Prosper Newsletter: March 2007 > Financial
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Stopping the Shipwreck
Thank you Prosper Learning!
Not so long ago our family seemed to be traveling on our own luxury cruise liner. We were traveling first class at mid life and enjoying it. We had doctor's incomes, savings plans, and even trusts. Then we hit an iceberg. Our third adopted child was born very ill and that took away my income from the clinic. I needed to stay home to care for our new baby boy. Problem is we didn't change our way of life to compensate for the income drop. Soon the savings stopped and credit card debts increased. Then we hit the iceberg that would sink us. Our main income was now jeopardized by my husband's sudden and debilitating illness. With neither of us being able to practice, we had to rely on other people. Our clinic suffered badly. We failed to see the writing on the wall until our savings were sucked dry. We had to sell our nice home, went several 100,000 dollars in debt and almost lost everything. That's when we saw the ad for Prosper Learning and happily and hopefully signed on. Our coach initially told us we could turn our ship a few degrees each week until we had direction again. We stopped little leaks like cell phone special charges, we literally froze the credit cards and we stopped trying to deny our situation. We read all the books he suggested twice. We completely bought into John Cummuta's Transforming Debt into Wealth program.
We started to pay down our debts just like we were instructed to do. The financial pressures started to slowly decrease. Tension around the house greatly diminished. We started having fun with our kids again. It has only been 5 months since we started the program but what a difference 5 months makes. We haven't used a credit card in 5 months. We either use cash, check or a debit card. We have already paid off, cut up and closed 4 credit card accounts. By the end of the year we will have gone from 12 credit cards to none. We will only have the mortgage, a car payment and a small loan payment left. What a turnaround! We now see the light at the end of the tunnel. Prosper Learning and John Cummuta has given us lots of hope and confidence to continue the course. We feel like we have gone from drowning to swimming.
Thank you so much for what you have done for our family.
- Tom and Ann K.
Tax Tips for 2007
As my students have been receiving their W2s the same question keeps arising. What can I do to minimize my tax liability? Forget about it. 2006 is over and the only thing you could do is contribute to an IRA. The second problem is as an employee we don't have a lot of things that we can deduct. Charitable contributions, qualified retirement plans, and medical expenses if you qualify and I hope that you never qualify for that one.
The best thing to do is to look forward. I know April 15, 2008 is a long ways off, however now is the time to start planning for that date so you can really reduce your tax liability. What can you do in 2007? The best thing I can think of is start a business. As a business owner you have many things that you are already paying for that can now become a deduction. I'm not a tax accountant so I don't believe I should give any specifics here.
With your newfound business here are some guidelines to follow to pay the least amount of tax that you legally can.
- Keep accurate and complete records. The IRS has a 24-hour rule that states that for a deduction to be legitimate you must record it within 24 hours of the expense.
- Maximize the Prosper Learning 401(k) along with starting your own qualified plan for your business.
- If you have investment property make sure you do all the miscellaneous repairs and have them paid for before December 31.
- Stock up on supplies that you'll need by the end of December.
- Keep track of business mileage. The amount you can deduct is at its highest level ever at 48.5 cents per mile.
- Employ your kids that live at home, and are under the age of 18. They can receive $5,350.00 per year tax-free and it's a business expense for you without having to pay Federal, Social Security, Medicare or Federal unemployment.
- Expense your assets rather then depreciating them. You can expense up to $112,000.00 in 2007.
Regardless of what you want to do if you really want to minimize your tax liability start planning today.
Repair Your Credit
There are several steps to take when trying to fix or repair your credit report.
The first thing to do is to find out what is in your credit file from the three top agencies or bureaus that exist in the United States. They are called Equifax, Experience, and Transunion. Not knowing what is on your credit report can hurt you.
You are entitled to receive one free credit report from each of the three companies every twelve months. You can request this report from www.annualcreditreport.com or by calling 877-FACT ACT. You can also write in a request by filling out a sample letter found on the website.
The best way to check your report would be to request one copy from each company every four months. Then you can check your report more often at no charge.
The next step is to thoroughly examine the information. An estimated 50 to 70 percent of all credit reports have incorrect or inadequate information. A credit report can be difficult to read. It consists of several sections, including Identifying Information, Credit History, and Collection Accounts, Public Records, and Inquiries.
Some of the most common credit report errors to watch out for are mixed information, or when your file contains information from someone whose name is similar or identical to yours; identifying information, or when your name is spelled wrong or your address is incorrect; incorrect late payments; incorrect account numbers; or accounts reported as open that are really closed. Outdated information is also common. Any bankruptcy or tax lien over ten years old should be removed as well. Unauthorized inquiries can also hurt you. Too many will result in a negative report. Also watch for accounts that don't belong to you, but that have been credited to you by mistake.
If you see something negative on your report that isn't your fault, you need to initiate a dispute with the credit bureau. There is a sample letter on the website you can use in order to dispute your claim correctly, and your dispute needs to be in writing. They have 30 days to investigate your claim and respond to you. During this time, they will check and review the information with the company that reported the information correctly. Be aware that this is a timely process. You need to be diligent and follow up if you haven't heard back from the credit bureau within 30 days.
Sometimes you can contact the company that reported incorrect information directly. That company will then contact the credit bureau and adjust the information. Always remember to follow up with a phone call or a letter.
You can also send a letter to the Federal Trade Commission, and report what you have done to correct your report. Be sure to include copies of any letters and documentation that you have that will support your claim. You can contact them at www.ftc.gov.
If the investigation that you file does not resolve your dispute, you can then submit a statement to the Federal Credit Reporting Agency and they will contact the credit bureau explaining your side of the story. The credit bureau is required to send this statement out with your credit report whenever there is an inquiry of your credit rating. There is a sample letter for this included on the web site as well.
If you are missing information on your credit report, you can mail that to the credit bureaus as well and have them add it to your report. Sometimes this is helpful if you don't have enough of a credit history to make an adequate report.
Make sure you pay your bills on time. The largest portion of your credit score is based upon prompt payments. Good ideas, if you are dealing with a collection agency, is to contact them before you pay off your final debt and negotiate to have them remove themselves from your credit report when the final bill is paid. You have 30 days to make payments before they will show up on your credit report, for example, if you are 15 days late on a credit card, it is not permitted to show up on your credit report. It will, however, show up on your credit report if you make the payment after 30 days. Keep accurate records of when you pay your bills so that you can dispute this if necessary.
Don't come too close to maxing out your credit cards. If you have an available line of credit of 15,000 dollars, and you only have 1,000 dollars put on that card, that is good. But if you have a debt balance of 14,000, that will have a negative effect on your credit report.
Keep accounts around for a long time. The longer you have an account open, the better it will look on your report.
Consider reopening closed lines of credit. It will augment your credit report if you don't have enough credit to make a positive report.
Make sure you don't have high interest rates or open new accounts too rapidly. That will look risky and bring your score down.
Add yourself as an approved signer on an account that belongs to someone with stellar credit. That will also show up on your report, and will strengthen your score.
Avoid moving balances from several cards to one card. It is better to have more cards with less money on them that one card with a large amount.
Avoid closing accounts that are paid off. Avoid loans with finance companies. A good amount to have is four to eight loans with good creditors. Some good options are a line of credit at your bank, a credit card that you never use, a mortgage, and a home equity line of credit.
If you do see something negative on your report that isn't an error, take necessary action to correct it. Pay the late fees, and make sure the credit report companies know what actions you have taken.
Most banks will allow you to take out a secured loan where you can take out a loan of several hundred dollars, and then open a savings account. They will deposit that money into the account and make it secure so that you can't reach it, but they will lend you the amount of money. Make sure you make the monthly payments on time, and then pay that money back within six months. That will augment and strengthen your report by establishing a good credit history. You will have to pay a little bit of interest, but it is worth it to establish that good payment history. They also have secure credit cards and CDs. Then you request an unsecured loan, and then you can make six months' worth of payments and close it out. Now you have a good example of a year's worth of timely payments on two loans.
Debt validation is a system that is a good weapon against collection agencies. Contact the collection agency on your report and ask them to validate your debt. This will place the burden of proving that the debt belongs to you onto the collection agency.
