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It’s been a long-held belief of mine that every high school in this country needs to start including classes to teach kids about credit and personal finance.  If they’d been offering these types of courses back when I was in high school, there’s a pretty good chance we wouldn’t be in the financial snafu we’re in right now, with half the country in need of a way out of credit card debt and the other half continuing on like nothing’s wrong (Okay, that’s generalizing things a bit, but you get the idea).

Back in my day, when I was a fresh-faced 18 year old out of high school, creditors seemed to be falling all over themselves for the chance to give to give me my first credit card, usually with a limit of up to $5000 (oh the ways I could spend that…) and some useless trinket as a sign up bonus.  Things are a little different now, the biggest change-up being that banks are no longer allowed to issue credit cards to anyone under the age of 21, unless the person applying has a cosigner or can provide proof of sufficient income.  

Now, I’m sure that probably sounded sensible to whoever came up with the idea, but back here in reality, it doesn’t make any sense at all.  Not only does it serve to stave off any experience a younger generation will have with credit cards, but with a decent percentage of your credit score (15%) made up of the length of items in your credit history, having to wait until you’re 21 to start building up your credit is like being held back two grades for no discernible reason.

So what’s a responsible teenager (responsible enough, anyway) to do if they want to get ahead in the game and start establishing credit before their 21st birthday?  Try out any or all of these simple tips:

• Get a secured credit card.  Think of a secured credit card as a set of training wheels; not quite a credit card, but more than a debit card.  You can get one from your bank after depositing some funds into the new account, and then use it just as you would a real credit card, making regular monthly payments.  Be sure to look for cards that offer lower interest rates than others; you don’t want to fall into the trap of barely paying the interest off this early in the game.

• Get a job.  If you’d rather jump head first into the pool, look for a decent part time job (or full time if you’re out of high school and want to wait a year or so before heading to college) to increase your chances of getting a credit card before you’re old enough to (legally) drink.  After all, being able to provide proof you’ve got a decent income that can be used to pay down a card balance is like doing extra credit assignments – it can only help in the long run.

• Piggyback on Mom and Dad’s card(s)!  Assuming either of your parents have credit on their own, and that it’s good, you can always try and hop onto their card and share in their good fortune.  Of course, if your parents start to slip up on their own credit, it’ll extend to you as well, so make sure your parents are better with money than you might be.

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If you’re one of the millions of Americans who are currently living paycheck to paycheck and have decided enough is enough – that you’re ready to find complete debt relief and work your way towards financial freedom – one of the first steps you’ll need to take is to set up a budget for yourself each month and stick to it.

Of course, that’s much easier to put in writing than it is into practice, and many people find themselves unable to stick to the budget they prepared for themselves for a multitude of reasons, some even beyond their control.

Here are some ways that budget you prepared to help you control your spending may not be working out as well as you had hoped, and how you can get it back on track.

• You’re spending more than you’re bringing in.  This is the most obvious and common problem people encounter, and the primary reason they set up a budget in the first place.  If you find that your net income is barely enough to keep you afloat every time the check comes in, now would be a good time to evaluate your spending priorities.  

• You’re just not sticking to it.  One of the things we always try and stress to our clients when they come to us for credit repair or debt settlement options is that the process doesn’t take place overnight; you won’t wake up tomorrow with a 720 score and lenders beating down your door to offer you the best loan imaginable.  The same applies to your budget.  You can’t expect to come up with one and then leave it to work itself out.  You’ve got to stick to it and refer to it on a weekly basis to make sure you don’t fall into any financial pitfalls.

• You’re not taking the time to get to know one another.  On the flipside of that coin, some people find that they’re budget isn’t working out for them, even after a monthly check up.  If you’re new to budgeting your annual/monthly income, it’s entirely possible – even probable – that you’ve not factored every bit of income and expense into your budget.  If you’re budget keeps coming up short, it could be because…

• You’re not adjusting it.  You shouldn’t think of your budget as a binding contract that isn’t open to negotiation.  On the contrary, you’re budget could see dramatic changes at any point in time, for any number of reasons (pay raise, job loss, marriage, baby on the way, etc.) and should be adjusted for these occasions.  If you’re not factoring these changes and others like them, into your budget, you’re only hurting yourself.

• You’re leaving out some details.  Here’s a serious slip-up most people make when setting up a budget for the first time: They forget to include every expense they make into it.  Smaller expenses are easy to overlook when creating a budget and are usually the reason you come up short when checking your spending vs. your income.  Refer to your bank statements every chance you get to make sure your numbers add up to theirs.

• You’re not having any fun.  One of the biggest detriments to setting up a budget for some people is they think it will rob them of any chance of spending money for fun.  This isn’t true at all.  Budgeting shouldn’t mean you can’t set some money aside for fun; it just means you decide ahead of time what you have to spend on what’s fun, and stick to it.

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“Go set up an account on Mint.com.”  It’s the 2nd most used phrase when we speak to our clients.  It’s only beat out by, “Stop buying stuff you can’t afford!”  I’ve mentioned it in blog posts before, but I don’t think I’ve ever actually put up a post dedicated to just Mint.com.

Even if you’re not involved in credit repair or debt relief, the ability to adequately budget affects your day-to-day and long term finances.  What’s so amazing about Mint is that they’re doing most of the dirty work for you.  You just enter in your online bank accounts and credit cards, and they’ll pull all of the vital information for you.

Most Financial Sites are Confusing

Most banking websites aren’t easy to use and credit card sites aren’t exactly helpful with trying to analyze where your money’s going.  The truth is that there’s no reliable way to examine all of my spending habits without manually entering information onto a ledger or spreadsheet.  But this is exactly what Mint is going to do for you.

Mint covers all that and more.  All you need to do is enter your credit card info, bank accounts, student loans from the federal government, even IRA’s.  Instantly you’ll have all of your account information stretching back a few years.  It’ll even organize your expenditures.  See how much you’re spending on entertainment or takeout food.

Taking a Hard Look at Your Spending

Most of our clients know that they’re credit profile isn’t exactly in tip-top shape, but what they don’t understand is why.  They know that they ran up a lot of credit card debt, but don’t even remember what they bought.  Mint is going to force you to take a look at what you’re spending your hard earned money on.

What too many people find is that they’re spending more than they’re making.  Not exactly a formula for success.  Now, it’s up to you to make the changes, some fancy internet site’s not going to do that for you.  But at least you’ll have an idea of what expenses are out of hand and need to be trimmed.

Creating a Budget

While it’s a powerful tool for analyzing spending habits, it’s even more helpful if you use Mint to put together a budget.   They’ll breakdown your spending habits month to month, set up savings goals and even tell you how much you have left in your budget for each category.

Again, just because you set up a budget using these tools, it’s entirely up to you to stick to your budget.  Don’t spend impulsively and don’t cut corners when it comes to your finances.  Create goals and utilize Mint.com to help you reach them.

I just got off the phone with a consumer who just wanted to know if what she was going through was normal, or if anything could be done.  She doesn’t need credit repair or debt relief.  In fact she’s got no credit card debt whatsoever.  She’s had only one credit card for the past 8 years since she turned 18.

Never a missed payment, never carried a balance even close to her $12,000 limit, and almost always paid off her balances in full.  According to her the bank called and informed her that she had one of two choices:

• See her interest rates go from 11% to 33%, or

• Close the account

So being responsible in her use of the one credit card that she’s opened is ultimately going to lead her to pay unreasonably high interest rates or destroy her credit profile.  She currently has an average credit score of 700 with the three major bureaus.  While not an exact science, closing this account would almost certainly put her below 600.

Why Would They Do That?

It’s simple really; the bank isn’t making any money off of her.  Banks make money through interest rates and fees.  If she pays off her purchases immediately, money’s not being made through interest.  If she’s never made a late payment or gone over her limit then the bank isn’t making money through fees.

I guess the argument from the bank’s point of view is that if she’s paying so promptly, then having to pay 33% shouldn’t really be any different from paying 11%.  But to punish someone when they should be rewarded is just a despicable practice.

A Rock and a Hard Place

Unfortunately there’s little that she can do in this situation.  If she closes the card, her length of credit history goes from over 8 years down to nothing.  The average age of your credit history makes up about 15% of your total credit score.  Even if she were to open another card to use as her primary card for convenience purposes, she’s still cutting those 8 years in half and lowering her score.

So she’ll be forced to grin and bear her interest rates tripling, or take actions that she knows will lower her credit score.  For all these new credit card and debit card laws that are supposed to be saving us from being swindled by our banks, it just seems like they’re going to find another way to stick it to us.

Obviously the nice woman I spoke to earlier isn’t alone.  Make sure you’re reading your credit card bills thoroughly.  If you’ve had something similar happen, feel free to give us a call to see if there are other possible options that don’t ruin your credit in the process.

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Often I try to tell my readers about why specific clients end up calling us.  Not everybody needs credit repair or debt relief because they’re irresponsible with their credit cards or they borrow with no intention of paying their bills.  Sometimes it’s really just a product of not planning their finances properly.

A Rainy Day Will Come

I spoke to someone today who was walking a fine line between prudent credit usage and being overwhelmed with credit card debt.  While he wasn’t exactly maxed out on his credit cards, he was running balances around 50% of the limit on his 2 cards and he wasn’t putting any money into savings.

Then the week from hell happened.  They say that bad things come in threes.  Well that was certainly the case for this guy.  First it was the check engine light.  Harmless enough, things like that are expected to happen from time to time.  So off to the mechanic he goes.  $860 later his car is fixed.  The payment would max out one of his two credit cards.

Then there were bugs.  Termites to be exact.  Literally within days of his car trouble, his wife found termites eating away at a tree very near their home.  He would later find that a colony was actually located in his home, eating away at the foundation.  Another $1,800 down the drain and another credit card at its limit.  And he has yet to get an estimate for possible structural damage.

Then the worst news of all came: his company, the business he’d worked at for years, was closing their doors.  That’s pretty much when the financial tailspin began.  He was the sole source of income in the house and now there were outstanding debts, a mortgage, car payments, and no income to pay for any of it.

That’s Why it’s Called a “Rainy Day” Fund

Don’t get me wrong, what happened here was the perfect storm of bad luck.  But this is why it’s so important to have money put away for when life’s unexpected events hit you in the wallet.  Even if you’re only putting away $10-$20 from every paycheck, it’ll add up.

You also want to keep your credit card balances as low as possible.  Don’t think of them as money you can pay back at a later point, but instead think of them as money that you can fall back on in the event of an emergency.

One of the major reasons that our clients are with us, whether it’s for the credit repair, the debt relief or usually both, is because they never planned for a financial emergency.  It’s going to happen to all of us.  Machines break down, people get sick, companies go out of business.  The question is, how prepared are you to deal with it when it happens to you?

Anybody that’s had it happen to them knows that a tax lien is the right to take over possession of something owned if the obligation to pay isn’t satisfied.  Basically it’s when the government can claim possession of property as a result of delinquent property taxes or even income taxes.

The lien will remain in effect until all outstanding debt, penalties and interest is paid in full to the IRS.  However it’ll actually ruin your credit profile for at least 7 years.  The problem that most people face is that they simply tried to ignore the problem and it’s escalated to having a federal lien placed against their property.   If they’d simply talked to the government, or utilized debt relief to negotiate the debt, they could’ve avoided this whole mess.

Getting a federal tax lien released can be a real pain, so it’s obviously best to avoid it at all costs.  But if you’re already dealing with a tax lien, you’re going to want to get it released once you’ve satisfied the debt.

You’ll need to obtain the exact payoff amount that is owed to the IRS.  This amount is a matter of public record so it’s information available to you and the rest of the public.  You can get this by contacting the IRS.

Steps to Releasing a Tax Lien

Pay Off the Debt – In order to get a release of federal tax lien you need to pay off the outstanding debt in full.  Paying off your federal debt in full is the best option, but it might not be financially plausible.  If you need to set up a payment plan, negotiate something that you know you’ll be able to pay off each and every month. 

Sell the Property – You can also sell the property that holds a lien in order to pay it off.  You need to apply for what is called a Certificate of Discharge which will allow the sale to go through and the money goes to satisfy the outstanding federal debt.

File the Paperwork – Once the debt is paid off and the lien is satisfied you need to file a Request for Release of Federal Tax Lien directly with the IRS.  Don’t expect the government to do anything for you once you’ve paid the debt off.  If you don’t actively file this paperwork the lien will remain on the government’s books. 

Wait for a Reply – Once you satisfy your debt and file the proper paperwork for the Release of Federal Tax Lien, the release notice should take about 30 days to be issued.
 
Verify Everything – When you get the paperwork back and everything is complete.  Make sure that there are no discrepancies in what the IRS sent you.  You’ll also want to make sure that the listing on your credit report is 100% accurate.  If it’s not, credit repair can make sure that it is.