Francis Vayalumkal

RESTARTING YOUR CREDIT WITHOUT A BANKRUPTCY

By FRANCIS VAYALUMKAL

For a consumer with heavy-debt woes, it's a welcome lifeline. A creditor agrees to re-age your past-due account and presto your overdue credit card account gets zapped back to current. "It's a new life, in essence, for that account," says Jalona Meador, manager of account management at Consumer Credit Counseling Service of Greater Atlanta. "It's starting the clock over." In effect, that's what re-aging does -- allow you to start the clock over. Say you're three months late on your credit card payments. If the creditor agrees to re-age your account, those three months are wiped out. Missed payments are forgiven. Late fees stop. You still owe the same amount of money, but you are no longer delinquent.

You get a fresh start and your lender has one less delinquency to report. Getting a bright, shiny current status on an account is a great opportunity, but it's not something creditors give out lightly. Federal regulators have seen to that.

RE-AGING GUIDELINES

In June 2000, the Federal Financial Institutions Examination Council set down new guidelines for issuers to follow when re-aging consumer credit card accounts. To be considered for re-aging:
  • The borrower should demonstrate a renewed willingness and ability to pay.
  • The credit card account should be at least nine months old.
  • The borrower should have made at least three consecutive minimum monthly payments or the equivalent sum.

And there's more. Federal regulators also placed limits on the number of times an account could be re-aged. A creditor may re-age an account only once in a 12-month period and twice in a five-year period for open-ended accounts such as credit cards.

A creditor also may re-age a past-due account if you agree to enter a debt-workout program or debt-management plan. This revised payment plan could be worked out between you and your creditor, or it could be negotiated with the help of a credit-counseling service or a debt-management company. A creditor may only re-age an account in a workout program once every five years.

"We're trying not to be unduly harsh on consumers, but we want banks to accurately reflect delinquencies on their books," says David Adkins, a supervisory financial analyst at the Federal Reserve Board. And creditors can be even more selective and conservative when re-aging accounts if they wish.

"The creditors can say, 'I don't deal at all,' " says Paul Smith, a senior counsel at the American Bankers Association. "They don't have to re-age at all."

WHEN TO TAKE YOUR SHOT
Some creditors only give you one shot at re-aging. And that's the reason it's so important to make the most of a re-aging opportunity. Start by taking a good, hard look at your finances. Will you honestly be able to make on-time credit card payments going forward? If so, how much will you be able to pay each month?

If you can't stick with the payments, there's little use in re-aging. Why work so hard to bring an account current if you're only going to fall behind again in a few months? "You don't really want to agree to this if you can't handle the payments," says David Gelinas, president of Family Debt Arbitration and Counseling Services in Candia, N.H. "Why bother if you can't stick with it? Because you're going to be back in the same situation."

And if your creditor won't give you another chance to re-age, the only way to bring your account current is to pay every last penny you owe. Lots of folks can't afford to do that, especially if they're being charged $29 late fees every month.

If you're truly committed to making on-time payments going forward, feel free to contact your creditor and ask about curing or re-aging programs. Briefly explain why you fell behind on payments and why you'll be able to pay on time from now on.

DOCUMENT THE DETAILS

If a creditor agrees to re-age an account, ask them to confirm the details in writing. "I can't tell you how many times I've talked to consumers who were promised something by creditors that never came to pass," Gelinas says. "You hope to get it in writing so you'll have something to show if it isn't fixed."

If your card company won't put the details of your re-aging program in writing, do it yourself. Keep a record of the conversation and send a copy to your credit card company. Ask a customer service rep for the name and mailing address of a supervisor. Send off the letter and then focus on holding up your end of the bargain by making those payments.

You'll want to be just as careful when re-aging a credit card account through a debt-management plan with a debt counselor or debt-management company. When you enroll in a debt-management program, you write a monthly check to the credit-counseling agency. The agency pays your creditors. In a typical debt-management program, a card issuer will charge a lower interest rate, stop charging late fees and re-age the account, making the account current.

Only sign on for a debt-management plan with a company you know and trust. A slew of credit-counseling and debt-consolidation companies looking to make a quick buck by preying on stressed-out, financially vulnerable consumers have opened shop. Some companies are guilty of shoddy service and sky-high fees. Others are out-and-out scams. The last thing you want to do is blow your chance at re-aging by agreeing to an ill-advised debt management plan or doing business with a company that's not on the up and up.

Francis Vayalumkal is a loan officer at Market Street Mortgage and can be reached at (813) 971-7555 or via e-mail at [email protected]

	Nitesh Patel

MONEY AND FINANCE IN A LEAGUE OF ITS OWN VARIABLE ANNUITIES OFFER A WEALTH OF BENEFITS

By NITESH PATEL

Although it’s possible to outlive the assets in other retirement savings vehicles, one cannot outlive the income stream of a life income annuity – one of the most appealing, yet overlooked features of an annuity(1). Another plus: you can make unlimited contributions into a personal non-qualified annuity with after-tax dollars while earnings accrue tax-deferred until withdrawn at retirement. Variable annuities are designed to be long-term investments to meet retirement and other long range goals so keep in mind that money withdrawn before age 59 ½ could incur a 10 percent IRS penalty.

With all the investment choices available today, why should investors put money into a variable annuity as opposed to other investment alternatives? And, how does current tax legislation factor into the equation? As a retirement savings alternative, variable annuities offer a multitude of advantages, including:

• - tax-deferred growth(2)
  - a guaranteed benefit at death
  - guaranteed lifetime income options
  - portfolio rebalancing is tax-free within a variable annuity
• 
  In addition, most variable annuities give investors numerous combinations of investment choices (stock, bond and guaranteed interest funds) and investment styles. This provides individuals the opportunity to diversify their portfolio in order to lessen the effects of market volatility(3).
  

The Case for Annuities
The current tax legislation (passed in 2003) reduced the tax rates for capital gains and dividends. Here are items people should keep in mind when considering annuities:

Long-term financial growth. Most investors’ financial strategies focus on long-term growth, especially when preparing for retirement. On one hand, under current law, the tax treatment of dividends and long-term capital gains is only 15 percent. On the other hand, the current tax law is scheduled to sunset in 2011 at which time the long-term capital gains tax rate reverts back to 20 percent and dividends will again be taxed at ordinary income tax levels. Therefore, investors take note: the effect of short-term tax changes should not be over-weighted in developing a long-term investment strategy.

Diversifying your portfolio. Another consideration is the ability to fully diversify your investment without incurring the additional cost of missing breakpoints. Some companies offer only one predominant investment style, depending on their investment philosophy. Because growth and value-oriented investments perform differently over time, mixing styles in a portfolio may help lessen the overall impact of market volatility and increase investor confidence. However, employing more than one investment style may require investors to spread their money across multiple channels. Investing across fund families to diversify among multiple manager styles may mean missed breakpoints and the opportunity to reduce acquisition costs. Conversely, variable annuities allow investors to choose from a variety of fund choices and diversify among multiple investment firms, portfolio managers and investment management styles. This allows you to benefit from such styles as growth and value at the same time without having to meet separate breakpoints.

Maintaining the right asset allocation. Many financial experts recommend rebalancing investments to match your financial objectives at least once per year. Because asset classes perform differently, a portfolio can stray from its original asset allocation over time. Under current tax law, an annuity allows for asset transfers without tax implications. Many variable annuities offer a rebalancing feature that keeps the annuity’s asset allocation consistent with the investor’s risk profile by automatically reallocating assets at regular intervals such as monthly, quarterly or annual.

Based on the ever-changing nature of investment alternatives, tax legislation and each investor’s personal situation, it’s a good idea to talk with a financial expert to decide which investments are most appropriate for one’s particular financial situation. It also is important for investors to note that the choice of one type of investment does not exclude another. For many, having both taxable and tax-deferred investment options within one’s total investment portfolio may be beneficial.

1, 2 2005 Retirement Confidence Survey, Employee Benefit Research Institute
3 Fidelity Investments Retirement Transitions Study, Released March 8, 2005

Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail [email protected].

	Dr. Ram P. Ramcharran

GET CONNECTED

By Dr. RAM P. RAMCHARRAN

You see, LaBell is a parent with two children having disability. He and his wife have worked tirelessly educating parents on the programs and resources available to them. The couple’s hard work has now paid off. LaBell has informed me that his 18-year-old autistic son will be entering Florida State University in fall. Not only will his son be going to college but he also has earned the Florida Bright Futures Scholarship. His son scored over 1300 on the SAT and LaBell attributes success to the hard work of people in the Family Network on Disabilities of Florida.

I strongly suggest that you explore the possibility of getting involved with the Family network because this could be an extremely good way to gain some valuable help with the disability of your child. This is a place to share your emotions, success and pitfalls with other families who may be experiencing similar situations.

In existence for 20-plus years, the Family Network on Disabilities of Florida has been an excellent source of information for families. The organization is a statewide network of families and individuals who may be at-risk, have disabilities or special needs and their families, professionals and concerned citizens.

Its mission is to ensure through collaboration that Floridians have full access to family-driven support, education, information, resources and advocacy and serve families of children with disabilities, newborns through 26 years of age, who have the full range of disabilities described in Section 602(3) of the Individuals with Disabilities Education Act (IDEA).

It helps families get in touch with various agencies or institutions that will specifically help them with their concerns. At the same time, it offers workshops on various topics such as coping with stress, financial planning, setting up special needs trust and how to network with others in similar situations. The network also helps with formulating policy for special needs and much more.

If you are not familiar with this organization, I urge you to connect with them. You can click on www.fndfl.org, visit the network at 2735 Whitney Road, Clearwater, FL 33760 or call (800) 825-5736 or (727) 523-1130.

	Kamlesh Patel

CRUNCHING �EM NUMBERS

By KAMLESH H. PATEL, CPA

IRS RELEASES VEHICLE CREDITS AND LIMITS

If you’re planning to buy a new vehicle this year, you may be interested in two recent IRS announcements.

• Tax credit for hybrid vehicles. Last year’s tax deduction for the purchase of a hybrid vehicle was replaced this year with a tax credit. The credit may be as much as $3,400, with the exact amount depending on the type of vehicle and the level of fuel-efficiency. The IRS has certified credit amounts for the following hybrid vehicles:

• $3,150 for the 2005 and 2006 Toyota Prius.
• $2,600 for the 2006 Toyota Highlander Hybrid.
• $2,200 for the 2006 Lexus RX400h.
• $2,600 for the 2006 Ford Escape Hybrid; $1,950 for the 4WD model.
• $1,950 for the 2006 Mercury Mariner Hybrid.
• $2,600 for the 2007 Toyota Camry Hybrid.
• $1,550 for the 2007 Lexus GS450h.

To qualify for the credit, you must be the original owner of the vehicle, and to get the full credit amount, you must purchase the vehicle before the manufacturer sells 60,000 hybrids.

• Depreciation limits for business vehicles. Each year, the IRS issues depreciation limits for business cars first placed in service that year. The 2006 limits were recently released.

For passenger cars, the limits are $2,960 for year one, $4,800 for year two, $2,850 for year three, and $1,775 for each year thereafter until the cost is fully depreciated.

For trucks and vans first placed in service in 2006, the limits are $3,260 for year one, $5,200 for year two, $3,150 for year three, and $1,875 for each year thereafter.

Electric vehicles first placed into business use this year are limited to $8,980 depreciation for year one, $14,400 for year two, $8,650 for year three, and $5,225 for each year thereafter.

If you would like more information about taxes before you purchase a personal or business vehicle this year, please give our office a call.

TAKE ADVANTAGE OF SOME SUMMERTIME TAX-CUTTERS

Make your summertime fun even more enjoyable by adding tax savings. With some advance planning, you can make it happen. Here are some tax-saving ideas.

• If you have summer travel plans and the primary purpose of your trip is business, you can deduct all the travel costs to and from your business destination and all other business-related costs even if you add on a few extra days for pleasure. You can’t deduct costs related to the pleasure portion.

Including a spouse or friend on your trip is permissible, but you can’t deduct the additional costs for that person. For example, the added cost of a double room over a single room won’t be deductible. Be sure to keep track of your itinerary, as well as your receipts, so you can clearly establish the business purpose of your trip and support your deductions.

• If you own rental property, the expenses you incur to inspect your investment are deductible. These would include your travel expenses, lodging, and 50% of your meals.

• If you itemize your deductions, you can deduct the mortgage interest and property taxes paid for your vacation home. A boat or RV can qualify as a vacation home if it has sleeping quarters, cooking facilities, and a bathroom. If a retreat also serves as rental property, you can control your tax deductions by changing the number of days you use it for vacation.

• If you and your spouse work, the cost of sending your children to a summer day camp may qualify for the child-care credit.

• If you own a business, consider hiring your child for the summer. Your child can earn up to $5,150 tax-free this year, and your business is entitled to a deduction for the wages paid. You must pay your child a reasonable wage for the work performed. If your business isn’t incorporated, a child under 18 is not subject to FICA taxes.

UNDERSTAND THE TIME VALUE OF MONEY

If you were offered the choice of being paid $100 today or $100 a year from now, you would probably choose $100 today. After all, even at today’s lower interest rates on savings accounts, your $100 could earn $3 or more over the next year. This simple example illustrates an important concept: that the value of money changes with time. A dollar received today is worth more than a dollar received a year from now – and is worth even more than a dollar received five years from now.

There are at least three reasons why today’s dollar is more valuable. First, it can be invested to earn interest or dividends, as in the example above. Second, future dollars may have their value eroded by inflation. Third, the further into the future a payment is due, the greater the risk or uncertainty associated with receiving it.

The concept of the time value of money is important in many personal and business financial decisions. For example, you may have to choose between receiving a lump sum from a pension plan or a stream of payments in the future. In your business, you may be deciding whether to buy a new piece of equipment, which will bring increased revenues in future years. Both of these decisions involve comparing the value of present and future dollars.

Finance professionals have developed a technique called “present value” for making such comparisons. The technique involves “discounting” the value of future dollars to reduce them to their equivalent value in current dollars. If you’re about to enter into any financial arrangement that requires you to pay money over time, or entitles you to receive periodic payments, time value could be an important issue. Before you sign on the dotted line, let us help you work through the numbers.

Kamlesh H. Patel, CPA, can be reached at (813) 289-5512 or (813) 846-5687 or e-mail [email protected] or [email protected].

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	Brian Stephens

WILL YOUR BUSINESS BE READY WHEN YOU ARE?

By BRIAN STEPHENS

Many factors affect the value of a business but ultimately the buyer has to be convinced that the business is worth the investment dollars. But the total dollars earned by a business accounts for only part of the reason buyers invest in buying businesses.

Anything that appears in Khaas Baat cannot be reproduced, whether wholly or in part, without permission. Opinions expressed by Khaas Baat contributors are their own and do not reflect the publisher's opinion.