Debt

Debt is money or its equivalent in goods lent by a creditor to a debtor upon reaching an agreement in terms of interest rate and the schedule of repayments.

Being in debt is not such a bad thing. It has its benefits. It enables a person to assume a comfortable living that might have been otherwise unattainable. In addition, it builds up a person's credit standing, which is the basis for future financial transactions. As long as both parties adhere to the terms agreed upon, there should be no problems.

However, there are instances where the debtor is unable to meet his obligation, either because of his own fault or circumstances that are beyond his control. Being in a financial fix can be a stressful situation to be in. However, it does not have to be that hard. Reducing your debt may not be easy especially if it involves a large sum of money, but help is not out of reach no matter how much debt you may have accumulated.

Debts that need your immediate attention are mortgages on your home or rent, arrears on alimony or child support, or income tax arrears. Do not ignore these debts. Get in touch with your creditors by mail and follow-up with a telephone call. If you are unable to pay immediately, ask your creditors for more time so you can sort out your finances.

Neglecting your financial obligations can have dire consequences. You can lose your home if you miss on mortgage payments. Not paying child support, if you have one or income tax arrears can result in lawsuits. If the court rules in favor of your creditors, your assets may be liquidated and applied to your debt. In extreme cases, wherein your funds have simply dried up and there is no other recourse, bankruptcy can become a possibility. You do not want that. It may sound good to you now but it can have horrible consequences and the effects are long term.

Non-priority debts are overdrafts, loans, credit card accounts, store cards, student loans, or money borrowed from family and friends. There are several options available for settling your non-priority debt and these usually depend on how much money you have left after deducting your living expenses and priority debt payments. Consider all the pros and cons before making your decision.

o    Individual Voluntary Agreement (IVA)-a legal agreement with creditors to repay your debt, usually at a reduced amount or interest rate. Make an offer to your creditors. Work out how much you can afford to pay each of your creditors and present it to them. You have to show proof that you are unable to meet your current obligations without some kind of reduction in interest fees or the principal amount itself before they will consider negotiating.

o    Debt management Program. If you are not confident in your ability to deal with your creditors, you can employ a debt management company to make offers in your behalf.

o    Debt Consolidation Loan - borrow money to cover all your existing debts. Do not borrow more than you need and do not get into debt again. Otherwise you will be paying another debt along with the debt consolidation loan.

o    Debt Consolidation - rolling all qualified debts into one, resulting in one monthly repayment. A Debt consolidation agency can negotiate with your creditors to reduce or waive interest rates or late fees to lessen the amount of your debt, making it easier for you to repay it.

Some people can easily recognize that they have debt problems and act immediately to resolve it. They are the lucky ones. However, for those in denial that they are in financial trouble, here are some signs in identifying a debt problem:

o    Savings are used to pay for debts.

o    Barely minimum payment on credit cards.

o    Living from paycheck to paycheck.

o    Your card company refuses to increase your credit line or your bank refuses to give you a loan.

o    You depend on your credit card to support your lifestyle

o    Your checks bounce.

o    Your mail comprise mainly of store cards, credit card bills and letters from your creditors, most of which are overdue.

o    Your creditors are always calling to remind you of overdue payments.

It is important to be calm and reasonable during these times. Here are some guidelines to help you deal with money problems:

o    List all your debts and the people or companies you owe it to.

o    Budget. How much is your incomeall These are your regular salary after deductions, any windfall from family members, benefits you are paid such as child benefit or tax credits, alimony, or child support. Your expenses may include housekeeping expenses, utility expenses, mortgage or rent, car payments, any other secured loans, insurance or pension or educational plan contributions, child care costs and travel expenses. Be honest when creating your budget so you can find out how much you can allot for your repayments.

o    Prioritize. Some debts are more urgent than others are. Look at your list carefully and deal with more important matters first. If you have received court orders or urgent notices demanding your repayments, you need to contact your creditors. If you are not sure what to do or where to start, seek advice from your accountant or financial adviser.            Fiscal Cliff Averted and Mortgage Forgiveness Debt Relief Act Extended

Fiscal cliff averted and mortgage forgiveness debt relief act extended for now. The U.S. Congress passed the "American Taxpayer Relief Act of 2012" which has effectively been named the "Fiscal Cliff" package. There are some key points in the bill that will help the American homeowner over the next year.

First, the Mortgage Forgiveness Debt Relief Act of 2007, has once again been extended until January 1st, 2014. Essentially what this prevents is if a homeowner were to short-sale or foreclose on a property, they would be forgiven the taxes owed on that debt. Typically any debt that has been forgiven is taxed as income by the federal government. For example, you foreclose on a home that has a mortgage on it of $200,000 and the bank sells that home for $50,000, the difference of the debt you have been forgiven is $150,000. So that $150,000 is taxed as income by the federal government. So lets say in the year 2013 you make $50,000 at your job, but also had that foreclosure and now that $150,000 is treated as income, then on paper it would look like you made $200,000 for that year. Then you could be taxed at the 35% level and 35% of $200,000 is $70,000. You would owe the federal government $70,000. But with the Mortgage Forgiveness Debt Relief Act extended that $150,000 would not be treated as income and would be, like the bill says, forgiven.

Next, the bill also extended the Mortgage Insurance Premiums being treated as mortgage interest for tax deduction purposes. What it is saying is if you are currently paying mortgage insurance on your loan, you can continue to treat that as mortgage interest when deducting it on your taxes. That can bring down your total tax liability to the government, so you owe less in taxes and possibly get a refund. This bill has also been extended until January 1st, 2014.

Last, it looks as if nothing was touched concerning the mortgage interest tax deductions. Many were concerned that Congress would either do away with or reduce the mortgage interest deductions. That is not to say it will once again be on the table in the near future, but during a housing recovery it would have been careless to even reduce what homeowners can write off, in the form of mortgage interest.

The extension of these bills is a big win for homeowners as America continues to slowly get back on track to a full recovery.