Great month in the debt reduction department!!! Our goal was that we would pay $1,264 toward our debt, with a net will be $875. With our huge tax return, we were able to pay off over 17% of our current debt this month! Whoooo-hoo!
We were only about $300 over budget this month, but this was again mostly due to the fact that I started a new diet program and we are purchasing a few specialized foods.
This has been one of those days that I have been waiting for – a day where we were able to make a significant dent in our debt!
I never thought I’d be happy that our AGI (Adjusted Gross Income) went down from last year, until I realized that our tax bill was also less than last year (even though our withholding was about the same) and that it would result in a large federal refund. So once we got the notice from the IRS and the state about processing our returns, we started planning how we would be applying the money to our debt (this is where it gets exciting).
So, today, we paid off:
ALL of our back TAXES
THREE Credit cards
We are now down to 4 debts total! I’ll post the real numbers at the end of the month, but we just paid off over $6,000 of debt in one fell swoop 🙂
This feels absolutely amazing and I’m so glad we made the tough decision to follow through with our debt reduction instead of what we might have done in the past – buy fun things and go on vacation.
Now, MSN Money tells me that our debt-free date is…Jan 24, 2012 – that’s less than two years!! But I tell you what; I think we can do it in less – I think we can get there by Nov 24, 2011 – 1 year, 8 months.
Last night we finished up our taxes and pressed “send” on the e-file button in our tax program.
We *should* be getting over $6,000 in refunds this year, which should take out the remainder of our tax bill and (hopefully) two of the credit cards!
Obviously, we didn’t expect that our Federal return was so big for 2009, and I know that we were trying to make sure that we had some refund coming our way, so that we could apply that towards our tax debt, but we had no idea that some of the deductions and credits that fell in our favor were going to apply.
Since I know I can’t *really* have the interest on the money that the GOV has been holding for me, I think we should be taking a closer look at what is happening in our income this year and see if we can reduce just a little bit of our withholding so that the rest of the year is a little bit easier on the budget.
Although, I have to say, it is nice to have a big chunk of money to just put toward the debt-reduction – I can’t wait to see our next debt-free date (I hope to have that ready in the next two weeks)!!!!
Back in January of 2009, as we were deciding if we were going to file bankruptcy or not, we had been talking to my husband’s creditors, which was really easy to do as they were calling us at least once every day. I encouraged him to let them know that we were close to filing and to ask them if they would be willing to 1) drop the principle, and 2) drop the interest rate. One of our creditors proposed a significant settlement deal that was really hard, but resulted in a cancellation of debt.
At the time, I was advised by a family member to look out for tax forms to include in our 2009 tax return, but that we shouldn’t be concerned about it affecting our taxes. This family member happens to work very closely with the IRS, so I trust them to steer me in the right direction.
When I started working on our taxes last month, I had forgotten that we were advised to take care of that debt cancellation form in a specific way. Luckily, when I got it in the mail, I talked to the family member and she clarified that:
If you are insolvent at the time that your debt is cancelled, you do NOT have to include the cancellation in your income (*)
You have to fill out a special form (IRS Form 982 – Reduction of Tax Attributes Due to Discharge of Indebtedness) and have records that show that you were, in fact, insolvent at the time of cancellation. In our case, were were (sadly) VERY insolvent – we had over $60K in debt and no real assets (under $20K worth of personal property), so we qualify for this.
So, we are able to take the $4,500+ that was written off and leave it out of our income, which helped to make our potential tax return even greater (yahoo!)…
We didn’t include this amount in our starting amount (and some of out other debts), because we started the blog after we had already started paying off our debt, so the reality is that we actually started this journey at over $70K…yikes… but to know that we have reduced our debt by more than $30K in a year – that tells me that we can get to the end…
* I am not a tax advisor and every person’s situation is different. Consult your tax professional for information about your taxes.
Good month in the debt reduction department!!! Our goal was that we would pay $1,260 toward debt, with a net reduction of $890. And we were able to beat our reduction by over $10!
We were about $750 over budget this month owing to another (arggggh) truck repair, as well as some elevated utilities that we needed to get caught up. We were only about $160 over on our monthly food budget, which is a marked improvement over some other months, but this was mostly due to the fact that I started a new diet program and we had to purchase a few specialized foods.