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Homeowners Relax As Interest Rates Stay Put

24 March 2010

The Bank of England’s rate-setting body, the monetary policy committee (MPC), has voted to maintain the official cost of borrowing at 5.25 per cent, following a 0.25 per cent rise in the base rate last month.

If the bank had raised rates, which many pundits though was highly likely, homeowners with a typical 100,000 mortgage would pay 63.79 a month more than they did last August, according to the Independent.

The rate hold follows official figures revealing that mortgage approvals fell in December, suggesting to some experts that the August and November rate rises had started to take hold.

HSBC economist Karen Ward said: “We think the MPC signalled in January that they didn’t have any further hikes preconceived and we don’t think there has been the data to justify since then,” she said.

“The ones last year are still feeding through so it’s still going to take some time to have its full impact. It does look like things are slowing already.”

Last month, it emerged that inflation was at a 15-year high, which prompted many analysts to predict a rate rise before the summer.

Young people risk impeding their ability to obtain credit in the future because of their reckless approach to borrowing and spending, debt expert and author James Falla has said.

He said that young adults, who rack up massive credit card bills but have no property assets, will probably be advised to go bankrupt because there is no risk to their home.

Mr Falla, who wrote a best-selling guide to debt solutions, said that the younger generations no longer feel obligated to pay off as much as their debt as possible.

“They are just thinking: ‘Well, the bank shouldn’t have lent me the money in the first place so I am going to go bankrupt’,” he said.

Some commentators have expressed concern that consumerism, combined with a ‘live for today’ attitude, is pressuring young people to take on more debt, thereby increasing the chance of them being refused credit in the future.

Insolvency practitioner Melanie Giles has said that while most debtors feel they ought to repay all their debts, future generations may feel rather differently.

Tags: Attitude, Author James, Bank Of England, Commentators, Cost Of Borrowing, Credit Card Bills, Debt Solutions, Economist, Falla, Generations, Inflation, Insolvency, Interest Rates, Karen Ward, Monetary Policy Committee, Mortgage Approvals, Mpc, Property Assets, Pundits, Young Adults

Debt Settlement & Income Taxes What You Need To

15 February 2010

Debt Settlement & Income Taxes What You Need To Know

Debt settlement has become a popular approach to resolving problem debts without having to file bankruptcy. With this approach, creditors agree to accept a portion of what you owe (usually around 50% or less) to settle the account, and the remaining balance is forgiven. This technique will certainly continue to grow in popularity now that the new bankruptcy law makes it tougher to fully discharge debts in a Chapter 7 bankruptcy.

As with anything, there is no free lunch, and creditors are required to report canceled debts to the IRS on Form 1099 (when the canceled balance is $600 or greater). Therefore, the possibility exists that you may owe taxes on the forgiven portion of the debt. For this reason, many financial writers and debt counselors are strongly critical of debt settlement, to the point where they actually recommend against it just because you might end up owing taxes. But the tax consequences of settling your debts are greatly over-emphasized, and this is a really just a minor issue at best.

First, even if you end up owing taxes on the canceled balances, that’s because you saved a bunch of money off your original debts. The total of what you paid the creditor, plus the taxes, will still be much less than what you owed to begin with. There is still a net savings. So it’s hard to understand why this is viewed as a problem in the first place!

Second, the great majority of people who settle their debts are not required to pay taxes on the forgiven part of the balance. That’s because of the “insolvency” rule, described in IRS Publication 908, “Bankruptcy Tax Guide.” Don’t let the title fool you. You don’t need to have filed a formal declaration of bankruptcy to take advantage of the insolvency rule.

Basically, “insolvent” means that you have a negative net worth — that is, you “owe” more than you “own.” As a consequence, most debtors do not have a tax liability on the canceled debts, simply because most debtors are insolvent! It usually comes down to home equity. If you have enough equity in a home (or other property) to outweigh the total of your liabilities (debts), then you have a positive net worth, and will likely have to pay taxes on the forgiven debt amounts. However, the majority of people in serious debt trouble have a negative net worth, and are therefore insolvent. The way it works is that you can offset the canceled debt up to the amount by which you were insolvent at the time you did the settlement.

Come tax time, be sure to get professional tax advice specific to your situation. Also, be sure to read the section in IRS Publication 908 on “reduction of tax attributes,” which requires people using the insolvency rule to reduce their basis in such things as rental property, loss carryovers, etc. Most of that probably won’t apply to you, but again, get specific advice before winging it.

So, the message is, relax about paying taxes on canceled debt balances. That should be the least of your concerns if you’re upside down financially. Don’t let the misguided criticisms of financial writers (who haven’t done their homework) discourage you from looking into one of the most popular and flexible options for achieving debt-freedom.

Tags: Bankruptcy Tax, Chapter 7 Bankruptcy, Creditor, Creditors, Debt Counselors, Debt Settlement, Debtors, File Bankruptcy, Financial Writers, Form 1099, Formal Declaration, Income Taxes, Insolvency, Irs Publication, Net Worth, New Bankruptcy Law, Problem Debts, Tax Consequences, Tax Liability, There Is No Free Lunch

A Fresh Mindset On Retirement Income

22 November 2009

If you are like most people in the over 50 or Baby Boomer crowd, you are rightfully concerned about having saved enough to provide enough income in your retirement years. That income will be needed to allow you and your spouse to relax and enjoy your well earned retirement years. Like me, you have probably dreamed of the time when you would have more control over your lifestyle and not have to put up with jobs or people you do not care for just to make ends meet.

No, we want better than that! I decided long ago that, sooner or later, I would enjoy being the master of my own life and not having to do the things that I have had to do my entire career. I will probably never quit working entirely; I wanted to just quit having to work. I will do this on my terms!

But, I have been worried! Worried about my lack of a traditional pension, the eventual insolvency of the Social Security system, the housing market, oil dependency, the falling dollar, etc, These worries combine to have me concerned whether or not I have saved enough over the years.

Maybe you have heard the analogy that defines the word commitment It say that this morning I had eggs and ham for breakfast. The egg that produced my eggs was involved in my breakfast, but the pig was committed to it!

Well, since I have already pulled the plug and begun to draw my Social Security at age 63, I am now committed. These concerns and worries had me considering going back to work at a traditional job, but I really like the freedom of a retirement lifestyle.

Shortly after I retired last year and the immediate excitement of retirement passed, I began to feel depressed. You see, most of my daily human interaction, other than my wife, used to come from my job, and now that was gone. My feelings of self worth seemed to be diminishing. I knew that I really had to find something to do.

I began about to explore the possibilities of earning some income through various internet activities. My objective was not to Get Rich (although that would be nice!), but to dramatically reduce the amount of cash that I need to take from my investments to live on. If I can just leave my savings grow, essentially untouched, for a few years, then my confidence in the future will be greatly improved.

On the Internet, I have done several things to earn some income. I have written a book (an e book) that I sell on the internet. I have setup websites on many topics of my interest, such as power boating. Those sites host some Google ads which pay me a real small fee every time someone clicks on them. I have bought and sold items on eBay and produced videos and CDs for sale. There are just so very many ways to earn some extra cash.

The wonderful thing about this is that these things earn money in my absence, even when Im playing golf or sleeping, so my time is still my own. I am not tied down and we are free to travel at will and the cash just seems to keep coming in!

These Internet-oriented projects have not produced much more than $2,000 a month so far, but I am not disappointed. I am continuously challenged to always improve on this, and I am confident that, with some effort on my part, I will. While everybody seems to want more money, I am now worried that if I am too successful, these projects will consume too much of my time to enjoy life! That would be a tragedy.

Many of my retiree friends (as well as retiree wannabees) want to know how I am doing this. For that reason, I have created a website for people to come and to learn some of the techniques and skills that it takes to accomplish this cash flow goal. Some of my pupils have far surpassed my income level so far. Due to budgetary constraints, I have refrained from buying many of the Get Rich Quick offers that seem to flood the Internet. I think that is a good thing. One of the valuable things that we do is host a Retirement Income Forum where like minded people discuss their project, successes and impediments and get the real advice and input of others in the same boat.

There are many, many ways to earn extra retirement income on the internet and there is plenty for everybody! The World Wide Web is growing every day and maturing rapidly. I would recommend to anyone that could use some extra retirement income to get online right now and get your share!

Tags: Analogy, Baby Boomer, Egg, Eggs, Excitement, Housing Market, Human Interaction, Insolvency, Internet Activities, Mindset, Oil Dependency, Pig, Retirement Income, Retirement Lifestyle, Self Worth, Social Security, Social Security System, Traditional Job, Traditional Pension, Worries

A Fresh Mindset On Retirement Income

13 November 2009