Debt Reduction and Yes It Does Work

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Debt-settlement companies promise that you can get out of your debts for pennies on the dollar. Typically, these outfits demand that you stop paying your creditors and instead send the money to them. After a few months, the debt-settlement company promises to open negotiations with your lenders and use the money you've sent to pay them.


The idea is that after a few months of not getting paid, your creditors will agree to a fraction of what they're owed.

Of course, your credit will be trashed at this point, you'll have paid fat fees to the debt-settlement company, and you may be facing lawsuits from your lenders. That's if you're lucky. If you're not, you'll risk all this, and the debt-settlement company will disappear with your money. If you need more details, read "Debt settlement: A costly escape."

Better alternatives include: Debt Reduction Tips.

* Credit counseling. Legitimate credit counselors have debt-management plans that reduce or eliminate the interest rates on your credit card debt.


* Bankruptcy. If you can't pay your debts, you may be better off getting a fresh start through bankruptcy. Your credit rating may recover more quickly, and you'll be able to keep the cash you would have otherwise sent to the debt-settlement company. Consult an experienced bankruptcy attorney who can evaluate your situation and discuss your options.

Debt-consolidation loans from private lenders

A big mistake
If you owe money to lots of creditors, you may be a sucker for pitches from debt consolidators, which promise to combine all your debts into one "affordable" loan.

Unfortunately, though, these loans often come with high interest rates and hidden fees. Instead of helping you pay your debt off faster, a debt-consolidation loan can stretch out your repayment schedule so you actually end up paying more.

Better alternatives include:

* A do-it-yourself plan. If your credit's good, you may be able to negotiate lower interest rates on your debt. (See "Get a better deal . . . with a threat" for techniques.) Then you can tackle your bills one at a time, starting with the highest-rate debt or the credit card that's closest to its limit, while paying the minimums on your other debt. Once this high-priority debt is paid off, make the same-size payment to the next-highest-priority debt. Continue until you're debt-free.


* A debt-consolidation loan from a credit union. Because they're member-owned, credit unions tend to offer more-reasonable interest rates than other lenders.


* Credit counseling. If you can't afford to make the minimum payments on the debt you have, a credit counselor's debt-management plan might be your best option.


* A home-equity loan. Consider this option only if you have plenty of equity in your home, you stop the behavior that got you into debt in the first place and you pay off the loan as quickly as possible. Otherwise, you'll just be draining one of your most important assets, and you'll wind up deeper in debt in short order.

This is my last option. I almost choose not to list it. Only use this if you can and are willing to make life changes in controlling your financial future.

First Tax Solution LLC Offers Debt Reduction Tips and Consultation and it does really work.

Our Professional Personalized Accounting Management Team will help you get our of debt and stay out of debt. We work with you hand and hand. We teach you how to pay your own bills with our proven system. AND YES IT WORKS.

Our Motto is Accounting and Tax Service When You Need It

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Is Borrowing from your 401 k plan The Best Solution?

Individuals who participate in a 401(k) plan sometimes borrow from their
plan. While you may justifiably feel squeamish about taking out a 401(k)
plan loan, it can actually make good sense in appropriate
circumstances?assuming it is paid back on time. For instance, in today's
tough economy, plan loans can be a source of much-needed cash when bank
loans are unavailable or prohibitively expensive.
401(k) plan loans are generally economical and easy to obtain. In
particular, a 401(k) plan participant with less-than-stellar credit or
tapped out credit lines may find it much easier and cheaper to borrow from
their 401(k) plan than from a commercial lender.
401(k) plan loans provide participants with access (within limits) to
their 401(k) plan dollars without incurring income tax liabilities and the
10% premature withdrawal penalty tax. The 10% penalty tax generally applies
to withdrawals before age 59 1/2, however, exceptions are available. In
essence, the participant (borrower) pays interest to himself or herself when
taking out a plan loan.
401(k) plan loans are only permitted if the plan document allows them,
and many plans do. The maximum amount that can be borrowed is generally the
lesser of $50,000 or 50% of the participant's (borrower's) vested account
balance. Most 401(k) plan loans are secured exclusively by the participant's
vested account balance (although other forms of security, such as a lien
against the participant's home, are sometimes seen).
At least two major potential pitfalls are associated with 401(k) plan
loans. First, the participant's account balance is irreversibly diminished
if the loan is not paid back. Second, the federal income tax consequences
are harsh for failure to pay back a plan loan according to its terms, and
the loan will usually have to be repaid in full soon after the employee
leaves the job for any reason. Such failure to repay the loan can result in
a deemed distribution of the unpaid loan balance that triggers a federal
income tax hit (possibly a state income tax hit, too). In addition, the
dreaded 10% premature withdrawal penalty will generally apply unless the
participant is age 59 1/2 or older.
Interest paid on a loan secured by the participant's (borrower's) 401(k)
plan account balance is nondeductible if any of the account balance used to
secure the loan is attributable to elective deferrals (i.e., elective salary
reduction contributions the employee signed up for). This is true regardless
of how the loan proceeds are used and regardless of the existence of other
security for the loan, such as the participant's home. Since 401(k) account
balances will almost always include at least some elective deferral dollars,
interest on loans from such plans will usually be nondeductible.
In most cases, borrowing from your 401(k) plan should only be done when
funds are not available elsewhere. But, during this difficult economic time,
it may be prudent to do so. But, for me use this as the last resort.

Please contact us if you have questions on the tax ramifications of
401(k) plan loans or other tax compliance or planning issues.
www.firsttaxsolution.com