How We Nickel and Dimed Ourselves into Massive Credit Card Debt

credit-cards-my-personal-finance-journeyThe following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

Many people who’ve gotten themselves into massive amounts of debt have a pivotal moment when they made a decision to take on a lot of debt. Maybe they went back to school for their Master’s degree. Or maybe there were medical expenses from a surgery or other incident.

Our case was different: we literally nickel and dimed ourselves into huge amounts of debt to the tune of tens of thousands of dollars.

How it Happened

I can honestly say looking back that we’d never really been concerned with managing money properly during the first fifteen years or so of our marriage. We’d get into debt, get out of debt, not really ever having a plan for our money.

Instead, we spent as we wished and when things got too tight we’d panic and pay off the debt in one way or another, usually by cashing in an investment or a retirement account.

In 2010 my husband got laid off due to the recession and our one-income family of six officially became a no-income family. As usual, we didn’t panic; after all there was a three-month severance package and unemployment to help us along after that.

Seven months later Rick got a job offer that left us with a tough decision: the job was with a major company that he’d always wanted to work for, however the pay they offered was 20 percent less than what he’d been making at his old job.

In our “wisdom”, we decided that he should take the job and that we’d simply use credit cards to cover the salary difference until he worked up to the salary he’d been paid at his old job. Looking back, I’m amazed that we talked very little of cutting expenses or changing our lifestyle. In our uneducated opinion, we “really didn’t spend that much money.”

At the time we lived in an affluent suburb, and since we spent “much less than most people” we knew and lived by, we accepted our expenses as reasonable, even though we had very little idea what those expenses actually were.

Our Financial Wake-Up Call

Two years after Rick started his new job, we sold our home in the suburbs and moved to a small hobby farm, eager for a more quiet life with our children. The move to the country was a real eye-opener for us. We felt as if we were viewing “normal” life from the outside looking in. In the country, no one cared about what we drove, what we wore or what activities the kids were in.

They simply cared about the content of our character, to quote MLK Jr. As we pondered this new way of living where the Joneses didn’t matter, we sat down to take a real look at our finances. When we added up all of our credit card debt, we were dumbfounded at the astronomically high numbers.

Searching for answers, we went back and looked at our bank statements for 2012, writing down all that we spent on groceries, entertainment, clothing and the like. The numbers were shocking. Even though we thought we “never” went out to eat, we were spending nearly $300 a month on drive-thru runs, occasional restaurant meals and trips to the snack bar at the local big box store.

The grocery numbers brought similar shock. In our vague attempt at budgeting, we’d set our grocery budget for our family of six at a reasonable $600 a month. In reality, we were spending $900 a month on groceries due to a lack of good menu planning and runs to pick up random “stuff” here and there at the grocery store.

Suddenly, it became all too clear why we were in so much debt. In a panic, I began googling terms like “how to get out of debt” and found the wonderful world of personal finance blogs. I’d never read a blog before, but I was soaking them up now as I read about dozens of others who had found themselves in massive debt but worked their way to debt freedom.

For the first time in our lives, we began living off of a real budget and tracking all of our spending starting in January of 2013. While budgeting had always seemed invasive and restrictive to us in the past, we decided to give a real go at it and fell in love with being in control of our money. For the first time in our marriage, we knew where our money was going and we had a plan for what we wanted to do with it.

There have been many ups and downs for us financially in the three years since we first began living with a plan for our money and working to pay off debt. Major home repair expenses and other unexpected costs, combined with a super high debt-to-income ratio (we started at 65%), have made our journey to debt freedom a “one step forward, two steps back” kind of a journey.

But we are winning our battle to dump debt. If all goes as planned, our tens of thousands in consumer debt will be paid off by the end of 2016.

If you’re feeling overwhelmed by your debt, or wondering how you got in debt in the first place, don’t give up hope. With a solid plan and a commitment to persevere, you too can become debt free.

How about you all? Have you ever struggled with debt? Have you ever had a financial “wake-up” call?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/armydre2008/2969764323/

What to do if You Can’t Pay Your Income Taxes

irs-my-personal-finance-journeyThe following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

It can be a real panic situation if you can’t pay your income taxes. But even if you can’t, panic is an emotion that you need to resist. The IRS offers a number of ways to pay your income taxes, so the best strategy is always to take positive action.

File Your Income Tax Return By the Due Date

If you can’t pay your income tax bill, at least make sure that you file your income tax return when it is due. This will start the process that will enable you to make a payment arrangement with the IRS.

It will also reduce the amount of penalties and interest that you will ultimately have to pay. That’s important, because the penalties for late filing your tax return – or not filing it at all – can actually be more severe than what they are for late payment of income tax.

File for an Extension of Time to Pay Your Tax Bill

If you have ever filed an extension to file your income tax, you may be surprised to learn that there is also an extension available to pay your income taxes, if the non-payment is due to temporary factors. If you don’t have the money to pay now, but you expect that you will a few weeks or months, this is a good strategy.

The extension to pay will get you up to 120 days to make a full payment. Just remember that you must file your income tax on time in order to begin this process.

You can make the request for an extension of time to pay by calling the IRS directly at 800–829–1040 (there are no forms for you to complete). Using this payment option you will not have to pay any type of upfront fee, but interest and penalties will be assessed on the unpaid tax balance until it is fully paid.

Set Up an Installment Agreement

If you have a larger tax liability, one that you will be unable to pay within 120 days, you can set up an installment agreement. The IRS will allow you to set up a payment agreement that will extend as long as 72 months (6 years), and require equal monthly payments until the liability is completely paid. Penalties and interest are added to the amount of your tax liability due and there is a small setup fee ($50 to $120) to initiate the process.

You can use this method for a tax liability up to $50,000, however you may be required to submit personal financial statements in the event that the balance due is higher than $25,000.

There are three ways that you can set up an installment agreement:

  1. Contact the IRS by phone, again at 800-829-1040, or by calling 800-829-4933 if the liability is for a business tax return
  2. Complete an Online Payment Agreement Application, or by filing IRS Form 9465 and file it with your income tax return
  3. Complete an Installment Agreement Request, and mail it in to the IRS

Here’s the general sequence involved in requesting an installment plan:

  • You can complete and file Form 9465, or a written request for a payment plan (include all details of the plan, including the monthly payment amount and due date) and attach either form to the front of your return.
  • If you have filed your tax return, and the IRS hasn’t contacted you with a bill, you can request a pre-assessment installment agreement on current tax liabilities.
  • If you received a bill from the IRS you can request an installment agreement using the Online Payment Agreement Application, or you can submit Form 9465 or attach a written request for a payment plan to the front of your tax bill and return it to the IRS.
  • You can also request an installment agreement by calling the toll-free number on your bill or if you do not have a bill, call the IRS at the phone numbers listed above.

Your installment agreement request will generally be processed within 30 days of your application or phone call.

The IRS provides several payment methods, including:

  • Direct debit from your bank account;
  • Payroll deduction from your employer;
  • Payment via check or money order;
  • Payment by Electronic Federal Tax Payment System (EFTPS);
  • Payment by credit card via phone or Internet; or
  • Payment by Online Payment Agreement (OPA).

The IRS usually charges a $120 fee to set up a payment plan, but if you make your payments by direct debit, the fee is only $52. The fee for a request to restructure or reinstate an existing installment agreement is $50.

The amount of your monthly payments should be an amount that you are able to pay comfortably. If you can’t, you may be setting yourself up to default on the installment agreement, which will bring a host of complications. The IRS will allow you to request a specific monthly payment amount, as long as it is sufficient to satisfy your liability within 72 months.

There is also flexibility in regard to the date of the monthly payment. The IRS will allow you to choose a due date between the first and the 28th of each month. If you plan to submit payments by mail, it is recommended that you send them at least 10 days before the due date, that way they will arrive on time.

You can also use payroll deductions to make your monthly installment payments. This can be done by completing and submitting IRS Form 2159, Payroll Deduction Agreement. The form must be completed by your employer since it is an agreement between you and your employer.

Offer In Compromise

So far we’ve been talking about what to do when you actually have the ability to make installment payments. But what happens you can’t do that either?

The IRS offers a solution. It’s referred to as an offer in compromise, or OIC.

You can apply for an OIC if your inability to pay your tax liability is due to permanent financial difficulties, such as a business failure or job loss. The IRS doesn’t completely waive your tax liability, but they may agree to accept a reduced amount as full payment of the debt.

To receive consideration for an OIC you must make sure that all returns have been filed and that previous year’s tax liabilities have been paid. It’s important to understand however that you will not be eligible for an OIC if you’re in bankruptcy proceedings.

You can determine in advance if you are eligible for an OIC by checking out the IRS’s
Offer In Compromise Pre-Qualifier. That won’t represent a formal request for an OIC, but it will help you to know if it is worth pursuing.

Be aware however that applying for an OIC can be a complicated process. You will almost certainly be better off hiring a CPA or tax attorney to handle the process for you, particularly if you have a substantial tax liability.

Using Non-IRS Sources

Applying for what are essentially debt arrangements with the IRS can be a complicated and intimidating process, particularly if you’ve never done it before. For that reason, you might be better off trying to cover your tax liability using other resources. You’ll still be in debt as a result, but at least you won’t be in debt to the IRS.

Sources you might consider to satisfy your tax liability include:

  • Credit cards
  • Home equity line of credit
  • Personal loans
  • Family sources
  • Selling a major asset or a group of assets

One common source of funds you may want to avoid is liquidating funds from retirement accounts. That may get you the funds you need to satisfy your tax liability, but it will generally result in additional taxes (and often penalties) due as a result of liquidating a tax-sheltered savings plan.

If you owe the IRS money that you can’t afford to pay right now, arrange to satisfy the debt either through an IRS plan, or through alternative resources. The worst strategy is to do nothing. Not only will that make the debt go even higher, but it could result in ugly collection efforts by the IRS that will hurt your credit and disrupt your income. Being proactive is always the best strategy with the IRS!

How about you all? Have you or someone you know ever been in a situation where you couldn’t pay your income taxes? How did you handle it?

Share your experiences by commenting below!

Photo courtesy https://www.flickr.com/photos/jakerust/16836483201/sizes/n/

Five Ways to Warm Up Without Breaking the Bank

The following is a post by MPFJ staff writer, CJ, who blogs at thesingledollar.com about personal finance, budgeting, frugality, and debt repayment.

So, the weather outside is frightful! But since our electric heat is expensive, we’re trying to keep the house between 60 and 65, depending on what time of day it is. This is…chilly, at least if you’re me. If I had the money and didn’t care about the environment, I would totally keep the place at 72 all winter. What can I say: I’m old before my time. Besides the ol’ “put on another sweater” trick, here’s what I do about it:

1) I use a rubber hot water bottle.

I’ve had it for several years and it shows no signs of slowing down, cracking, etc. I fill it up with the hottest tap water we get and rest my feet on it under the covers. Delicious. In fact, I’m doing that right now as I write. It’s often still even warm when I wake up in the morning.

2) I get the oven going.

Typically, what I do is bake bread. Granted, this also uses electricity (for the oven), but at the end of the process, I’ve heated up the kitchen and I have fresh bread, so I think I come out ahead overall. As a bonus, I have to move around and knead dough and whatnot, and it gets the blood flowing and seems to warm me up a little! You could make a casserole or something else that requires long baking if you don’t want to do bread.
3) As long as we’re on a domestic track: try taking frequent breaks to clean as well as to cook.

Anything to get you up and moving around! Before you sit back down to work or watch TV or whatever, make a cup of hot tea and breathe the steam in.

4) We make sure to close vents in any room we won’t use for a while (like the office over the weekend) and to keep closet doors closed.

In November, we also did some basic weatherproofing — putting the storm windows down, most notably — but our primary effort here is to try to keep unused areas of the house from sucking up extra heat. That leaves more for the bedrooms and living room and kitchen!

5) OK, fine, I put on another sweater. Actually, a really really dorky fleece-lined hoodie. It’s pepto-bismol pink and I can’t wear it out of the house because it’s just embarrassing. However, there are certainly classier options available (try LL Bean, REI, Patagonia, or other outdoor-oriented retailers for gear like this).

How about you all? What’s your best tip for handling a cold house?

Share your experiences by commenting below! 

***Photo courtesy of https://upload.wikimedia.org/wikipedia/commons/9/9a/Modern_Masonry_Fireplace.jpeg

What Do Recent House Price Trends Mean for People Trying to Sell Their Home?

The following is a guest post. Enjoy! 

The UK housing market has been booming throughout 2015 and into 2016 that looks set to continue. House prices have steadily increased for the past ten years and as we start the New Year, there are no signs of the market slowing down. But, as someone looking to sell their home, what do these trends mean for you?

What are the recent trends?

The steady increase means that it’s more than likely that your home will increase in value throughout the coming year. A report published by the National Association of Estate Agents suggested that the increase is set to continue for at least another 10 years. Although, there is nothing set in stone to confirm this, if we look back at the property market over the past decade it looks pretty similar. With no huge economic changes on the horizon, low wage inflation and tighter lending restrictions, house prices soaring seems like it will be an accurate prediction. With such a huge demand for housing at the minute and so many young people desperate to get on the property ladder it is a good time to sell your home if you’re in a financial position to sell.

Why is this?

The increasing rise and rise of house prices is a result of the high demand for homes in the UK and lack of affordable housing. The government are trying to combat this by introducing higher taxes for buy to let landlords with the increase in stamp duty charges set to be introduced in 2016 and the help to buy ISAs for first time buyers.

So what does this mean for me?

As a homeowner looking to sell your house, it puts you in an enviable position. If you are wanting to move as soon as possible, it’s probably the best time to buy a new home as the new home you choose to buy will be at a lower price now than in say a few years. If you’re looking to upgrade and move to a bigger house now is definitely the time as larger houses will obviously become more expensive.

However, if you’re considering moving house but not desperate to move in the immediate future, it may well be worth hanging on for a few years to see if your home increases in value anymore. This is especially important if you’re planning on downsizing as you will probably make more of a profit on your home by waiting it out for a few years. If you have a property in a very desirable area such as London, holding on to your house for as long as possible is advised as it may double in value over the next ten years.

Therefore, it’s a good time to think about selling your home all round. Whether you’re in a position to hang on and see prices increase even further or need to sell up as soon as possible, making any move in a housing boom is definitely a safe option, you just might make a little more money by waiting a few extra years.

Starting A Side Income Stream: Selling On Amazon With FBA

This is a post by staff writer Jeff. Jeff blogs about finances and going green at http://sustainablelifeblog.com and has started a new project detailing his efforts to earn money online at onlinesideincome.com

There are plenty of ways to earn extra money, and a lot of ways to do it solely online as well. You may needed it for more security, perhaps work from home to watch your child(ren) or some other reason. The reality is that no matter your situation, a little more income every month never hurt.

If you spend your time reading online a lot, you may have heard about various ways of making money on Amazon. There’s the popular Pat Flynn interview with Jessica Larew, talking about how she buys things at clearance sales in department stores and places like CVX/walgreens and resells them on amazon for a profit.

There’s another way, sometimes called “white labeling”, which essentially involves creating your very own product, having it produced in China and then selling it on Amazon FBA (Fullfillment by Amazon). While this takes a lot more capital than the other method, you “own” the buy box (meaning you’re not competing on price with anyone because your item is original) and you can decide the margins of your product. This is very much a capital intensive business, but as you can see from these few posts about Amazon FBA, the potential for returns are huge.

If you’re interested, here’s what you’ll need to do.

First, you’ll want to select a product. This is without a doubt the most important step. You need something that you can buy in China (look on alibaba.com for suppliers) and sell for 3-4x on Amazon.com. You’ll need to make sure your product idea is profitable, which you can do with one of 2 (free) tools: Unicorn Smasher or Jungle Scout. With these tools, you can filter out some lower priced product and find something that you can sell on Amazon.

Second, you’ll need to find a supplier on Alibaba. I was lucky and had a a group to reach out to and got a recommendation from someone who has been manufacturing in China and selling online for almost 10 years, so I greatly trusted his recommendation, and it did not disappoint. The product was high quality and made with high quality materials, and I was very lucky. This probably took a few weeks off of my total product to Amazon time because many need to try out 2-3 suppliers to find one they like.

Once you’ve found a supplier and a product, you need to go through and look at competing products and see what other people who own the product like or do not like about it. There are plenty of reviews online (and on Amazon.com) and there are great ideas in there. For instance, one of my competing products did not have the ability to do something that I (and many others) thought was a requirement, so I easily adapted the product and added that feature. This differentiated my product from the others in the category, and allowed me to charge a higher price point.

What’s important here is finding the right product and making your product better than what’s already on the market. If you can nail those 2 things, you should be fine with your product.

If you’re looking for a few more resources on Amazon FBA, this 17 part series is very through and helped me quite a bit when I got started.

Readers – are you interested in Amazon FBA as a side income source? Or would you prefer something else?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/emmajane/65585561/in/