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4 Steps That Free You from Credit Card Debt

Did you know that according to a recent credit card survey, the average American household has a credit card debt of about $9,500? This is an amount that works as an investment for the credit card providers, which milk you of your income and have you thank them for it at the same time!

I am talking about paying the minimum required balance; you feel that the credit card simplifies your life by allowing you to pay a fraction of the bill. What you forget is that they are charging you a compound interest of approximately 3% per month.

You need to get rid of that debt – fast! Here are four steps that will lead you to freedom.

1. Debt assessment. The first step in the process is to find out the exact extent of your indebtedness. Normally, your debt repayment should not exceed 20-35% of your total income. If your bills add up to more, you are in debt trouble. Other signs that confirm that debt has become a problem are: missing due dates on payments, paying one credit card with another, managing to just pay the minimum due (or failing to even do that), and so on.

2. Budgeting is your first step to freedom. This cannot be done overnight, if you want to do a good job of it. Make an excel sheet and enter all your expenses over two months. Remember – all your expenses must be entered for this to work well. At the end, a pattern will emerge. Separate the essential from the non-essential expenses.

Essential expenses are those that cannot be avoided or cut back; these will be food, medical insurance, education, and the like. Non-essential expenses are those that you could live without, such as dining out, impulsive shopping, partying, fancy transportation, etc.

As you budget to become debt-free, you will have to minimize expenses so you that will have more money to pay your bills. The more money you save, the faster your debt will be cleared. Your budget will help you make a realistic plan to get out of debt.

Remember, budgeting is an exceptional exercise even after you get rid of your debt. However, it will initially require that you adjust to the minimum possible expenses, which will be difficult. Let your goal keep you motivated to stay on the minimum-expense budget until you straighten out your finances.

3. Reduce and eliminate high interest debts. Your budgeting does not end with cutting your costs to the minimum. You will also need to ensure that all the holes that drain your money are well plugged. Make arrangements to pay off the high-rate debts first. Check for offers whereby you can transfer high interest debts to low-interest debts. Every penny you save this way expedites your freedom from debt.

4. Invest and generate wealth. It is obvious that you need more money in order to get out of debt. One way is to cut expenses. The other will be to find ways to increase your income. Consult a professional and find ways to invest where the returns are maximized. You can also try to start a side-business, take up a second job, or monetize your hobby to raise additional income.

The path is gradual, but if you stay on it you will be able to get rid of your debts for good, and sooner than you would think!

7 Tax Laws You Should Know About

Taxes are always a matter of concern. At such times, it's good to know the pertinent laws, so that you can get the most benefit. Information is power! And in this case, it can help you enjoy some great tax benefits.

Here are 7 important laws that will help you.

1. Credit Card Fees Deduction. When and if you charge your income tax payment to a credit card, the IRS permits you to deduct the interest fees charged for that particular transaction. This should be entered as miscellaneous deduction in Schedule A, line 23.

2. Unemployment Benefits Relief. The sudden and devastating recession period has left many people without jobs, to depend upon unemployment compensation. Until now all such income was taxable. Now, the first $2,400 is not counted as taxable income.

3. Home Buyer Credit. The first-time home buyer credit has been extended up to April 2010, and the limit increased to $8,000/-. For the home owners who have lived in their house for the last five consecutive years, the limit is $6,500/- (the period from Nov 7, 2009 to April 30, 2010).

4. Education Tax Credit. While Hope Credit allowed for a $1,800 tax break, the new American Opportunity Credit allows the limit to be extended to $2,500 out of the first $4,000 spent on education. While the Hope Credit allowed for a two years claim, with the American Credit you can claim for the first four years post-secondary education. The great part about American Opportunity is that you can get a refund even if you do not owe the IRS. Take note that 40% of the credit is refundable; this translates in up to $1,000/- refund even if you owe no taxes.

5. Light Vehicle Tax Deduction. This is your chance to write off the sales taxes on a recently bought light vehicle; this includes a car, motor home, light truck and motorcycle. For standard deduction filers, look up Schedule L for this purpose, while for those who file itemized tax deductions, claim the deduction for sales tax on Schedule A. This tax break is applicable for any vehicle you have bought last year.

6. Energy Friendly Tax Break. Now you can spend more on making your home energy efficient and enjoy a credit of 30% on such upgrades, up to a maximum of $1,500/-. In this bracket, you can claim a break for any simple thing like installation of energy saving windows, insulation, energy efficient air conditioning, and the like. For more costly upgrades, such as geothermal system installation, solar panels, and other such complex installations, the tax break is 30% of the cost with no upper limit.

7. The Bicycle Commuter Act. A recent inclusion in the tax code section is the reimbursement of transportation cost by employers for cyclists. You can use the $20 that is earmarked for this purpose to meet costs pertaining to cycling – purchase a cycle, accessories such as helmet and other safety gear, fees for cycle parking and even maintenance costs of the cycle. These costs can be used for tax break.

Resources

The Credit Repair Organizations Act
The Fair Debt Collection Practices Act (FDCPA)
Fair Credit Reporting Act (FCRA)
Consumer Credit Protection Act
The Fair Credit Billing Act
The Equal Credit Opportunity Act (ECOA)

 

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