New Legislation Could Help Consumers with Debt Management

From Credit.com:

As millions of Americans continue to struggle with debt management, a prominent senator has unveiled legislation aimed at reducing the amount they pay on overdraft fees.

This week, Connecticut Democratic Senator Chris Dodd, chairman of the Banking Committee, announced that his new legislation would reign in fees that can approach $30 or more for accounts that overdraft by even a few cents.

"Banks should not be trying to bolster their profits at the expense of their customers," said Dodd, who added that his bill would shine "more light on these practices" while giving consumers greater control over their financial decisions.

As it stands right now, consumers who overdraft may not always be aware that they have done so, and lenders will often allow a transaction to clear anyhow for a fee. However, that fee often applies to each transaction that takes place when an account is overdrafted, which can cost consumers well over $100 by the time they check their balances. Some banks have also been criticized for manipulating the order in which transactions are processed to make overdraft activity more likely.

Critics of this and similar reform bills maintain that it's the responsibility of consumers to know at all times how much money they have in their accounts, and that banks are providing them with a service by allowing them to use their cards in such situations.

How To Become a Debt-Free Single Parent

Healthy finances are important for any family, especially those led by only one parent. Earlier today I came across this interesting article on Examiner.com explaining how single mother’s can work to become debt free, and I think that the tips are relevant to any one raising a child on their own. Checkout a snippet of the article below.

1. Save $1000 in an emergency fund: You should save this money as fast as possible by paying only minimum payments on all your debt, and putting every last penny into savings. The money should be kept in a liquid (easy to access) account such as a normal savings account. Additionally, the money should be used only in an emergency. That new purse or pair of shoes doesn't count, sorry!

2. Become debt-free using the debt snowball: Dave's debt snowball idea is a simple tool that means to list every single debt from smallest to largest, and attack the smallest one first. You don't have to include your house in this section. Again, you will pay minimum payments on every debt. Except this time, any extra money will go towards your smallest debt. Once that one is paid (Yay!), you move on to the next and so forth. This step requires that you create a written monthly budget ahead of time to track where your dollars will go.

3. Build your emergency fund to include 3-6 months of expenses: Now that you are debt free, where will all your money go? You need to return to your $1000 emergency fund and build it to cover you in case you lose your job or have another large emergency.

4. Invest 15% of your income into Roth IRA's & pre-tax retirement: Many financial planners advise you to save for retirement as soon as possible. Dave's view is that you'll only be able to invest a small amount if you're also paying off debt. In addition, he wants you to retire debt-free. Otherwise you'd have a big retirement account, and a lot of debt to pay off as well. By paying off your debt first, you are able to invest at least 15% of your income and build your retirement account faster.

Lightly Taxed Insurers Aim to Tap TARP

From the Wall Street Journal:

Several of the biggest U.S. life insurance companies are seeking a piece of the taxpayer-funded $700 billion federal bailout program, but pay little in income taxes themselves, securities filings show.

Consider Prudential Financial Inc., which last week announced that it is seeking an unspecified amount of aid through the federal Troubled Asset Relief Program, or TARP. Despite reporting pretax profits to shareholders of nearly $25 billion over the past decade, Prudential has paid just $1.3 billion in taxes to federal, state and foreign governments in that period, filings show, for an effective tax rate of 5.1%.

IRS Kicks Home Owners While They're Down

According to the Washington Post, the IRS has bad news for homeowners who are seriously delinquent on their mortgages and hoping for debt relief. If your lender decides to modify your loan or forgive your debt, you could end up owing federal income taxes on that amount. The IRS essentially treats the amount that is forgiven as ordinary income. Lenders are even required by law to notify the IRS when they forgive the debt. This news is especially bad in the current market, where many people are finding themselves upside-down in the current market because of interest only loans or property value decreases.