Some people don’t always make the best decisions when it comes to credit cards. If you’re one of these people, you could end up with so much credit card debt that you might have to consider getting help from a professional debt relief company. We know this isn’t necessarily easy to hear, but sometimes tough love is needed to shake debtors by their lapels and get them to understand that they need to make some fundamental changes with their finances in order to avoid more serious problems later on.

Before things get that bad, however, there are five ways you can check to see if your credit cards pass the stress test. If you fail any one of these tests, you should probably rethink how you use your credit cards, before you end up in over your head with debt.

1. Are you operating close to your credit limit?

If any of your credit cards are maxed out or near their credit limit, then you’re operating in the credit stress zone. Cut back on your spending immediately and take your credit cards out of your wallet and put them someplace safe so you can’t use them on impulse and overspend when you’re out and about. Remember, every time you use a credit card, you’re taking out a loan. If you can’t afford something with cash, you can’t afford it.

2. Do you open new lines of credit to get discounts and other offers?

If you’re signing up for credit card accounts — especially store credit card accounts — to get a discount off your first purchase, a low introductory APR, free airline miles, or some other kind of offer, your credit stress test will show a big red flag. These offers are known as “teasers,” and they’re designed to do one thing and one thing only: lure you into more credit card debt. Most cards that offer deals are only temporary, as is the case with first-time shopping discounts and introductory APRs, and rewards cards typically charge higher interest rates. If you’re already struggling with credit card debt, resist the temptation to open any new accounts.

3. Are you using credit cards to cover the gap between paychecks?

If you’re living paycheck to paycheck, the worst thing you can do is use a credit card — which is the same thing as taking out a loan — to cover the gap between paydays. If you’re doing this, you’re failing your credit stress test. If you can’t afford your monthly expenses, paying for them with high-interest credit cards will likely only result in paying eve more for the money you spend, on top of things like late payments, over limit fees, or the inability to make a minimum monthly credit card payment at all. And then you’ll be in real trouble.

4. Do you wait until the last minute to make credit card payments?

Waiting until the last minute to make credit card payments is another red flag on your credit stress test because it probably means you don’t have the money you need to pay off your debts. Making eleventh-hour payments because you’re a procrastinator or were busy and forgot is one thing, but hurrying to scrape together enough money to make a minimum monthly payment is a clear indicator that you don’t need to be using credit cards at all. Shelve the credit cards and go the cash-and-carry route to avoid having a credit card heart attack.

5. Are your credit cards declined when you use them?

If you’re getting declined at the cash register when you try to use your credit cards, it’s a major-league failure of your credit stress test. Not only are you operating near your credit limit — which means you’re carrying a high monthly balance — but you obviously don’t know how much available credit you still have. That means you’re simply not paying attention to your finances. And not paying attention to your finances is eventually going to get you into a heap of trouble. Retire your credit cards to a safe place and work hard to pay them off, little by little if you have to, while using only cash to cover monthly expenses.

Credit cards aren’t there to help you pay for things you can’t afford, they’re there to help you more conveniently spend money that you already have — although credit card companies don’t see it that way; they love it when cardholders carry a balance and pay lots of fees. And credit cards aren’t for everyone. Some people have a hard time using them while not over extending themselves and going into deep debt.

If you answered yes to one or more of these five questions, then you’ve either failed your credit stress test or are close to failing it. Our advice? Dump the credit cards, pay them off, and only use them for absolute emergencies if you can’t work out a payment plan when you get into a bind. Not only will your credit stress level improve, but so will yours.

Popularity: 1% [?]

If you’re like most Americans, you probably carry some significant debt. In February, the average American was over $78,000 in debt, including credit cards, car loans, and home mortgages. And the average American with credit card debt had an outstanding balance of almost $16,000. In fact, the debt can be some much that some people have to turn to professional debt management firms for help. But there is a way to give yourself some personal debt relief, whether you get professional help or not.

The so-called “debt snowball plan,” coined by Dave Ramsey, uses psychology to help folks get out of debt. Normally, financial experts recommend paying off high-interest debts first because you’ll typically owe less over the long term. However, the debt snowball plan recommends that you pay off low-balance debts first so that you build up the confidence you’ll need to maintain long-term momentum on your way to debt freedom. Here’s how it works:

• Organize all of your debts and arrange them from lowest balance to highest balance
• Make all your minimum monthly payments on all of your debts, but pay as much extra as you can on the debt at the top of your list so you can pay it off faster
• Once the lowest-balance debt at the top of your list is paid in full, transition that payment as an additional monthly payment on the second debt on your list — in other words, don’t decrease your total monthly debt payment; use the extra money you no longer need to pay on your first debt to help pay down your second debt faster
• Once your second debt is paid in full, transition its monthly payment (which will be the amount you had been paying on your first and second debts combined) as an extra monthly payment on your third debt
• Repeat these steps as necessary; by the time you reach your final, largest-balance debt, you’ll be paying significantly more than the minimum amount each month (in fact, the total of all your other debt payments combined, plus the minimum monthly payment of your final debt)

Paying off your lowest-balance debt quickly and then transitioning that monthly payment to your second debt, and then the monthly payment from your first and second debt to your third debt, and so on, will help keep you motivated to get debt free as soon as possible.

Have you tried the debt snowball plan? Let us know how it worked for you. We did it, and it worked great for us.

Popularity: 1% [?]

The National Endowment for Financial Education (NEFE), a Denver-based non-profit organization, is warning consumers about the pitfalls of debt relief loans. Although debt consolidation loans may be beneficial to some consumers, the group says, they’re not right for everyone who needs debt help.

The group’s warning comes in the heels of a recent online poll, commissioned by NEFE, which found that 75 percent of U.S. adults reported having debt and 51 percent said they were concerned about the amount they owed. The group said that the poll demonstrated the number of adults with multiple debts or who have difficulty making monthly debt payments and that while some consumers might continue their current debt reduction strategies, others may look into debt consolidation loans as a way to lower monthly payments.

However, the NEFE warned consumers that debt relief loans aren’t the “quick fix” they’re often advertised as because they require the borrower to pay significantly more in interest over the long term. Furthermore, the group said, debt consolidation loans aren’t right for everyone. Consumers thinking of applying for a consolidation loan should be aware that ads for such loans don’t disclose the total costs of the loan, provide information on hidden costs and fees, or advise consumers that the loan might make the consumer’s financial situation even worse.

“Much of the focus [in consolidation loan advertising] is placed on the ‘lower’ amount of monthly payments, without regard to impacts like total interest paid,” explained NEFE CEO Ted Beck. Debt consolidation loans combine multiple debts into a dingle loan with a longer loan term, Beck said, which results in a lower monthly payment but leaves the consumer with a greater debt burden over a longer period of time. For some consumers, consolidation loans may be helpful, but for other consumers, Beck cautioned, the loans can be damaging (“What Lenders Won’t Tell You About Debt Relief Loans,” Business Insider, Feb. 21, 2012).

In an example provided by the NEFE, a five-year loan for $20,000 at 10 percent interest would have a monthly payment of $425 and total interest payments of $5,496, for a total pay-off amount of $25,496. However, the same loan extended to a 15-year repayment term would reduce the monthly payment to $215 but increase total interest payments to $18,685, for a total pay-off amount of $38,685.

“People who are burdened with debt need to carefully consider what is best for their financial situation,” Beck said. “For some, debt consolidation loans may be a good option. But it’s important that consumers fully understand the consequences.”

Popularity: 1% [?]

This is the time of year when people start thinking about their taxes. It’s also the time of year when people who are burdened with substantial tax debt start to look for help. But, according to the Better Business Bureau (BBB), folks should be wary of tax debt relief firms that promise to settle or negotiate debts with the IRS for a hefty up-front fee.

These types of businesses, the BBB warns, are often scams that do nothing more than rake in consumers’ money as “service fees” while failing to provide any real debt settlement service at all, frequently leaving consumers in worse financial shape and with more debt to pay.

“Typically these companies advertise they can settle tax related obligations for less than the amount owed,” states a Los Angeles BBB report on such a company. “Many represent they have attorneys or certified public accountants on staff who can work on your behalf to resolve these issues,” but the reality is they don’t.

“Our complaint experience on many of these firms indicates they exaggerate or misrepresent their ability and expertise in effecting settlements and often promise much more than they can deliver,” the report continues. “They generally attribute their inability to obtain settlements to the fact customers provided inaccurate or incomplete information. None of these firms guarantee anyone will be able to obtain settlements of their tax debts” (“TV Tax-Reduction Ads Can Leave IRS Debtors Worse Off,” Tulsa World, Feb. 16, 2012).

The biggest problem with tax debt relief companies that charge advance fees in exchange for promises that they can settle debts with the IRS for a fraction of what’s owed is that they often cite special access to IRS hardship programs or a special ability to secure “offers in compromise” from the IRS, which allows, in exceptional cases, consumers to settle their tax debts with the IRS for less than the outstanding balance. However, very few consumers actually qualify for such programs, which can be accessed just as well for free by dealing with the IRS directly. No third-party company can increase the chances of qualifying for debt relief with the IRS, no matter what a company may claim.

The IRS urges caution when seeking tax debt help from a third party, as many taxpayers who do so are left with their original tax debt, along with additional interest and penalties owed to the U.S. Department of the Treasury. The IRS recommends that consumers who need tax debt help first seek the advice of an IRS enrolled agent, a CPA, or a tax attorney.

Popularity: 1% [?]

If you’re a homeowner who’s looking to get some debt relief, refinancing your home might sound like a good idea. After all, who wouldn’t want a better interest rate and lower monthly payments? However, there are a few things you need to know to avoid making a big refinancing mistake, including the dangers of debt consolidation, the importance of your credit score, and why a significantly lower interest rate is key to getting a good deal.

1. The dangers of debt consolidation refinances

A debt consolidation refinance is the same as standard refinance except your combining your existing mortgage with other secured and unsecured debts like auto loans and credit card debt. However, it’s important to understand that consolidating unsecured debts from credit cards with a refinance loan can be dangerous. If you miss a credit card payment normally, you’ll get charged a late fee and your interest rate will typically climb. But if your card is tied to your mortgage, missing a payment or two can put you in a position where you could lose your home.

2. Your credit score is crucial

If you have a great credit score, you might do well with a refinance. However, if you’re looking to refinance your home because you’re in bad financial shape from delinquent credit card debts, student loans, medical bills, or other debts, you’re probably better off waiting for your credit score to recover before pursuing a refinance. As soon as your credit drops beneath perfect, lenders’ best deals start drying up. And the lower your score, the faster they disappear. Your best bet is to seek help from an expert like a mortgage banker who can help you find refinance deals you didn’t even know existed, deals that can save you thousands in the long term.

3. Don’t refinance unless the interest rate is significantly lower

It makes little sense to refinance your home mortgage unless the new terms include a significantly lower fixed interest rate. Otherwise, it probably won’t be worth the hassle. Be prepared to seek help from an expert or do an awful lot of legwork on your own to get a good rate.

Popularity: 1% [?]

If you’re in a lot of debt that you’re having trouble repaying, you may be looking into getting some professional debt help before things get out of control. There are plenty of reputable debt relief companies out there that can help you with debt management, debt consolidation, or debt settlement services — all of which are designed to help you get a handle on your debt and help you become debt-free as soon as possible.

However, there are some debt relief “companies” out there that exist only to take advantage of people who are in bad financial shape and are desperate for a quick turnaround. They prey on unwitting victims and take their money without providing any debt help, often leaving consumers worse off than before. Here are three quick tips for spotting and avoiding a debt relief scam.

1. Read the fine print and ask questions

The first thing you should do before signing up for a debt relief program is read all of the company’s documentation carefully, especially the fine print, and then ask as many questions as you can to clarify any points that aren’t 100 percent clear. Even legitimate companies can sneak something in the fine print that they’d rather not advertise up front, but for scammers it can be far worse. Most people don’t red the fine print, and scammers count on you to be one of those people. Don’t be. Read the fine print and ask questions like your financial life depended on it, because, in some ways, it just might.

2. Avoid companies that charge advance fees

Some debt relief companies try to charge you up-front fees to join their “program,” but advance fees are a big red flag. Most companies that charge advance fees will just take your money without helping you out, leaving you deeper in debt. It’s worth noting that, in most states, charging advance fees before rendering some types of debt relief services is illegal.

3. Beware of outlandish claims

Some debt relief companies make outlandish claims that simply aren’t true. Some debt relief firms claim to have a 90 percent success rate or claim that their program will help you become debt-free in a matter of a few short weeks or months. Other programs claim to have super-secret insider knowledge and connections that will allow them to wipe away most or all of your debt. Such fantastic claims are nothing more than predatory marketing tactics and many of them are being cited in lawsuits by state attorneys general against deceptive debt relief companies. Make sure to get all claims, promises, and proof of success rates in writing before you sign up for a debt relief program. If a company refuses, you’ll know it’s a scam.

Following these three simple tips may help you identify and avoid a debt relief scam, but the most important thing to keep in mind is that the best defense against fraud is an educated consumer. Read everything, ask questions, get everything in writing, and make sure you understand what you’re getting yourself into before signing up with a debt relief company. There are lots of good debt relief companies out there to choose from, but there are also some bad apples that can ruin the bunch.

Popularity: 1% [?]

Debt from home mortgage loans and credit cards can be overwhelming if you’ve been laid off or are struggling to make ends meet. Sometimes people can get so overwhelmed by mortgage and credit card debt that they need to consult a professional who can provide debt relief services. Unfortunately, like in all businesses, some of the debt relief “programs” out there are scams that do little more than take advantage of desperate people who need real help from a real debt relief company.

If you’re in need of debt consolidation, debt management, debt settlement, or other debt relief services, you should familiarize yourself with two basic but important rules put in place by the Federal Trade Commission to help separate the good guys from the bad guys and protect you against scams.

The Telemarketing Sales Rule was amended by the FTC to help protect consumers from fraudulent debt relief programs that are out there to take your money without providing any kind of real debt help. The Telemarketing Sales Rule bans companies that sell debt relief services over the phone from collecting upfront fees before they have actually negotiated, settled, or reduced your unsecured debt (usually credit card debt). If a company wants to charge you an enrollment fee or some other fee before they perform any work, tell them not thanks and hang up the phone because it’s illegal and almost certainly a scam.

The Mortgage Assistance Relief Services Rule also helps protect consumers against scams. The Mortgage Assistance Relief Services Rule bans companies offering mortgage debt relief, foreclosure relief, or mortgage modification services from charging upfront fees unless specific conditions are met. According to the rule, a debt relief company must provide you with a written offer from your mortgage lender or servicer that explains the key changes in the mortgage terms that would occur if you accepted the offer. Only if you agree to this written offer can a debt relief company then charge you a fee.

The FTC spends a lot of time going after crooked debt relief companies, but that doesn’t mean good ones aren’t out there. Good companies are out there and these two rules are there to help make sure you can identify the bad actors and that the FTC can prosecute them.

For more information on consumer protection rules and resources, or to file a complaint or report a scam, visit the FTC’s Bureau of Consumer Protection at www.ftc.gov/bcp.

Popularity: 1% [?]

It’s January, which means federal income tax season is once again right around the corner. The tax code is long and complicated and covers almost every imaginable scenario, even debt relief. That’s right — if you received debt relief services such as credit card debt settlement or a mortgage modification in 2010, then you’ll likely be considered to have cancellation of debt income and will probably owe federal income taxes on the portion of forgiven debt.

While that reality isn’t any fun, it’s a lot better than being audited. And although we’re not tax experts, we’ve provided a helpful summary of what you might be looking at in terms of tax responsibilities resulting for debt relief services. Of course, we recommend that you consult a tax professional who can help you prepare your return accurately. After all, you don’t want to make mistakes with the IRS.

Generally speaking, you’ll probably owe federal income taxes on cancelled debts if the cancelled amount exceeds $600. Possible sources of cancellation of debt income include credit card debt settlements, loan discounts or modifications, and home loan modifications.

Nonbusiness Credit Card Debt Relief

You might be able to exclude cancelled nonbusiness credit card debt from federal income if the cancellation occurred in a title 11 bankruptcy case or you were insolvent immediately before the cancellation. Otherwise, you’ll probably have to pay taxes on the forgiven debt.

Loan Discounts and Loan Modifications

For loan discounts and loan modifications, you’ll likely owe income taxes on the amount of the discount or the amount of the principal reduction if are personally liable for the debt (called recourse) and keep any associated collateral. However, if you’re not liable for the debt (called nonrecourse) and you didn’t keep the associated collateral, you don’t have cancellation of debt income and you won’t have to pay taxes.

Home Mortgage Modifications

Whether you pay taxes and how much you pay on home mortgage modifications is complicated. You might be able to exclude some or all of a principal balance reduction from federal income taxes, especially if the reduction was secured through the U.S. Home Affordable Modification Program (HAMP). For more information, see the sections of IRS Publication 4681 on Qualified Principal Residence Indebtedness, including the subsections under Exclusions and Reduction of Tax Attributes.

Exceptions

Exceptions from cancellation of debt income may include income from cancelled debts as the result of a gift, certain student loan forgiveness programs, certain types of deductible debt, and often when reductions in collateral prices occurred after a sale.

Exclusions

Exclusions from cancellation of debt income are provided in some cases of bankruptcy and in insolvency and in some cases of qualified farm indebtedness.

Remember, this is just a brief rundown of some of the things you’ll need to know about your tax liability resulting from cancelled debts and debt relief services in 2010. You should use this information simply to help get your paperwork in order before consulting a tax professional.

Popularity: 1% [?]

Paying off debt was the third most popular financial New Year’s resolution for 2012, according to Fidelity Investments. But shedding your debt can be harder than dropping those extra pounds. For people with significant debt, professional debt relief agencies that provide debt management, debt consolidation, or debt settlement services can be helpful tools for getting out of debt. Whether you seek professional help or are a do-it-yourselfer, here’s four New Year’s debt relief resolutions that anyone can use to make a real difference in 2012.

1. Stop using credit cards

The first thing you need to do to get out of debt is to stop using credit cards. As Bill Hardekopf, chief executive of LowCards.com says, “Don’t be throwing dirt on yourself when you’re in the hole already.” Put those credit cards away and start paying off as much credit card debt as you possibly can. Stick to cash or debit cards for your expenses and you’ll be doing yourself a tremendous favor, one that can help get you you out of debt and keep you there for the rest of your life.

2. Build an emergency fund

Between car notes, home loans, and credit card balances, you’re probably looking at interest rates anywhere from 2 percent to 29.99 percent — in fact, the average credit card interest rate is 14.56 percent, according to Bankrate.com. It might sound silly at first to sock cash away in a savings account that pays less than 1 percent interest, but building up an emergency fund will help prevent something like a blown tire or a doctor’s visit from causing you to break out your credit card to cover the unexpected expense. Having an emergency fund is just as important as paying down your debt. Ideally, you should aim for enough savings to cover three to six months of living expenses.

3. Consider taking advantage of balance transfer offers

Balance transfer offers from credit card companies can help you pay off your debts, but you’ve got to play it smart. Some offers may sound great, like 0 percent interest for up to 21 months, but you have to avoid the pitfalls contained in the fine print, such as interest rate hikes up to 19.99 percent or higher after one late or missed payment, and need to be able to pay off the balance in the promotional timeframe. After the promotional period expires, so do those low interest rates. And whatever you do, don’t buy anything with your transfer card. You’d just be throwing gas on the fire and going deeper into debt.

4. Look into a debt consolidation loan

If you decide not to seek help from a professional debt relief agency, you might be able to get a debt consolidation loan to help pay off your debts. If you have high interest rates from things like credit cards, an unsecured personal loan with interest rates of 10 percent or less might be a good deal. But a word of warning: a debt consolidation loan is like dynamite. According to Scott Halliwell, a financial planner for USAA, a debt consolidation loan in the right hands can do a lot of good, but “it’s pretty dangerous” if used incorrectly. You could end up deeper in debt if you fail to budget payments and you can end up owing more down the road if your repayment term is too long.

The key to keeping your debt relief resolutions this year starts with not using your credit cards. It’s that simple. Cut them up if you have to, but stop using them to buy stuff. Once you budget your monthly expenses and switch to a cash-and-carry lifestyle, you can start making some decisions about building an emergency fund, transferring your credit card balances, or looking into a debt consolidation loan. If you find you’re still struggling with your debt, you can always contact a debt relief professional.

Popularity: 1% [?]

Getting out of debt can be tough for some Americans. After all, U.S. households currently owe an astronomical $2.3 trillion in credit card debt, auto loans, education loans, and other non-real estate debt. Regardless if your debt problems are caused by unemployment, overspending, or both, there are six tips that can get you started down the road of a successful debt diet.

In part one of our six personal debt relief tips we offered the first three pieces of advice for completing a much-needed debt diet, including calculating your debt, cutting up your credit cards, and trimming the fat. For part two we discuss the final three tips, including seeking professional help, finding additional income, and rewarding yourself to keep your momentum going.

4. Consider professional help

Credit counseling organizations and debt relief companies can likely help you organize and pay off your debts if you’re in financial trouble. Nonprofit credit counselors recommended by the National Foundation for Credit Counseling can help you develop a debt management plan. Debt relief companies offer services such as debt consolidation, debt management, and debt settlement that can help you get a handle on your debt and eventually become debt-free.

5. Bring in additional income

Of course, a good way to get out of debt is to find a way to bring in additional income while you cut your expenses. Being creative is key. You’ll stay focused on your debt diet goal if you remember that the extra work and the extra cash are going to pay off your debts. Try to find a way to take on extra or overtime shifts, get a part-time job, or sell stuff you don’t use on eBay. You can even consider selling other assets, but make sure to not go overboard. Dipping into retirement accounts to pay your credit card debt isn’t advisable.

6. Be kind to yourself

A debt diet is like a food diet, the best changes are the ones that you can incorporate in your everyday life. And, just like a food diet, you should allow yourself some occasional breathing room. Go out to eat once a month or save for an affordable vacation. If you cut off too much and make too many inflexible changes, you’re likely to go off your diet and start making poor decisions. And don’t be afraid to try and save money for emergencies and retirement while you’re paying off your debt. Even $10 or $20 a week will make a difference in the long term.

Getting professional help, finding additional income, and rewarding yourself will help you successfully follow thorough on your debt diet and eventually help you shed all those unwanted debt pounds for a leaner, stronger, healthier financial future.

Popularity: 1% [?]