By Mary Hunt
Can you imagine wanting to pay outrageous amounts of interest? Do you ever see yourself gladly making monthly payments to a greedy finance company? Would you like to love a loan shark? Impossible?
No, it’s not. All you have to do is become your own banker. You’ll be borrowing from yourself, making payments to yourself and collecting high rates of interest — all from you, for you.
The original idea of the credit union was to get the little person out of the clutches of the big money institutions. Being your own banker simplifies the credit union strategy to just one person: you. And when you’re wearing the loan officer hat, the borrowing and repayment benefit only you. What a savings program!
So, how does it work, you ask? First, open a special savings account. Don’t get this confused with your Contingency Fund or investment programs. You already should be saving consistently for the future in those ain’t-nobody-ever-going-to-touch-it kinds of accounts. This is a special savings account that you will manage differently.
You can start your new account with anything, but you should feed it with a weekly contribution for a while. If you can put in $20 a week for 12 months, you’ll have about $1,000 after a year.
Now, let’s say you need to borrow $600. A typical finance company would charge a whopping 21 percent interest, or $126, to borrow that amount. They’d “let” you pay it back at the rate of about $30 a month for two years, for a total payback amount of $726.
You can make it easier on yourself. If you charge 18 percent interest on your loan ($600 times 18 percent equals $108) and divide it into 12 equal payments of $59 your loan will be paid off in just one year, “costing” a total of $708. Suddenly, the greedy finance company is you.
If you keep up your weekly deposits of $20 while you pay back your loan, you’ll have something like $2,150 in the bank at the end of the second year (the $400 balance in the account, the $708 you paid back, plus the $1,040 you deposit in year two).
After you’ve paid back the first loan, perhaps you’ll want to borrow $1,000. The greedy finance company would charge about $255 to do that. If you charge yourself $180 and make monthly payments of $50 for two years (or $100 a month for one year), you’ll wind up with well over $3,000 in your account.
As the borrower, treat yourself the same way that the finance company would. Demand timely payments. Unless you’re terribly hard on yourself, it’s not going to work. You’ll default. And just imagine how that will work on your psyche.
But if it does work, you’ll be living the life of a banker — buying things you want and piling up the dough. What a way to save!
Mary Hunt is the founder of www.DebtProofLiving.com, a personal finance member website. You can email her at email@example.com, or write to Everyday Cheapskate, P.O. Box 2099, Cypress, CA 90630.
By Jason Alderman
I’ll wager that when most brides and grooms utter the phrase, “For better or for worse,” the “worse” they’re imagining probably involves situations like getting laid off or a prolonged family illness – not being the victim of tax fraud perpetrated by a current or former spouse.
Married couples typically file joint tax returns because it lets them take advantage of certain tax credits and other benefits not available if they file separately. However, one potential drawback is that you’re each responsible, jointly and individually, for any taxes, interest and penalties due on returns filed while you’re married, even if you later divorce.
So what happens if your spouse or ex-spouse – either unintentionally or deliberately – underreported income, overstated deductions, didn’t report taxable IRA distributions or any of a host of other sins in the eyes of the IRS? Well, you could be left holding the bag, even if those things occurred without your knowledge or understanding.
That’s why each year tens of thousands of people file for “Innocent Spouse Relief” with the IRS. Unfortunately, it can be very difficult to prove your case and many are denied. Plus, until recently, the law mandated that in all cases you must have applied for relief within two years of the IRS’ first collection activity or your claim would be disqualified.
But in one respect at least, the IRS has eased the burden of proof: Last year, the agency eliminated the two-year requirement for taxpayers filing for “equitable relief,” a category open to taxpayers who don’t meet the strict requirements of other provisions in the Innocent Spouse law.
The IRS’ change of policy recognized that in some cases, the victimized spouse doesn’t even become aware of the transgression until long after the fact. Often it’s because the offending spouse has concealed the information or hid or did not forward mailed underpayment notifications from the IRS – or, in the case of domestic abuse, the victim was afraid to come forward.
There are three categories of relief you may seek: Innocent spouse relief; separation of liability and equitable relief. The differences between them (including eligibility, deadlines and statutes of limitations) are complicated, so read “Tax Information for Innocent Spouses” at www.irs.gov for details.
To apply for Innocent Spouse Relief, you’ll need to file IRS Form 8857; however, one form will work for multiple years’ filings. Don’t delay filing just because you don’t have all required supporting documentation, since in some cases the two-year filing deadline does still apply.
In making its ruling, the IRS will consider factors such as your educational and business experience, the couple’s financial situation and the extent of your participation in the action that resulted in the erroneous item. The IRS will deny a claim if they believe you benefitted from the tax avoidance.
Taxpayers whose past request for equitable relief was denied solely because of the two-year limit may reapply using IRS Form 8857 if the collection statute of limitations for the tax years involved has not expired.
Visit “Tax Information for Innocent Spouses” at www.irs.gov for details on the various types of relief available, eligibility qualifications, statutes of limitations and more.
I hope that your marital “worst case” never goes past a minor spat or two, but it’s good to know there is relief available for such terrible situations.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.