6 Things You Can Do To Protect Yourself from the Recent Equifax Hack

It’s happened once again. On Thursday, September 7, 2017 Equifax reported that they had fallen victim to a cyber-attack. Headlines were plastered with the news of customer information being compromised. An estimated 143 million people may have been affected as result. You can read more about the details of this specific attack here. To find out if you have been impacted you can check here. Understand that if you take any offers from Equifax you may waive your rights in the future to pursue them for damages that may arise from this situation.

How does this affect the average person?

For starters, personal information may now be available to criminals or publicly exposed for the world to see. That personal information may be sold on underground markets and can include names, addresses, phone numbers, and even social security numbers. Just a few pieces of the right information would be enough for anyone to open credit cards, utility accounts, bank accounts, or even allow someone to steal your physical identity. In short, if you receive a notice that you’ve been affected, take the news seriously.

What can be done?

It’s hard to imagine that your personal information might be exposed. Not only that, but it’s scary to think of what might happen after the fact. There are a few things you can do immediately to help prevent any ill-fated effects of compromised information. Here are some tips about what you can do to combat any issues:

#1

Consider setting up credit monitoring with all three of the credit bureaus. The three bureaus are TransUnion, Experian, and Equifax (coincidentally enough). These three bureaus keep a close eye on your credit and are likely to have any credit-related activity reported to them including opening and closing of accounts as well as delinquent, late, or defaulted payments for liabilities. Once credit monitoring is setup you can breathe a little easier knowing you’ll be notified of any activity. Note that these services may or may not be free of charge, and personally I’m not sure I’d recommend anything Equifax has to offer (since they are the reason I’m even writing about this topic). There are also third party identity theft monitoring services such as LifeLock that can monitor your credit and other identity related activities.

#2

In lieu of (or in addition to) setting up credit monitoring you may also want to pull a credit report from each agency. It is a best practice to monitor your credit report on a continuous basis regardless but in times of heightened risk it might be a good idea to grab a copy and make sure there is nothing questionable on your report. If you do find something you disagree with then you can start the process to resolve issues immediately. By continuously monitoring your credit it should reduce the impact from issues in the future. Keep in mind that any unfavorable credit report effects due to a recent compromise of information may take months (or even years) to show up since your information may not be used immediately after the attack.

#3

Alert any banks, credit card companies, investment firms, accountants, and any other third party financial service providers that your information has been compromised. This is helpful in enforcing safeguards to validate your identity when attempting to make transactions or do business with these parties so that they can ensure only you are the party being dealt with.

#4

Consider changing passwords (and login IDs) to sensitive websites. This seems to go without saying, but whenever there is a breach of information it’s always a good idea to change your password to prevent unauthorized use of your information.

#5

Monitor your bank accounts and credit card activity more closely. You can do this by downloading the smartphone apps offered by your bank and credit card company and/or setting up spending notifications by text/e-mail. By setting automated alerts you’ll at least see activity for large transactions and can react very quickly to recover any lost money. Check out my blog about using credit vs. debit at checkout to further reduce the risk of financial compromise.

#6

Last but not least, make sure you file your taxes on time. With the information that may have been stolen anyone could file a tax return for you. It is easy for criminals to craft fictitious tax returns in the hopes that they will receive a refund check, leaving you holding the bag at tax time for any money paid out. There are safeguards set in place at the IRS and state levels to ensure proper handling of all tax returns, but there is always the risk that something slips through the cracks. In the perfect storm of identity theft a criminal may have everything they need to file a legitimate tax return for you and direct any refunds to their accounts. If you do fall victim to fraudulent tax reporting then you should consult with your tax advisor (or find one if you are a self-preparer) to help you address the issue. Even if you don’t meet the minimum requirements to file you should still file a tax return annually.

Criminals are becoming more sophisticated with how they steal from others. The above steps are a starting point; however, they may not be all encompassing since everybody’s situation is different).  I would urge anyone who feels they have fallen victim to a data breach to do what they can to protect themselves. Feel free to post any other tips in the comments section below!

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Cancelled Debt and How It May Affect You

Sometimes things happen in life that are outside of our control. Medical bills, job loss, and catastrophic uninsured damage to a home are just a few things that could happen to each and every one of us. When unwelcome events like these happen it may make paying bills harder and can ultimately lead to losing a car or house in exchange for debt forgiveness. Although you would be relieved of your obligation to pay back your debt, there is another party waiting in the distance to collect; the IRS.

What is Cancelled Debt and How is it Reported?

Cancellation of Debt "COD" income, as the IRS defines it, is any debt for which you are personally liable, which is forgiven or discharged for less than the full amount owed. The debt is considered canceled in whatever amount remains unpaid. Creditors are responsible for reporting cancelled debt to taxpayers for amounts $600 or greater on form 1099-C. Taxpayers who receive COD income (regardless of whether or not they receive a 1099-C) must report the cancelled debt on their income tax return and pay income tax for the amount forgiven.

What to Do if You Receive COD Income

Like anything else tax related, don’t ignore any tax forms you receive, including a 1099-C. Remember, anytime you receive a tax document from a third party, there is a very high likelihood that the IRS has also received a copy. The IRS is expecting that you will report all tax information, and if you don’t, they’ll correct your return for you and throw on some penalties & interest for their trouble. Even if you don’t receive a 1099-C, you are still responsible for claiming any COD income on your return.

There are however some exceptions and exclusions as to when COD income is taxable (listed below). Visit the IRS website for more information about each.

Exceptions (do not reduce tax attributes)
1) Gifts, Bequests, Devises, and Inheritances
2) Student Loans
3) Deductible Debt
4) Price Reduced After Purchase
5) Home Affordable Modification Program

Exclusions (may reduce tax attributes)
1) Bankruptcy
2) Insolvency
3) Qualified Farm Indebtedness
4) Qualified Real Property Business Indebtedness
5) Qualified Principal Residence Indebtedness

Before you get too excited, it’s important to understand that the exceptions and exclusions listed above exist in a very narrow set of circumstances and the rules have changed numerous times over the last decade. Discuss any tax ramifications with your tax advisor if you have any COD income. I will go into more detail on two of the most common types of COD income in the next section.

Mortgage Relief and Consumer Credit

The most common types of COD income include Qualified Principal Residence Indebtedness and consumer credit. For taxpayers whose primary homes are foreclosed or sold in a short sale, they are required to report COD income, but may not be responsible for paying income tax on the COD income they receive (effective through December 31, 2016 as of the time of this writing). This is thanks to the Mortgage Forgiveness Debt Relief Act of 2007. The good news here is that there is talk (as of the time of this writing) to extend the Qualified Principal Residence Indebtedness relief permanently for all future years.

For consumer credit (such as credit cards), taxpayers can almost always expect to pay income tax on any COD income they receive, unless one of the exceptions or exclusions from the above section apply. In instances where a car or boat is repossessed and a loan is forgiven there may also be tax consequence. These are common examples of when taxpayers are blindsided. Remember this if you ever need to negotiate with your credit card company to reduce an amount due.

One more note of caution. Although there are exceptions and exclusions at the federal level, some states may still require that income tax be paid on COD incomeregardless of the federal exclusion. Again, consult with your tax advisor to whether this pertains to your situation or not.

How Much Will I Owe?

If you find yourself faced with a situation where you know you’ll have to pay tax on COD income then it might be wise to plan ahead. COD income is taxed at your marginal income tax rate. So for example, a taxpayer with COD income of $10k in a 15% tax bracket (plus state) will face at least $1,500 in additional income tax related to the COD income. In a separate example, if you had a car with a $20k note on it and you returned the vehicle worth $18k and were forgiven for your debt, only the $2k difference would be taxable at your marginal tax rate. What these examples tell us is if you’re going to attempt to have debt cancelled or forgiven, it would be ideal to do it as early in the year as possible to afford you more time to save up to pay your tax bill.

Debt forgiveness has more than just an income tax effect. It can also impact your credit score. Sometimes it may make more sense to get out from under a loan rather than try to endure the hardship of paying it back. In those cases, COD income and lower credit scores may be worth the trade-off. However, given all of the adverse consequences of debt forgiveness, taxpayers should consider debt forgiveness as a strategy only as a last resort.

I hope this was informative to readers. It’s not common that taxpayers receive COD income but it is a growing trend and more people are finding themselves faced with the issue. Feel free to leave comments or questions below!

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The Difference Between Selecting Credit vs. Debit at Checkout

Self-check, Fast Lane, or Register 4? Insert or Swipe? Credit or Debit? All of these questions play a role in our shopping experiences each day. We don’t think about them much but as times change and technology continues to advance we will continuously be faced with new payment options and methods as consumers. This week I’d like to reflect on how these split second decisions can affect our shopping experience and what you should know about the consequences of each decision.

Breaking Down the Options

There are three questions I mentioned above that aren’t just rhetorical. The first deals with time. Do you want to put in the effort yourself, bag your own groceries, and possibly save time in the long run? Or do you want someone to do that work for you while you stand in line behind people with full carts? What is your time worth and what are you trying to get out of the shopping experience?

The second deals with security. Many large retailers have updated their systems with the chip technology (reference the Target and Home Depot credit card hacks a few years ago). Chip technology? You know, that annoying new process, where you insert your card at checkout instead of swiping it? Unfortunately there are also quite a few retailers where chip technology isn't setup yet. Luckily this doesn’t have much impact on consumers, minus those awkward moments where you swiped instead of inserted your card, or vice versa.

The third and final question from above affects your security, your future spending, and your time. Credit or Debit? Which are you supposed to choose? You probably have both types of cards in your wallet, possibly with the intention to use each for certain purposes. Or maybe you only have a debit card, but you know the machines and the cashiers still ask you how you wish to use your card. What's really the difference? Let me explain.

Credit vs. Debit

The major difference between choosing credit vs. debit is how the money is taken out of your account. A debit card is linked directly to your bank account; therefore, as soon as you make a purchase it is only a matter of hours before the charge is deducted from your account. When you pay with a credit card you decide when you wish to make the actual payment on your card, usually when your bill comes due in a few weeks. MasterCard explains it in the following way: "When you use a debit card ... the transaction is completed in real time ... you authorize the purchase ... and the money is immediately transferred from your bank account. With a credit card, or using a debit card as credit, it's an offline transaction." The difference is that an offline transaction on a debit card means that the funds are not transferred for up to 2-3 days which gives customers time to confirm that the balance is present in one's account. In addition, once you enter your PIN number for a debit card transaction, all of your banking information is available for someone to steal and use.

Prevention of Overcharge Fees

If your card information is compromised, and you paid with a debit card at checkout, there is a high possibility that you could be looking at significant insufficient funds fees. According to an article posted by CNN "under federal law, your personal liability for fraudulent charges on a credit card can't exceed $50. But if a fraudster uses your debit card, you could be liable for $500 or more." In addition to the fees you may need to pay, it could take longer to receive credit for the money that you did not authorize to be spent if your debit card is the one compromised. CNN goes on to say "If a crook uses your debit card, not only can they drain your account, but it can take up to two weeks for the bank to investigate the fraudulent charges and reimburse your account." But, "if someone uses your credit card, the charge is often credited back to your account immediately after it's reported.” The use of a credit card gives you ample time to check your statement charges and determine if each transaction was made by you prior to owing the money on questionable charges. You have more time to report the fraud and need less time to make up for it.

What if I Don't Have a Credit Card?

As a general rule, when given the option, try to sign instead of providing your PIN number at registers and ATMs, and if a machine looks questionable, do not use it! Use ATMs only from reputable banks to avoid the risk of third party theft. Additionally, scan your account activity on a regular basis and report any unauthorized to your bank right away so that you have ample time to take action and protect yourself from any future problems! Finally, if you must use the debit option, try to keep as little cash as possible in your checking account. This may help mitigate how much cash may be stolen from your account in the event fraud does occur.

Have an experience or story to share about your debit or credit card being compromised? Or maybe you have additional tips & tricks you’d like to share. Feel free to post them below!

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Best Tips on How You Can be the Top Dog on Craigslist (Like Founder Craig Newmark Himself)

One of my favorite ways to pick up a little cash on the side is by reselling old stuff online. This week I’m sharing some tips I’ve picked up along the way for making the best deals on Craigslist. Some of these tips can also be used when working on other online marketplaces such as  eBay, Facebook Marketplace, Next Door, and Letgo (to name a few).

Online marketplaces have become wildly popular in recent years, and understandably so. We all have things we no longer want and now we can grab a few bucks by selling them to someone else. Craigslist is arguably one of the most well known sites, and since most business can be conducted there anonymously (no profile or personal information is usually needed) it’s even more attractive to buyers and sellers. Below are my tips for navigating Craigslist like a pro.

Safety

Let’s start with safety. I think we all know that there are some shady people roaming the Internet nowadays and because of that safety is critical when making deals in online marketplaces. My recommendation is to always conduct transactions during the daytime in public places (think mall or grocery store parking lots). I’ve also come to realize that there is safety in numbers so bring a buddy if possible. If you must sell something from your home or office, such as furniture or appliances, then make sure you aren’t alone to reduce the risk of an incident and allow only those that you feel comfortable with in to get what they're buying.

Privacy

If you value your privacy as much as I do then you’ll be willing to take these simple precautions to protect yourself. Start by doing yourself a huge favor and not linking your accounts to Facebook. On certain sites such as Facebook Marketplace and eBay, your identity will need to be verified and this can’t be avoided, but for other sites (like Craigslist) you can usually disclose as little as you’d like. For the other sites that don’t require too much ID verification, you can also use a junk e-mail account to conduct business. When I say “junk e-mail” I mean an account specifically for related to your online marketplace activities. My recommendation is Gmaill. Why Gmail? Not only is it the best e-mail provider (in my opinion) but you can also link a Google Voice phone number to it; which is my next privacy tip. With Google Voice you can obtain a local phone number to send and receive text messages and phone calls while still using your main phone without ever having to give out your personal number. The best part is that it’s free! What’s also reassuring is that if you find yourself interacting with a crazy person then you can just dump the number you gave them and get a new one! I highly recommend this for anyone who participates in online marketplace communities.

Responsibility

I know, there's a theme developing here, but I can’t stress enough how important it is to be responsible. When you sell your items it’s important to be honest about them. Do your best to take several high quality pictures (good staging helps immensely when selling) and describe the condition and any known issues or flaws in detail. Next, price your items competitively by comparing to other similar products online, and provide the easiest way for people to contact you. Finally, always reply to interested buyers, even if it is to decline an offer. This is polite and will likely keep anyone from badgering.

Bonus tip: If you’re selling used electronics be sure to wipe them clean of your personal information! Search online for guides on how to safely and securely reset electronics to factory condition. If possible, remove hard drives from computers and dispose of them properly.

If you’re a buyer you should always do your homework before buying goods online from another person. Research price based on condition, usage, and age, and ask sellers all questions you have before presenting a fair offer. Do not low-ball sellers; it’s offensive and annoying. Be sure to inspect items thoroughly before paying and if an item presents worse than a photo or description don’t be afraid to politely ask for a slight price reduction on the spot. Personally, I’d recommend hashing out money matters up front so everyone is on the same page. After all, we’re here to make money, not friends and those conversations can quickly get awkward in person.

Serious Inquires Only!

Buyers, this one is for you. Be serious when reaching out to sellers. It can be a huge undertaking to get an item listed properly online for sale, and nothing is more frustrating than receiving cryptic messages from buyers or hearing about flaky circumstances. If you contact someone with interest, and realize afterwards you’re not interested, then let them know! It takes no time to do so and is probably the nicest thing you can do. This is especially necessary when you ask someone to hold something for you. Treat others as you would like to be treated (with kindness) and these experiences can go so much smoother.

A note to sellers: in the world of online reselling, everyone wants a deal. Buyers expect to get a deal on everything. Simply put, if you’re a seller, always manage your expectations on your price and be prepared to come down, even if slightly. The market will always set the price for you, even if you’re selling solid gold bars. There are exceptions of course, but it’s best to be prepared to move your price. Buyers, to reiterate, be fair with your offers. Low-balling is rude and unnecessary. If you can’t make a deal then just move on!

Cash is King

Finally, we get to the money. When it comes time to make a deal, cash is king. Never take a check or money order. Stay away from those who want to ship goods or collect payment via PayPal. I’d even walk away from a credit card transaction or payment via Venmo, Google Wallet, Apple Pay, etc. Any transaction performed electronically can be recalled or cancelled after the fact. Do yourself a favor and only accept cash as payment & do not release goods until you have cash in your hands. If you can, try to meet people with a few bucks to make change (a couple $5s and a $10 usually does the trick). You’d be surprised how helpful this can be, especially when people claim all they have is a $50 and a $20 for a $60 item. Don't get hassled, bring a couple bucks to make change. I also recommend trying to price items in $20 increments as almost every ATM will distribute cash in that value and people can grab those bills on the spot if necessary.

One final tip: Always trust your gut! If a deal is “too good to be true” or “doesn’t feel right” then move on. Your safety and the possibility of saving or making a few bucks aren’t worth the risk.

Have tips to share or a story to tell? Do so in the comments below!

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Why You NEED a Budget

I have a client I met about 5 years ago, and at that time she was broke. Worse then that, she was in a bad relationship, and without her other half she would not have been able to pay her bills.

The first thing I noticed when we met to talk about her finances, aside from her lack of funds, was that she had no budget or system to create one. So we put one together.

Needs

The budget was simple. We started by setting up a spreadsheet (think Google Sheets) using her weekly paycheck amount and her average weekly grocery and gas bill. Then came her average monthly expenses: cellphone, TV & Internet, mortgage payment (which included escrowed expenses for property taxes and insurance), car insurance, and utility bills. She went through her bank statements to get actual amounts so we knew we had real information to work with. What good is a budget if the amounts aren’t accurate?

It turns out she was earning barely enough to cover her necessary expenses.

and Wants...

Then we covered the less critical expenses such as dining out, movies, clothes (for her and her two school-aged children), and pet expenses for her dog. Forget vacations, she hadn't traveled in years and knew it wasn't in the cards. But she did admit to buying herself new clothes about once a month (the kids more so when they needed them). She also had a relatively healthy dog that only needed an annual visit to the vet so his expense was minimal (aside from food which was also negligible).

Once we added her wants and needs into her budget, it was clear she could not afford everything on her own. However, with the extra support of her not-so-great boyfriend, she could more than afford her current lifestyle.

But she wanted out of the relationship.

Small Potatoes

After we put it all together, I was able to step in and do what I do best; analyze. The first thing to go was her monthly habit of clothes shopping. We agreed she would need new clothes from time to time, but not every month. By cutting this monthly habit she was able to save money and also became more aware of seasonal sales to get really good deals (Black Friday anyone?).

Dining out and going to the movies were also off the table. For the cost of taking her kids to the movies every month, she could sign up for Hulu and Netflix and have endless content choices for less. She also cut her TV package down to internet-only because she now had Hulu and Netflix for TV & movies. Some might argue the lack of content choices so we added a few bucks per month for a weekly visit to her nearby Redbox.

Big Ticket Items

Despite these cutbacks, we still hadn't made the progress she needed. So next, we reviewed her insurance policies. Guess what? She hadn't thought to combine her home & auto policy. As soon as she did (and changed insurers) she started seeing big savings.

Where it gets better is on the mortgage. She had been paying pre-recession interest rates (think 6.5%) but during our meeting (circa 2011), rates were at about 3%. We worked with a local bank to refinance her mortgage and dropped her payment hundreds per month. We even cut the mortgage from a 30-year term to 15-year term and the payment was still less with the added benefit that her house would be paid-off much faster.

Make It Happen

Not soon after her mortgage was refinanced she was able to give Mr. Not-so-Wonderful the boot. Even without him she was able to pay her bills and save a little for emergencies. The greatest part of this experience was that she was able to declare her personal and financial independence by changing some of her habits implementing a budget. Today she is doing very well; she has established college funds for both of her children and has built up a nice emergency fund. She has even been able to re-introduce some of her wants back into her lifestyle and is less stressed out about finances because she now uses a budget to plan.

What are some methods you use to budget and stay in the habit of budgeting? Add them in the comments section.

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