Handling Debt Efficiently – Until It’s Gone

JUNE 10, 2018

It's no secret that making purchases on credit cards will result in paying more for those items over time if you’re paying interest charges from month-to-month.

Despite this well-known fact, credit card debt is at an all-time high, rising another 3% this past year.¹ The average American now owes over $6,300 in credit card debt. For households, the number is much higher, at nearly $16,000 per household.² Add in an average mortgage of over $200,000, plus nearly $25,000 of non-mortgage debt (car loans, college loans, or other loans) and the molehill really is starting to look like a mountain.

The good news? You have the potential to handle your debt efficiently and deal with a molehill-sized molehill instead of a mountain-sized one.

Focus on the easiest target first.
Some types of debt don't have an easy solution. While it's possible to sell your home and find more affordable housing, actually following through with this might not be a great option. Selling your home is a huge decision and one that comes with expenses associated with the sale – it’s possible to lose money. Unless you find yourself with a job loss or similar long-term setback, often the best solution to paying down debt is to go after higher interest debt first. Then examine ways to cut your housing costs last.

Freeze your spending (literally, if it helps).
Due to its higher interest rate, credit card debt is usually the first thing to tackle when you decide to start eliminating debt. Let's be honest, most of us might not even know where that money goes, but our credit card statement is a monthly reminder that it went somewhere. If credit card balances are a problem in your household, the first step is to cut back on your purchases made with credit, or stop paying with credit altogether. Some people cut up their cards to enforce discipline. Ever heard the recommendation to freeze your cards in a block of ice as a visual reminder of your commitment to quit credit? Another thing to do is to remove your card information from online shopping sites to help ensure you don’t make mindless purchases.

Set payment goals.
Paying the minimum amount on your credit card keeps the credit card company happy for 2 reasons. First, they're happy that you made a payment on time. Second, they're happy if you’re only paying the minimum because you might never pay off the balance, so they can keep collecting interest indefinitely. Reducing or stopping your spending with credit was the first step. The second step is to pay more than the minimum so that those balances start going down. Examine your budget to see where there’s room to reduce spending further, which will allow you to make higher payments on your credit cards and other types of debt. In most households, an honest look at the bank statement will reveal at least a few ways you might free up some money each month.

Have a sale. To get a jump-start if money is still tight, you might want to turn some unused household items into cash. Having a community yard sale or selling your items online can turn your dust collectors into cash that you can then use toward reducing your balances.

Transfer balances prudently.
Consider balance transfers for small balances with high interest rates that you think you'll be able to pay off quickly. Transferring that balance to a lower interest or no interest card can save on interest costs, freeing up more money to pay down the balances. The interest rates on balance transfers don't stay low forever, however – typically for a year or less – so it's important to make sure you can pay transferred balances off quickly. Also, check if there’s a balance transfer fee. Depending on the fee, moving those funds might not make sense.

Don’t punish yourself.
Getting serious about paying down debt may seem to require draconian measures. But there likely isn't a need to just stay home eating tuna fish sandwiches with all the lights turned off. Often, all that's required is an adjustment of old spending habits. If your drive home takes you past a mall where it would be too tempting to “just pick a little something up”, take a different route home. But it's important to have a small treat occasionally as well. If you’re making progress on your debt, you deserve to reward yourself sometimes. All within your budget, of course!

Sources:
¹ Sullivan, Bob. "State of Credit: 2017." Experian, 1.11.2018, https://bit.ly/2mrjH58.
² El Issa, Erin. "2017 American Household Credit Card Debt Study." NerdWallet, 2017, https://nerd.me/2ht7SZg.

The Congress of the United States has once again shown its august wisdom in helping thieves and con artist to divest taxpayers of their hard-earned money and savings through fraud and misrepresentation. Recently, Congress ordered the Internal Revenue Service (IRS) to start using private collection agencies to collect old tax debts from taxpayers. This policy change is intentionally targeted at low and middle income taxpayers.

For many years, the IRS has battled thieves and con artist that were calling taxpayers posing as IRS collectors demanding money from undocumented workers, the elderly and unsophisticated taxpayers. The scammers would demand the payment of the alleged tax obligation under threat of criminal prosecution or deportation if the taxpayer failed to comply with the scammer’s demand for payment. The IRS responded to this scheme by informing and educating taxpayers that the IRS DOES NOT CALL YOU TO DEMAND PAYMENT OF TAX OBLIGATIONS. The IRS usually sends letters prior to taking more aggressive collection action. Once the taxpayer initiates the first telephone contact by calling the IRS agent’s number and ID on the letter, the IRS will then return the calls to the taxpayer.

Under this new policy, however, the Congress has kicked open the door for every Nigerian and other foreign country scammer to again aggressively and successfully, steal hundreds of millions of dollars from U.S. Taxpayers, by allowing private third party collection agencies to start contacting taxpayers regarding paying past due tax obligations. The flood gate of scams, schemes and fraud are ripe for exploitation of American taxpayers thanks to our elected officials in Congress.

In the past, if a taxpayer owed a tax obligation, they could contact the IRS and explain their situation and prove that attempting to pay the tax debt would create an undue financial hardship. Once verified, the IRS would send the taxpayer a letter or call informing the taxpayer that the tax debt has been placed in an “not collectible” status. The status is revisited each year by the IRS when the taxpayer files another tax return. If the taxpayer’s situation remained virtually unchanged for several years and the statute of limitation for IRS collection runs, then the IRS is barred by law from ever attempting to collect that particular tax debt again and it is wiped out. The taxpayer is no longer responsible for it.

However, under this new policy, with the IRS using private collection agencies, all that changes. A private third party collection agency can call the taxpayer regarding the alleged tax debt and be very aggressive in its attempt to collect the tax obligation. The private collection agency is under no obligation to inform or offer other alternatives to collection (as the IRS is obligated to do) to the taxpayer if it is determined that the taxpayer cannot pay the obligation or in attempting to do so would create an undue financial hardship.

This may cause many taxpayers to seek protection from the Bankruptcy Courts, however, most tax debts are not dischargeable in bankruptcy unless the tax debt is more than three years old and meets certain collection criteria, or the taxpayer can prove to the bankruptcy court that the tax debt has been owed for more than three years and paying it would cause an undue financial hardship.

Since the members of congress that are elected to represent the whole of their constituents and protect them against such opportunities of fraud and exploitation are failing to do so, then taxpayers need to un-elect the buffoons that engage in and pass such ridiculous legislation contrary to the best interest of the American people.

Taxpayers should use the power of the ballot to recall these idiots that become self-serving millionaires on the backs of their constituents. A recall petition call be picked up at any election commissioner’s office in the jurisdiction of the elected official. All the taxpayer will have to do is give their name and telephone number to the clerk in the election commissioner’ s office and give a reason of why the petition is being obtained and what elected official it is against. Before the taxpayer can get home with the petition, the election commissioner will have contacted the elected official and the press and inform them that a recall petition had been picked up against the official.

You will be amazed at how quickly the elected official will respond and attempt to save face with his or her constituents. We need to start holding these elected officials accountable for their decisions, especially when it is contrary to good order and discipline of our way of life and promotes fraud and misrepresentation at the cost of the taxpayers and their livelihood.

Taxpayers should become familiar with the Fair Debt Collection Practices Act (FDCPA), and start asserting their rights under the law if they become the target of aggressive debt collection tactics. Many debt collection agencies may become extremely hostile toward taxpayers when they become empowered to collect on behalf of the IRS. Some may even deem it as a sovereign authority to do so. However, the fact remains that a third-party debt collector is subject the FDCPA and must strictly comply with its provisions. If you feel you are the victim of an aggressive, unfair or unlawful debt collection tactic, call our office for a no cost consultation. If you are determined to be a victim of an unlawful debt collection attempt, our law firms will represent you at no upfront cost to you.