Archive for August, 2009

Playing the lottery is as much a strategy for getting out of debt as watching Bruce Lee movies is a strategy for taking on back-alley punks.  If you take them too seriously, both will get you into more trouble than you were already in.

However it is fun to dream, and for the cost of a one dollar ticket it's cheap entertainment.  Just remember that lotteries make money for state governments, not the people who play.

But for two lucky people the dream turned into reality yesterday as they will now split the proceeds of the Mega Millions multi-state lottery drawing that reached an astounding $333 million.  Last night's winning numbers were 01-17-31-37-54, and the Mega Ball was 31.  The winning tickets were sold in New York and California.

These two won't have to worry about debt anymore, but they will have a whole slew of new headaches. Mo' money, mo' problems.

Failure to plan is planning to fail.  Nowhere is that more true than in the battle to lay the smack down on your debt.  You need to have clear-cut expectations and a strategy that you hold yourself accountable to.

One method to attack your bills is called debt stacking.  With debt stacking you pay just the minimum on most of your bills, then focus all of your excess cash on paying just one account (called the target account) until it’s completely paid off.  Then you apply the money you were paying on that bill to the next target account until it’s paid off.  With each payoff you’ll have more money to apply to the subsequent target account and each will be paid off faster than the one before.

The target account may be the loan with the smallest balance (giving you an easy psychological win) or the credit card with the highest interest rate (my personal recommendation.)

Equifax offers a paid service to help you with debt stacking, but it’s such an easy technique you should be able to manage it on your own.  In any case, their video explanation of the debt stacking method is excellent.

Identifying a target account also lets you know exactly where to put extra money you earn on the side.  (Remember the rule #1 in the Debtbeat credo is Earn More.)  Search for my posts in that category for ideas on getting extra cash every month.

Remember that paying off debt is easier when you’re paying less interest.  So step one is still calling on your credit card companies to lower your interest rates.  The worst thing that can happen is that they say no.  Then look to transfer your balances to the lowest-rate cards you have.  Once you’ve gotten the lowest possible rates then it’s time to set your debt stacking goal based on how much you can afford to commit to the target account each and every month.

So get crackin’ and get stackin’ Debtbeat nation.  And let me know what you think about this technique in the comments.

If you took advantage of the government's Cash for Clunkers program then you got a great deal from Uncle Sam, and he's not done giving.  A special deduction for 2009 will allow you to even get a break on the taxes you paid.

Even if you didn't trade in a clunker for your new ride, you may be allowed to deduct the sales tax on new car purchases made after Feb. 16, 2009, and before Jan. 1, 2010.  As a result of the stimulus bill qualified taxpayers can deduct state and local sales and excise taxes
paid on up to $49,500 of the purchase price of a qualified new car,
light truck, motor home or motorcycle.

However, there are restrictions.  One is that the deduction phases out for taxpayers with modified adjusted gross
income between $125,000 and $135,000 for individual filers and $250,000
and $260,000 for joint filers.

Debtbeats know that every dollar not donated to the government can be used to pay down their bills, so managing the tax code is critical. 

So for the full skinny on the new car deduction, read the notice at the IRS website and use that money to beat debt, not to pimp your ride.