Skip the Refund and Have More Money For Credit Card Bills

Sure, it’s great to get a big, fat tax refund all at once every year – but if you’re struggling to pay your bills and credit card debt year round you should make some changes. Many people leave their tax withholdings set up purposely to get the refund after filing their tax return – sort of like a savings account or vacation fund. The problem is you’re giving the IRS a tax-free loan, that could better be put to use paying your debts throughout the course of the year.

Surely there is no one who would prefer to PAY the IRS at tax time, so it’s better to get the refund. With some careful adjustments, however, you can reduce the size of the refund and see more in your check throughout the year (without danger of having to pay at tax time).

Visit your human resources or accounting department at your place of employment. Ask to look at your w-4 to see what your withholdings are. If you’re getting a large refund, you can increase the number of withholding allowances you claim. The payroll people should be able to help you find the break-even point; and show you how much more you would get in each paycheck throughout the year rather than waiting to get it all at tax time.

You have a few choices as far as what to do with the extra money changing your withholdings would cause in your paycheck:

Automatic debt repayment: If you are looking to pay off credit card bills or other debts, the best thing you could do is set up automatic payments to your highest interest account each pay period, for the amount of extra money that will be in your paycheck. You won’t miss the money since you hadn’t been receiving it before, but those small extra payments will do wonders to paying off the credit card bill faster. If you do this, you will want to continue sending your normal monthly payment as well.

Automatic savings: If you’re not in very much debt, or can get a high interest rate on savings (higher than the interest you pay towards debt), you may decide it makes more sense to put the extra money into a savings account. Each pay period, automatically transfer the extra money into the savings account of your choice. This way, you earn interest on the money all year round instead of letting the IRS hold on to it for you interest-free. Also, if you should miscalculate your break-even point with your taxes the first time you make a change to your withholdings, you will have the money in your savings account available to pay for it.

If you’re not convinced that it’s more valuable to receive the money throughout the year rather than in one lump sum at tax time, leave everything as it is except for what you do with the refund when you get it! Often, people use the refund to take a vacation, make a down payment on a vehicle, or deposit it into their bank accounts to slowly whittle away on purchases here and there. A better method, for people in debt, is to take the refund and apply it to your highest interest debt, to pay it down faster. Do this every year until you are debt free; and then you can use the refund for the fun purchases – like vacations or cars, without guilt!

What happens to credit score if you close a store credit card?

I have a few store credit cards (Macy’s, Banana Republic, etc) in addition to a major credit card. I want to cancel some of the store credit card, but I don’t know how that effects my credit rating. I think closing credit cards in general lowers credit scores, but what about those store cards?

What determines how savings account interest rates vary?

I'm going to open a savings account, but all of them seem to say that the stated interest rate may change after you open the account. How then do I know which account will give me the best interest rate, if they all change at any time for any reason?

How do I deduct investment advisory fees paid for professional investment services on my 2008 federal taxes?

What form do I use?
Is there a limit to the fees (I payed about K for investment fees)?
Do the fees get bundled into other "deductoins" so that I have to meet a threshold of expenses?

Thanks all!

How Credit Card APR is Calculated

If you’ve had a credit card for more than a month, you probably have noticed that your purchases are charged interest. For cards without a grace period, purchases are charged interest from the moment the purchase is made; while credit cards with a grace period (typically 21 days or so) at least give you some time to pay off the balance before they begin charging interest on the remaining balance. What you may not fully understand is the calculation of APR and how it includes the finance charges.

Every Credit Card Company Uses a Different Method of Calculation

There is no one-size-fits-all program for calculating your APR. By law, you have to receive a written statement from your credit card issuer regarding how much you are charged in interest, and the method they’re using to calculate the interest. It’s typically written in a light-weight paper booklet that you receive when you first receive the card – and then receive again with every change to the terms of your card.

APR Calculation May be Fixed or Variable

If you are one of the lucky individuals to have gotten a fixed interest rate credit card that has actually remained fixed throughout all of the economic downturns, your interest rate is whatever it was stated to be when you opened the account. Other credit cards charge a variable interest rate which is based on the prime rate, plus anywhere from 2 to 7% more – a number selected by the bank and often a result of your personal credit score and payment history. The variable rate tends to fluctuate greatly, depending on circumstances of the economy, as well.

Outstanding Balances Charged the Periodic Rate

Your annual percentage rate (APR) is divided by the number of billing periods in a year (typically, 12 months). A 24% APR is divided by 12 months to give you a periodic rate of 2%. This periodic rate is multiplied by your outstanding balance to get the periodic rate for the month. It’s not as simple as taking your full balance owed on the credit card and multiplying it by the periodic percentage rate though. There are a number of methods used to determine how much of your total balance is charged the periodic rate:
• Adjusted Balance: This is one of the ideal methods of calculation, because your balance is adjusted to reflect the payments you made during the billing cycle. It does not increase your balance that will be charged the periodic rate for any purchases made within the same billing cycle. If your balance was $2,200 and you made a payment of $200 during the billing cycle, and charged $140 during the same billing cycle, you will be charged the periodic rate on a $2,000 balance.

•Average Daily Balance: For credit cards using the average daily balance method, the balance is determined by adding the balances on each day of the billing cycle and then dividing them by the number of days in the billing cycle to get the average daily balance on the card. Payments you make are subtracted from the balances and purchases are added.

•Two-Cycle Average Daily Balance: This method doesn’t account for your payments right away, which means if you start making larger payments to reduce your balance, you’re not going to see a big different in the amount you’re paying right away. The account balance on each day of the last two billing cycles are added and divided by the number of days in those two billing cycles.

•Previous Balance: This is figured by applying the periodic rate to the beginning balance at the beginning of the billing cycle. Your purchases and payments made during the same billing cycle will not affect this method’s calculations.

•Ending Balance: The ending balance at the end of the billing cycle is the only thing that matters in this calculation. Your purchases and payments made within the same billing cycle won’t affect this methods calculation, unless it affects the actual balance on the last day of the billing cycle. What’s difficult about this method is that the billing cycles of credit cards are not an exact day each month – many have billing cycles that are “between 20 and 25 days in length” so you will never know which day they are calculating the balance, but you can guess they’re picking a day when the balance is at it’s highest if you’ve just made a payment!

Understanding how your credit card calculates your APR charges is important to selecting a card with the best rates to keep your costs of borrowing money lower. With the upcoming credit card reform, hopefully things will become easier to understand for consumers and more affordable for those who are making their payments on time.

Is it possible to transfer credit card balances to others’ credit card accounts?

Situation: Person A has multiple credit card balances on high interest credit cards and Person B has a credit card with a much lower interest rate. Due to a poor credit history, Person A can't obtain a low interest credit card. They've agreed to transfer it to Person B's low interest credit card and have Person A pay Person B the monthly payments to make it easier to pay down their high interest balances.

Is this possible?

What institution offers the highest interest savings account?

I would like to put my savings into a high interest savings account while I learn more about where I should invest it etc. Anyone know who offers the best?

What is the safest investment for 10 Lakh Rupees for a period of 1 year in today’s market condition?

I don't want to lose a single paisa from my investment, that's my primary condition. I know, bank fixed deposit is the safest for a 1 year investment, but is there something else I may be missing out ?

What You Should Know about Credit Card Debt Negotiation

If you’ve been overwhelmed by credit card debt, negotiation might sound like a great idea. But if you do decide to negotiate, prepare yourself for a long and bumpy road. You’ll probably have to make numerous phone calls to your credit card company, talk to endless managers, and agree to terms that are less than ideal. (Nobody ever said debt settlement was easy!) Before you begin, there are some things you should know.

Your credit score could plummet even more. When you first contact the credit card company to settle your debt, it’s likely that they’ll freeze your credit limit right away. If your cards are maxed out, that won’t matter so much. But if you’re well below your maximum credit limit, your credit score could fall as a result of the lower limit.

You might have to pay taxes. If you manage to negotiate a lower sum for your debt repayment, you might end up owing taxes on the portion of the debt that was forgiven. Whenever a lender forgives $600 or more of the principal, they file a 1099-C form with the IRS. This means that if you arrange a nice lump-sum payment at a discount, you’ll have to pay taxes on the difference. Note that this only applies to the principal, not to fees or interest rates that get waived.

Bad reports mean bad credit. Do you know how your bank will report your repayment efforts to the credit bureaus? Find this out before you agree to any arrangement. A partial debt settlement can be just as bad for your credit score as a total default. Also, if the bank reports partial payments, your credit score will suffer. As part of your deal, ensure that the bank will report your payments as on-time and in full. This is the stickiest issue surrounding debt negotiation, since you have very little influence over how the lender will handle the reporting.

What can you do if you need to negotiate your credit card debt? Experts recommend being honest about your financial situation and your desire to pay. Ask to have some of the debt forgiven, or ask for a lower interest rate so that more of your monthly payments go toward the principal. If you’re considering bankruptcy, let the creditor know; that might be the little shove they need to start working with you.

Most importantly, don’t make payments until you’ve got a written copy of the agreement. That way, you’ll have the terms clearly spelled out, and you’ll be able to produce the document in court if necessary.

Credit Cards You Really Don’t Want to Cancel

As the economy continues to struggle, and President Obama continues to push for new credit card legislation, many Americans are committing themselves to paying off credit card debt. What many do once a card is paid off though, is to cancel the account completely to avoid getting into debt again. While it’s a reasonably good idea for debt management (particularly if you are someone who has trouble resisting the temptation to use a credit card when it’s in your wallet!)Sometimes though, canceling credit cards is not in your best interest – if you take into consideration the fact that closing credit cards lowers your available credit and increases your debt utilization percentage and may negatively affect your credit score, that is. Here are some credit cards that you are probably better off keeping active (even if you don’t use them) instead of canceling them:

Credit Card With the Lowest Interest Rate:  even if you plan to stop using credit cards and switch to a cash-based financial situation, you should keep your credit card with the lowest interest rate open. You just never know when you may need access to additional funds and if you need to use a credit card, you want one with the lowest possible interest rate.

Credit Card With Your Best Payment History and/or Longest History: Your FICO score is calculated based on a number of factors. 35% of your score depends on your payment history. If you have a credit card that you have always made your payments on time, you may want to keep that card open and active by charging a small amount every few months and paying it off. This is true also with a credit card that you have the longest account history with. The length of time you’ve had credit makes up 15% of your FICO score calculation – so if you go and cancel accounts you’ve had for years and only keep a recent account open – you’ll see your credit score drop because you’ve shortened your credit history.

Your Primary Bank Credit or Debit Card: if you have a credit or debit card through the bank which you hold your main checking and savings accounts with, you probably want to keep it open. Chances are, your checking account relies on this card as the overdraft protection, and you don’t want to eliminate that if you can avoid it. Many debit cards through banks are offering rewards programs now, at no cost – so it may be worth looking into the features of the program and trying to use your debit card more often to take advantage of it.

Credit Card with the Highest Credit Limit:  another credit card you might consider keeping open instead of canceling is the card that offers the highest credit limit. Hopefully this card is also the one with the lowest interest or best payment history, but the idea is if you keep your highest credit limit card open even after it’s paid off, you’ll have a lower debt utilization percentage. It means you are using less of your available credit and that will help keep your FICO score higher than if you closed your highest credit limit account and reduced your available credit.

It’s common for individuals who have had credit card debt for awhile to want to close all of their credit card accounts the moment they are paid off. Unfortunately, closing accounts can have an adverse affect on your FICO score and actually cause you more problems down the road if you should need credit in the future. It’s better to learn responsible credit card use; or simply keep some of the accounts open and not use them than it is to cancel all of your credit cards.

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