on you for their welfare, then life insurance is a great way to provide additional money in the estate to pay debts,” Rayndon said.

How to Avoid Burdening Your Family

One way to make sure debt doesn’t make a mess of your estate is to stay out of it. You can keep tabs on your debt by reviewing a free snapshot of your credit report on Credit.com, in addition to sticking to a budget that helps you live below your means. You may also want to consider getting life insurance (this explains how to know if you need it) and meeting with an estate planning attorney to make sure everything’s covered in the event of your death. If you’re worried about leaving behind debt after death, here’s more on how protect your loved ones.

Poor planning can leave your loved ones with some significant stress. For example, if you don’t have a will or designate beneficiaries for your assets, the law in your state of residence decides who gets what.

“If you don’t write a will, your state of residence will write one for you should you pass away,” said James M. Matthews, a certified financial planner and managing director of Blueprint, a financial planning firm in Charlotte, North Carolina. “Odds are the state laws and your wishes are different.”

It can also get expensive to have these matters determined by the courts, and administrative costs get paid before creditors and beneficiaries. If you’d like to provide for your loved ones after you die, you won’t want court costs and outstanding debts to eat away at your estate.

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Here’s Why You May Want to Talk to That Debt Collector Before Tax Season Ends

Tax season is like Christmas to debt collectors, one agency head says, but that can be good news for borrowers. Here's why.

Here’s something your may not know: Tax season is like Christmas for debt collectors.

In fact, as president of a national debt collection company, I can tell you some agencies will collect as much money from February through May as in the remaining eight months of the year. Why?

Well, the first reason is a bit obvious: Many consumers in debt will receive a tax refund and go on to use that money to pay off their delinquent debt. Second, many debt collectors are good at what they do and want to help consumers resolve their outstanding liabilities. They’re willing to work out or negotiate a payment plan the consumer now has the ability to repay. (And, yes, that means the debt collector who’s been contacting you may be willing to settle up for less than what you owe.)

So who has the upper hand when it comes to getting debt repaid during tax season? If the cards are played right, both the consumer and the debt collector come out ahead.

During this time of year, consumers are generally going to come across two types of debt collectors. The first is a debt collector who understands a consumer has access to a limited tax refund — and is potentially trying to pay off a multitude of debts. This collector will be looking to help the consumer resolve as many debts as possible with the funds they receive back from Uncle Sam. The other type of debt collector will hold their ground, knowing the consumer has funds to pay off a singular debt, and will ultimately refuse to negotiate payment for a lesser amount. Odds are consumers will run across both types of debt collectors during this time of year.

What Drives a Debt Collector’s Settlement Stance?

If you have an outstanding debt, it is important to understand the delicate balance collectors face during tax season. Several factors determine what debt collectors ultimately are able to do for consumers looking to settle a debt for less than what is owed.

The main factor is the client whose behalf they are collecting on. Settlements live and die with the requirements of a client; either they authorize the debt collector to offer a settlement or they do not. If the client allows for settlements, it is dependent upon the agency as to when, where and/or how they offer one. Some agencies may only offer settlements for accounts on file for 60 days or more, whereas other companies will offer settlements on the first day the account gets to their office.

The Odds Are in Your Favor

It is more probable than not that during tax season a debt collector has the ability to offer a settlement. Contrary to popular belief, debt collectors do not like to turn away money, especially this time of year. While one may hold firm for a while, when approached with a reasonable settlement offer, they will generally do what is in their power to get it approved. They may be willing to waive excess interest, late fees and other non-principal-related charges before tax season is up as well.

On the flip side, consumers should not expect a debt collector to take “pennies on the dollar” to settle accounts. Even if their agency did directly purchase the debt — which happens less frequently these days — the debt collector you’re dealing with isn’t the person who directly bought the debt, and they are going to be required to follow the guidelines set forth by their employer. You can find more tips for negotiating with a collector here.

The Bottom Line

Tax season can be a mutually beneficial time for the consumer and the debt collector, so if you’re hoping to shore up an outstanding account and/or are looking to strike a deal, now may be the right time to do so.

Just keep in mind, if one side tries too hard to “game” the other, an opportunity to resolve a bad debt will likely fall through and that bill will remain delinquent. At the end of the day, if consumers and debt collectors engage in a professional and respectful dialogue, it’s likely they’ll reach a resolution that benefits all parties.

[Editor’s Note: A collection account can wind up hurting your credit score. To see where yours stands, you can view your free credit report snapshot, updated every 14 days, on Credit.com.]

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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How to Spend (or Invest) Your Tax Return

Expecting a hefty check from Uncle Sam? Here's how to spend your tax refund.

If you’re expecting a hefty refund this year from Uncle Sam, you may be tempted to spend it all on something extravagant for yourself. But it’s important to resist temptation and use that money wisely — at least most of it.

Your tax refund may feel like a windfall, but you should treat this surplus cash just like your other earnings, says David Weliver, personal finance expert and founding editor of Money Under 30.

It’s all about your attitude and making sure you set realistic expectations.

“The biggest mistake I see people make … is treating [bonuses and tax refunds] as ‘found’ money instead of earned money. Research shows we’re more likely to spend a windfall frivolously than money we’ve earned. This is especially true of money we weren’t expecting,” he says.

While tax refunds are still earned money, “the fact that it comes all at once means we associate it less with our daily efforts,” says Weliver. If your refund is what you’ve expected, or even bigger than you expected, you could be triggered to spend more of it. It’s probably not a good idea to count on having a sizable refund every year, “because that can lead to spending it before you’ve received it,” he says.

What’s the Best Use of My Tax Refund?

Before you spend anything, first you need to take stock of your debt situation. If you have credit card or consumer debt, attack that first. That’ll help your bank account — and your credit score, since high credit card balances can affect your credit-to-debt ratio. (You can see how yours is doing by viewing your free credit report summary, along with two free credit scores updated every 14 days, on Credit.com.)

“Pay it off, or at least as much of it as you can. That’s true of any debt with double-digit interest rates,” Weliver says. (You can find more tips for paying off your credit card debt here.)

When it comes to paying down larger debts, like student loans or a mortgage, the decision is more personal, and could be a good move as long as your other long-term financial goals are being met.

Should I Invest my Tax Return? 

 

After addressing any applicable debts, make sure you have an emergency fund that will cover at least six months of expenses. That money, along with anything that will be going toward big purchases in the next three years, like a car, the down payment on a home, or a big vacation, should be kept in a savings account.

“It can be tempting to invest that money in a rising stock market, but if there’s a big market correction before you cash out, you could be forced to sell at a substantial loss,” Weliver says. “If, however, you’ve got the emergency fund and won’t need that cash in the next few years, you’ll want to invest in boring old index funds or with a robo-adviser. Invest it, forget it’s there, and go back to working hard.”

You can also make contributions to a Roth IRA or a 529 savings plan.

At the end of the day, your tax refund shouldn’t turn you into a Grinch (unless you’re digging out of credit card debt), and spending some on a splurge could be good for you.

Setting aside between 10% and 25% of your tax refund for something you really want is a great way to reward yourself and stay motivated, Weliver says.

Another option? Get involved with causes you’re passionate about and donate some of your refund to charity. There’s a bit of a bonus to that option, too: The donation could net you a tax deduction next year.

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3 Rules to Live by If You Want to Get Out of Debt

Desperate to get out of debt? Here are three rules to live by.

When you’re so good at saving money that you can retire at age 31, people understandably want to hear your money tips. That’s how Clark Howard ended up with his own radio show, where he takes consumers’ questions about all things personal finance.

As it often is, debt has been a popular topic recently, and Howard has a few tried-and-true tips he likes to share with consumers. Whether you’re committed to paying down huge credit card balances or simply want to avoid ending up in debt, here are three things Howard recommends you do.

1. Always Save Some Money

Saving money is Howard’s primary approach to getting out of debt. Shoot for a savings rate of a dime per dollar earned (or 10%), but if you’re not saving anything right now, start by setting aside a penny per dollar (1%) and increase your savings rate every six months, he said.

“Now you may wonder, what does this have to do with eliminating debt in your life?” he said. “You have to start off by learning to live on less than what you make.”

Unless you can find a way to make more money, that means you need to cut things from your budget and put that extra money toward your debt (or a savings account, so you don’t have to turn to a credit card in an emergency).

2. Pay More Than the Minimum

“A lot of people pay the minimum payment because that’s what the bill says,” said Alex Sadler, managing editor of Clark.com. Doing that could leave you in debt for a very long time, so make it a priority to budget for more than the monthly payment. Credit card bills also include a section that says how much you need to pay each month in order to get out of debt in 36 months (three years), which can help you figure out how much room you need to make in your budget to get out of debt.

When you have multiple debts to pay off, Howard recommends using the “laddering method” to save the most money. That means focusing on the debt with the highest interest rate first.

“Keep throwing money at it, and [on] all the others pay the minimum,” Howard said. “Methodically, step by step, work your way to zero debt.”

It helps to make a list of all your debts and their interest rates. In fact, most people who call Howard don’t know how much debt they have, so sitting down and getting a sense of the numbers is a great place to start.

“If you ever want to get out of debt … the first thing you have to do is figure out how much debt you owe, and then you can make a plan,” Sadler said.

3. Find a Cheaper Alternative

One of the most common kind of questions Howard gets these days is about student loan debt, particularly from older consumers who borrowed or cosigned on behalf of children or grandchildren. As with all kinds of debt, the best thing to do is avoid it in the first place, because once you’re in debt, there’s usually not much you can do to get rid of it other than pay it off. (This is especially true of education-related debt, because it’s rarely discharged in bankruptcy.)

“The reality with anybody approaching college is the cost of college needs to be the highest priority,” Howard said. “You may have your favorite, but if your favorite would put you into very heavy debt or your family into very heavy debt, you need to go with a different school.”

Though he’s talking about education, that approach applies to anything that could put you in debt. You can’t always avoid going into debt, but if you save up as much as you can and opt for more affordable things (like a vehicle with fewer options or a home with most but not all of the things on your wish list), you’ll end up borrowing less and spending less money on interest.

As you work to pay down and stay out of debt, keep an eye on your credit scores. Not only will good credit help you qualify for better terms on things like an auto loan or mortgage, it can also make it easier to get everyday necessities like a cell phone or utility accounts. You can see two of your credit scores for free, with updates available every 14 days, on Credit.com

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Will Rising Interest Rates Really Impact Student Loan Borrowers?

Will rising interest rates affect student loans? Here's what you need to know.

The Federal Reserve’s benchmark interest rate is on the rise. These rates already increased once in December, and experts are predicting another three rate increases for 2017.

This could mean more earnings on your savings, but it could also mean higher interest on your debt. While that’s hardly a welcome announcement for anyone paying down debt, it’s not all bad.

Federal Rates on the Rise

You might be wondering why, in a time of deep student loan debt, the Federal Reserve would consider raising its rate. According to Janet Yellen, the Fed’s chairwoman, the rate increase is “a vote of confidence in the economy.”

This is because the Fed decreases its benchmark rate during times of economic uncertainty. Since the Great Recession, rates have been historically low to give borrowers a chance to get out from underneath crushing debt. But as the economy improves, the rate needs to increase to prevent inflation.

In short, a higher federal benchmark interest rate means a strengthening economy. But what does it mean for your student loans? That answer will depend on the kind of student loans you have.

Fixed- vs. Variable-Rate Loans

First, it’s important to understand the differences between fixed and variable rates.

Fixed-rate student loans have interest rates that remain the same for the entire repayment period; they don’t change with the market. So let’s say you took out a 10-year student loan with a fixed rate of 6%. If the Fed raises rates today, your student loan interest rate will remain 6% until the loan is paid off. However, anyone who takes out a new loan after rates increase could end up with a higher rate than you.

If you have a private student loan, on the other hand, it could have a variable interest rate. Variable rates are tied to the market and can increase or decrease according to federal rate changes. How much and how often the rate changes is up to the particular lender.

If you’re wondering whether the rates on your student loans are fixed or variable, read your statements to find out. While you don’t have to worry about federal fixed-rate student loans, there’s no telling how much a variable-rate loan might increase. The Fed’s rate is a benchmark, but it’s entirely up to banks and lenders where to go from there.

How to Handle Rising Rates

If you have variable-rate student loans, it might be a good idea to do something now in case of potential increases. Here are a few things you can do to get ahead of the curve.

1. Look Into Refinancing

If you’re worried about any variable rates on your private student loans rising, refinancing can be a good strategy for lowering your rate as well as switching to a fixed-rate loan.

Currently, it’s only possible to refinance student loans through a private lender. That means refinancing federal student loans would result in some drawbacks, including the loss of federal loan protections such as forbearance, deferment and forgiveness.

In this case, however, there’s no need to refinance federal student loans; refinancing private variable-rate loans is what will protect you against future rate increases.

2. Strategize to Pay Your Loans Off Faster

If your rates are already as low as possible, an interest rate hike might be good motivation to get ahead of your debt.

Of course, you might not have the extra cash to pay off your loans faster. Instead try making bi-weekly payments: Split your monthly payment in half, and apply that amount to your loans every other week.

Why? This will result in making one extra payment per year without taking a huge chunk out of your budget. Just make sure your first two bi-weekly payments hit your account before the next month’s due date. You want to avoid accidentally paying less than the minimum.

3. Communicate With Your Servicer

If the interest rate on any of your student loans does increase and your monthly payment grows beyond what you can afford, contact your loan servicer immediately.

It can be a scary step to take, but it’s far more helpful than ignoring an impending issue. Missing payments on your student loans risks going into default, taking a big hit to your credit score — or even having your paychecks or tax refund garnished. Most lenders would rather work with you to come up with a payment plan, so find out what your options are right away. (Not sure where your credit stands? You can view two of your credit scores, with updates every two weeks, on Credit.com.)

Whatever You Do, Don’t Panic

Anyone with student loan debt can speak to the way it seems to affect every aspect of life. That’s why news of things like an interest rate hike can be so worrisome. But if you’re feeling nervous right now, don’t panic.

When the Fed raises rates, it does so incrementally. Though your lender doesn’t have to follow suit with an incremental increase, you probably won’t see a massive jump in your current rate. Until you know what your lender is going to do, stay calm and keep making those payments.

Use these tips to help you get out from under the rock of student loan debt. No matter what the Fed does to its benchmark interest rate, you’ve got this.

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5 Ways to Avoid a Ridiculously High Medical Bill

high-medical-bills

Of all the things that are stressful about personal finance, medical bills might be the worst.

The events leading up to medical bills are difficult if not impossible to predict. On top of that, healthcare pricing is inconsistent, medical bills are often inaccurate and a lot of people have trouble understanding their health insurance coverage. And if you think it’s something you don’t need to worry about, consider this: About a quarter (26%) of people ages 18 to 64 said they or someone in their home had trouble paying medical bills in the last 12 months, according to a nationally representative survey conducted by the Kaiser Family Foundation and the New York Times from Aug. 28 through Sept. 28, 2015.

Medical expenses are undeniably burdensome and difficult to plan for, but that’s exactly why it’s important to try. We asked some medical billing experts to share their top tips for consumers who want to be prepared for whatever their healthcare providers send them in the mail.

1. Know Your Coverage — & Prioritize Health Savings

Managing medical expenses starts before you get sick or injured. The first place to direct your attention is your health insurance.

“Know your insurance policy inside and out,” said Sarah O’Leary, founder and CEO of ExHale Healthcare Advocates. “The best way to avoid getting overcharged is to know your coverage! Demand 100% of the coverage you’ve paid for – nothing less.”

Even with insurance, you’re likely to have some responsibility for the bills. You can work healthcare costs into your monthly budget, allocate some of your savings for unexpected medical bills or use a tax-advantaged tool like a flexible spending account (FSA) or health savings account (HSA) to cover such bills. (You can find a everything you need to know about HSAs right here.) 

Remember to re-evaluate your coverage and review your health insurance contributions (noted in your paycheck) during open enrollment to make sure your policy suits your needs and your budget. A thorough understanding of your insurance coverage and what you need to save to cover the gaps can make it much easier to absorb the costs of any future medical bills.

2. Get Everything in Writing

When it comes time to actually go to the doctor, ask a lot of questions and get as many details as possible before receiving any treatment. Just like anything else you spend your money on, getting quality, affordable healthcare requires some legwork on the part of the consumer.

“Shop around the cost of your care,” O’Leary said. “An MRI on one side of Main Street might be $3,000, and on the other $300. You can save thousands by shopping around all aspects of your care – doctor visits, lab work, tests, and the costs of non-emergency procedures. Even shopping prescription drug costs can save you money. Negotiate the price with your healthcare provider(s) and get the agreed upon amount in writing.”

Adria Goldman Gross, who runs MedWise Insurance Advocacy in Monroe, New York, also emphasized the importance of written estimates: “Whatever agreed fee amount you have with your medical provider, make sure you have it in writing.”

And as important as it is to get as much information as possible from potential providers, don’t forget to run things by your insurance company. “Make certain you have all necessary pre-approvals from your insurer prior to the test/procedure,” O’Leary said. “If you don’t get proper approvals, the insurer may refuse to pay the claim.”

3. Double Check the Bill

Once you’ve gotten treatment, pay close attention to the paperwork.

“About 80% of all medical bills have errors,” Gross said. (O’Leary said about 60% to 80% of bills have errors.) “I recommend people examine them thoroughly and make sure that they’re not overcharged. On the internet, with some research, people can find usual, reasonable and customary charges for the procedure codes of which they are being billed.”

4. Ask for a Payment Plan

The minute you get an accurate medical bill and realize you can’t afford it, reach out to the healthcare provider.

“In most cases, the healthcare provider will be open to setting up a monthly payment plan with the patient,” O’Leary said. “It doesn’t do them any good to have a patient file for bankruptcy, nor is it to their advantage to hand it over to a debt collections agency.”

5. Make a Backup Plan

If for some reason you can’t work out a payment plan or your budget or emergency savings aren’t enough to help you cover a medical expense, you could consider using a balance-transfer credit card to cover the bill. These cards tout 0% introductory annual percentage rates (APRs) that let you skip the interest for a set period of time. Another emergency funding option? A low-interest personal loan. You can learn more about their pros and cons in our loan learning center

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5 Ways to Stay on Budget When You Lose Your Job

Freaked out about finances after a job loss? Not to worry, these basic budgeting tips have you covered.

No one wants to think about a job loss, but sometimes these things can happen. If you think you may be out of a job soon or a cutback came out of the blue, then you might want to take some necessary steps to manage your budget.

Here are some tips to help.

1. Separate Essential & Nonessential Expenses

Take a look at your bank statements from the past three months or so and see how much you’ve been spending and what you were spending it on. Write down a list of which expenses you think you need (rent or mortgage) and which you can cut (eating out, cable and landline). This will help you stay afloat for now. It is important not to worry, as this is only a temporary budget cut until you can get back on your feet.

2. Create a New Budget

Once you cut your nonessential expenses from your budget, it is time to create a new one — and to make sure it is at the absolute minimum. This means shelter, groceries, mortgage, debts, etc. Since you are cutting a lot of expenses from your budget, you should have enough funds to hold you over until you have regular money coming in again.

3. Negotiate Your Monthly Expenses

Consider calling your service providers and seeing if you can negotiate your way to a lower monthly payment that is more reasonable for you and your budget. It can’t hurt to ask, and with no regular income coming in, you might not have a choice.

4. Prioritize Your Next Job

Make your next job applying for a new job. Try and apply to jobs several hours a day. Your next job doesn’t have to be a career choice; it can be something to hold you over until you get the one you want. You might want to make it a priority to get cash rolling in again so you won’t have to worry about falling behind on your bills. (Remember, missed loan payments can do big damage to your credit score. You can keep an eye on yours by viewing your free credit report snapshot, which comes with two free credit scores, updated every 14 days, on Credit.com.)

5. Speak to a Professional

Even if you know you will have a job again soon, it might make sense to speak to a professional about what your options are. It can be a scary thing going from a regular income to nothing. You might need help reworking your budget and even paying off your expenses. If you don’t think you will have money to hire someone, then consider getting advice from your local debt attorney or financial planner (some offer free consultations) — they might even be able to help you settle your debts and negotiate your bills while you are on a tight budget.

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What You Need to Know About 1099-C, the Most Hated Tax Form

Here's what you need to know about the dreaded 1099-C tax form.

Taxes can get confusing — just looking at the names of some of the forms you have to fill out can be enough to get your head spinning. Like the 1099-C, for example. What is that, and why is it in your mailbox? Well, we’re here to help and answer all your 1099-C questions.

What Is a 1099-C?

“A 1099-C is a document sent by a bank when they have canceled a debt,” Craig W. Smalley, EA, founder and CEO of CWSEAPA, LLP and Tax Crisis Center, LLC, said. “For instance, if you have negotiated with your credit card company to pay them a lesser amount than you owe them, the difference would be reported on this form.”

Bruce McClary, the vice president of communications at the National Foundation for Credit Counseling, said this is an important reason to “be familiar with the tax consequences when considering debt settlement as an option. You don’t want to be blindsided by a costly IRS bill when you may already be struggling financially.”

Why Did I Get a 1099-C?

If you have had a canceled debt, expect to see a 1099-C arrive in your mail, as “the bank is required to send this form, because it is taxable income,” Smalley said.

According to the IRS, lenders file a 1099-C if you have $600 or more of debt that is canceled. Here are four common reasons that may be the case.

  1. You settled a debt for less than what you originally owed and the creditor picked up the remaining balance (debt forgiveness).
  2. You did not pay on a debt for at least three years, and there was no collection activity for the past year.
  3. Your home was foreclosed and your deficiency (the difference of what was owed and the value of the home) was either forgiven or you haven’t paid it.
  4. Your home was sold in a short sale, and you made a deal with your lender to pay less than what was due.

Still not sure why you received this form? Look for Box 6, which will give you a code explaining why the lender sent it. To decipher the code, you can reference Publication 4681 on the IRS website.

Do I Have to Fill Out a 1099-C If I Filed for Bankruptcy?

Just like with most things, there is an exception to the rule of all canceled debts requiring a 1099-C. Smalley said that “if a debt is canceled because of bankruptcy, you do not have to pay tax on it.” (Remember: Bankruptcy does have a major negative effect on your credit scores.)

If I Receive a 1099-C, Does That Mean My Debt Is Paid?

This depends on why you received the 1099-C in the first place. If it’s because you settled your debt, then yes, your debt is resolved. However, if it’s because you haven’t made any payments on a debt for three years and the debt collector hasn’t tried to collect recently (noted in Point Two above), then your debt is not in the clear and you may still owe.

What Do I Do If I Get a 1099-C for a Debt I Paid?

“First and foremost, contact the issuer of the 1099-C and ask them to make the necessary corrections,” McClary said. “They will need to send you a corrected 1099-C in time for you to file taxes.”

McClary also noted that if this request doesn’t work, “the IRS has a dispute process you can use. This requires that you reach out to the IRS and let them know you wish to submit a complaint about an incorrectly issued 1099-C. They will provide you with Form 4598 that you will have to attach to your tax return, along with any additional documentation that supports your claim.”

Do I Have to File a 1099-C in the Tax Year I Receive One?

Smalley said that, yes, you do have to file a 1099-C in the tax year you receive one. You can visit the IRS website for more details on filling out a 1099-C and getting it filed.

Is There a Statue of Limitations on a 1099-C?

“There is no statute, as the form is to be issued in the year that the debt is canceled,” Smalley said. If this isn’t the case for the 1099-C you received, contact the issuer or the IRS immediately to find out the reason you were sent a 1099-C and to remedy any problems.

If I get a 1099-C, Is That the Amount I Owe or the Amount I’m Paying Taxes On?

“It is the amount that you are paying taxes on,” Smalley said. “However, if you are insolvent, meaning you have more liabilities than assets, certain cancelations would not be taxable. You have to fill out another form, and you have to make sure that you have evidence to support that you are insolvent.”

How Does a 1099-C Affect my Credit?

The 1099-C form itself won’t have a direct impact on your credit scores. However, whatever behavior lead you to receive the 1099-C likely will be affecting your credit. For example, say you didn’t pay your debt and it was sent to collections. Having an account in collections can have a negative effect on your credit. You can read this guide for more information about how 1099-Cs (and the financial choices that led you to receive one) can impact your credit.

Curious about how your credit is fairing? Take a look at your free credit report summary on Credit.com and you’ll not only see two of your credit scores but also get some insights on what you’re doing well and what areas of your credit profile could use some work.

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The post What You Need to Know About 1099-C, the Most Hated Tax Form appeared first on Credit.com.

5 Ever-So-Simple Strategies for Paying Off Debt in 2017

Here are some tips for paying off debt in 2017.

Want to pay off your debt and save more money in 2017? You’re not alone! According to one survey of Google search data, searches for “Spend Less/Save More” were up 17.47% from 2016. Want to achieve your get-out-of-debt goal? If so, we recommend trying one of the five strategies here.

1. The Debt Snowball

This debt-payoff method, made famous by financial guru Dave Ramsey, has you pay off your smallest debts first. The idea behind the debt snowball is that you get a quick psychological boost from paying off some small debts from the get-go. This gives you the mental momentum to keep going when paying off debt.

To start a debt snowball, list your debts in order from smallest to largest. Use any extra money to pay off the smallest balance while you make minimum payments on your other debts. When your smallest debt is paid off, snowball that debt’s minimum payment, plus your extra cash towards paying off the next debt. By the time you get to the largest debt, you’ll be throwing a lot of money at it each month. (You can see how your debt is affecting your credit by viewing two of your credit scores, with updates every 14 days, on Credit.com.)

2. The Debt Avalanche

This is similar to the debt snowball in that you pay off one debt at a time. But it’s actually the more economical method of paying off debt. Instead of paying off smaller balances first, the debt avalanche has you start by paying off the debts with the largest interest rate.

The debt avalanche is a smart method if you already have the determination to make it through a long debt payoff process without the boost of paying off a few smaller debts early on. It can get you out of debt faster since you’ll stop accumulating interest on high-interest debts much more quickly.

3. The Debt Snowflake

This is a method that can be combined with one of the above options or used to pay off debt in any order you choose. The idea here is that you find small ways to save a few bucks, and then transfer that money saved toward debt payments.

With the debt snowflake method, you’ll need to be exceptionally aware of your spending patterns. For instance, if you normally spend $10 on a lunch out at work, but pack your lunch one day, you could save $5. That $5 is a snowflake that can then go toward paying off debt.

The key to debt snowflakes is to make sure they don’t “melt.” Get into the habit of transferring “snowflake” money to debt accounts immediately, or at least on a weekly basis. Otherwise, you run the risk of that hard-saved cash being used for other purposes.

4. The Credit Card Transfer

If much of your debt is in the form of high-interest credit card balances, consider using balance transfer offers to pay off that debt more quickly. Since credit cards often have interest exceeding 15%, it’s not unusual for most of your minimum payment to go toward interest, even on a relatively small balance. If you can transfer that balance to a card with a 0% introductory annual percentage rate, you can put more money toward the principal balance each month, paying off your debts more quickly.

Be careful, though, to read all the terms of a credit card balance transfer. Most cards charge a fee for the balance transfer. If you’ll pay off the card’s balance quickly, the transfer may actually cost more than it saves. You can find more info on some of the better balance transfer credit cards here.

5. The Half Payment Method

What if you’re on such a tight budget that you can’t even squeak out some extra dollars to start on a debt snowball or avalanche? One option is to start making half of your minimum payment every two weeks. Bi-weekly payments, which may fall when you get a paycheck, can save you money over time on debts that are compounded daily or monthly based on the average balance.

The reasoning behind biweekly payments is somewhat complex. But, essentially, paying more often allows less interest to accrue between payments, which means more of your payment goes toward the principal. Plus, if you make a half payment every two weeks, you’ll actually have made a whole extra minimum payment by the end of the year!

Half payments can help even out your bank account balance and can help bring down your debt balances more quickly. Combining the bi-weekly payment method with another method for applying any extra cash you scrape together toward one debt at a time could be a powerful option for meeting your financial resolution this year.

Image: FatCamera

The post 5 Ever-So-Simple Strategies for Paying Off Debt in 2017 appeared first on Credit.com.

5 Ever-So-Simple Strategies for Paying Off Debt in 2017

Here are some tips for paying off debt in 2017.

Want to pay off your debt and save more money in 2017? You’re not alone! According to one survey of Google search data, searches for “Spend Less/Save More” were up 17.47% from 2016. Want to achieve your get-out-of-debt goal? If so, we recommend trying one of the five strategies here.

1. The Debt Snowball

This debt-payoff method, made famous by financial guru Dave Ramsey, has you pay off your smallest debts first. The idea behind the debt snowball is that you get a quick psychological boost from paying off some small debts from the get-go. This gives you the mental momentum to keep going when paying off debt.

To start a debt snowball, list your debts in order from smallest to largest. Use any extra money to pay off the smallest balance while you make minimum payments on your other debts. When your smallest debt is paid off, snowball that debt’s minimum payment, plus your extra cash towards paying off the next debt. By the time you get to the largest debt, you’ll be throwing a lot of money at it each month. (You can see how your debt is affecting your credit by viewing two of your credit scores, with updates every 14 days, on Credit.com.)

2. The Debt Avalanche

This is similar to the debt snowball in that you pay off one debt at a time. But it’s actually the more economical method of paying off debt. Instead of paying off smaller balances first, the debt avalanche has you start by paying off the debts with the largest interest rate.

The debt avalanche is a smart method if you already have the determination to make it through a long debt payoff process without the boost of paying off a few smaller debts early on. It can get you out of debt faster since you’ll stop accumulating interest on high-interest debts much more quickly.

3. The Debt Snowflake

This is a method that can be combined with one of the above options or used to pay off debt in any order you choose. The idea here is that you find small ways to save a few bucks, and then transfer that money saved toward debt payments.

With the debt snowflake method, you’ll need to be exceptionally aware of your spending patterns. For instance, if you normally spend $10 on a lunch out at work, but pack your lunch one day, you could save $5. That $5 is a snowflake that can then go toward paying off debt.

The key to debt snowflakes is to make sure they don’t “melt.” Get into the habit of transferring “snowflake” money to debt accounts immediately, or at least on a weekly basis. Otherwise, you run the risk of that hard-saved cash being used for other purposes.

4. The Credit Card Transfer

If much of your debt is in the form of high-interest credit card balances, consider using balance transfer offers to pay off that debt more quickly. Since credit cards often have interest exceeding 15%, it’s not unusual for most of your minimum payment to go toward interest, even on a relatively small balance. If you can transfer that balance to a card with a 0% introductory annual percentage rate, you can put more money toward the principal balance each month, paying off your debts more quickly.

Be careful, though, to read all the terms of a credit card balance transfer. Most cards charge a fee for the balance transfer. If you’ll pay off the card’s balance quickly, the transfer may actually cost more than it saves. You can find more info on some of the better balance transfer credit cards here.

5. The Half Payment Method

What if you’re on such a tight budget that you can’t even squeak out some extra dollars to start on a debt snowball or avalanche? One option is to start making half of your minimum payment every two weeks. Bi-weekly payments, which may fall when you get a paycheck, can save you money over time on debts that are compounded daily or monthly based on the average balance.

The reasoning behind biweekly payments is somewhat complex. But, essentially, paying more often allows less interest to accrue between payments, which means more of your payment goes toward the principal. Plus, if you make a half payment every two weeks, you’ll actually have made a whole extra minimum payment by the end of the year!

Half payments can help even out your bank account balance and can help bring down your debt balances more quickly. Combining the bi-weekly payment method with another method for applying any extra cash you scrape together toward one debt at a time could be a powerful option for meeting your financial resolution this year.

Image: FatCamera

The post 5 Ever-So-Simple Strategies for Paying Off Debt in 2017 appeared first on Credit.com.