Liz Weston
Money Talk
Keeping debts secret from spouse is ill advised
June 14, 2013
Dear Liz: I have three credit cards that are in my name only, plus a small loan at my credit union. My husband did not sign for any of these, nor does he know the extent of my debt, which is about $10,000. If I should die before I can get them paid off, will he be responsible for my debt?
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Figuring out best plan to save for college
June 7, 2013
Dear Liz: My husband and I have been putting 5% and 6%, respectively, into our 401(k) accounts to get our full company matches. We're also maxing out our Roth IRAs.
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How does tenure affect financial planning?
May 31, 2013
Dear Liz: My spouse has tenure at a university. Given that one of us will always be employed, should we change the way we look at the amount of money we keep in an emergency fund or our risk tolerance for investments?
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Split accounts when you and spouse split up
May 24, 2013
Dear Liz: I just finished paying off my last credit card and checked my credit report as I am now separated from my wife. I found we had one joint account that she had not been paying. There are two stretches of five months each of no payment.
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How much cash should you keep on hand for emergencies?
May 17, 2013
Dear Liz: A few years ago I finished paying off my debt and now am in the very low-risk credit category. I have savings equal to about three months' worth of bills and am working to get that to six months' worth. I'm wondering, though, about an emergency that may require me to pay in cash (such as a major power outage that disables debit or credit card systems, or the more likely event that I forget the ATM or credit card at home). How much cash should a person have on hand? Is there a magic number?
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Waiting to take Social Security is usually the best bet
May 10, 2013
Dear Liz: When I was 62, I started Social Security and I'm currently saving half of my monthly benefit after taxes (about $750). My decision to take my benefits early was influenced by a financial columnist who suggested that if I started at 62 and invested half or more of it until I reached full retirement age, the lower early benefits would be matched by the investment returns by the time I'm 85. Is this advice still reasonable?
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Monitor credit accounts to catch dings of all sizes
May 4, 2013
Dear Liz: My husband and I are in the process of refinancing our mortgage. I just received my credit report in the mail, and my score was 724. The report indicated that a delinquency resulted in my less-than-stellar score. When I went to the credit bureau site to see where the problem was, I saw that I had a $34 charge on a Visa last year. I rarely use that card, so I did not realize that I had a balance. As a result, I had a delinquent balance for five months last year. I am sick about this, as I always pay my bills on time. To think that my credit score was affected by something so insignificant is really bumming me out. Is there anything I can do to fix this?
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Lifestyle is keeping budget goal out of reach
April 26, 2013
Dear Liz: My husband and I are recovering from a job loss four years ago. We used up all our savings and home equity. My husband is now employed, but we are struggling to keep ahead even with a salary of about $100,000. I was a stay-at-home mom for the first 10 years of our kids' lives and now I work two part-time jobs to help with our expenses. We are trying to follow the 50/30/20 budget plan you recommend, but can't seem to get our "must haves" — which are supposed to be no more than 50% of our after-tax income — down from 80% to 90%. Most of the rest goes for "wants," such as the kids' dance classes and soccer teams and for cellphones. We're not saving anything although we're trying to whittle down our credit card debt. I have tried several times to refinance our first and second mortgages and home equity line of credit but have found we don't qualify because too much is owed on our modest three-bedroom, one-bath house, which has gone down significantly in value. We also have two car loans that are worth more than the cars, and the insurance is killing us. Amazingly enough, we have never been late on a payment. We just can't get ahead. Did I mention that both kids need braces?
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Fee-only planners can help keep investment costs low
April 21, 2013
Dear Liz: You always mention fee-only financial planners and I'm not sure about the true meaning. My husband and I have a financial planner who charges us $2,200 per year, but we got a summary of transaction fees in the amount of $6,200 for last year. Is this reasonable? We have $625,000 in IRAs and are adding $1,000 a month. In addition we have over $700,000 with current employers, adding the max allowed yearly. The planner gives advice on allocations for these employer funds as well. Are we paying too much for the financial planner? The IRAs seem to be doing well, but the market is doing well (today!).
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Elderly couple's sons pressuring them to get a reverse mortgage
April 12, 2013
Dear Liz: I try to watch out for my neighbors, a married couple in their early 90s. Two of their three sons, who are both in their 60s, want them to get a reverse mortgage. The couple's house is paid off as well as their cars. They pay all their monthly bills with Social Security and his pension. They have a living trust as well. Neither I nor the couple see any reason or upside but the sons are pressuring. Any input?
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Use windfall to save for retirement before paring student debt
April 5, 2013
Dear Liz: What would you suggest that someone do with $20,000 if the someone is closer to 40 than 30, single, with $100,000 of student loan debt and a $250,000 mortgage? My salary is around $100,000 a year. I have an emergency fund equal to six months of expenses and I make an annual IRA contribution since my employer doesn't offer a 401(k) plan. Should I accelerate my student loan payments, since the interest isn't tax deductible for me because my income is too high? Or should I invest instead? If I invest, should I put it all in a total market stock index fund or is that too risky?
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Protecting an elderly mother's assets
March 29, 2013
Dear Liz: Could you advise us on how to protect our 93-year-old mother's assets if she should become ill or die? She does not have a living will or a trust regarding her two properties.
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Sale of possessions may not generate much cash
March 22, 2013
Dear Liz: We are in our 60s and looking to downsize. We're living in an apartment now and don't like it, so we want to buy a small house. Also, our finances took some serious hits in the recent economy and we're trying to rebuild. But in trying to sell our possessions, we're learning that people want us to discount the item beyond belief or even expect to get it for free. People talk about using Craigslist and EBay to generate cash but it looks like a waste of time. Do you know of other options?
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Couple gets taxed for tapping IRA; how to pay?
March 15, 2013
Dear Liz: Help! We've just received devastating news from our accountant that we owe around $11,000 to the IRS and the state for 2012 taxes. The reason for the huge bill is that we cleaned out my husband's IRA to pay for our son's college expenses. My husband is almost 65 and working part time after being laid off, and I'm 61 with a full-time job. What is the best way to pay this bill? Here are the options I can think of: 1) Cash out my three-month emergency certificate of deposit of $12,000 that I've saved to cover expenses in case I get laid off. 2) Take money out of my IRA. 3) Use a credit card check that will be at zero percent for the first 12 months and then will slide to 8.9%. 4) Arrange a payment loan with the IRS. 5) Sell our house in which we have 70% equity. Which is best?
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Are student loans worth it?
March 8, 2013
Dear Liz: I am a junior in college, and I might have to take out a loan my senior year because of financial cuts in the state. Is it really a bad idea to take a loan for college?
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Withdrawals from traditional IRAs can't be postponed
March 1, 2013
Dear Liz: I just turned 70. Must I draw now from my IRA? I still work full time. I heard from one investment company representative that since I work, there is an exemption that I may not have to start withdrawals. Is this true?
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Redirecting money after a loan is paid off
February 22, 2013
Dear Liz: I'll be done paying off my car in a couple of months. What's a good strategy for redirecting that money once it's paid off? Should I use the whole amount each month to start saving for my next car, or would I be better off splitting it up and putting it into several savings "buckets" such as retirement, emergency and my next car? I'm 35, have an emergency fund equal to four months' living expenses and only one other debt, a very low-interest student loan.
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Building an emergency fund can help you survive setbacks
February 17, 2013
Dear Liz: A lot of financial advice sites say you should have an emergency fund equal to three to six months of living expenses. What would be considered living expenses? Should you use three to six months of your net take-home pay or a smaller number? Is three to six months really enough?
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Hazards of having an ex-wife as credit card joint owner
February 10, 2013
Dear Liz: My boyfriend is deployed. I have his power of attorney, and during his deployment I have paid off all of his credit card debt. The accounts now need to be closed because they are ones that were acquired with his former wife. I know you say that it will hurt his credit to close accounts, but I'd rather close them because they're tied to his ex.
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Closing account won't help credit scores
February 3, 2013
Dear Liz: I'm 22 and a graduate student with only one year left before I enter the "real world." I have four credit cards — one store card, two Visa cards and one MasterCard — only one of which carries a balance. I want to make the best decisions regarding my financial health. Which would be better for my credit: closing the account that's the oldest (opened when I was 18) but that will no longer be used because of its small credit limit and high interest rate, or leaving the line open?
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Use care in renegotiating old debts
January 27, 2013
Dear Liz: I paid all of my old collection accounts except for two, which now are beyond the statute of limitations. I would like to find the best way to negotiate with the collection agencies without getting sued. Even though the original delinquency was over four years ago, the agencies are reporting these every month as current debt, which is really hurting my credit score. My intent is to offer a lump-sum settlement amount if they will remove the report from my credit file with the bureaus, or alternately in return for a "paid" notation on my report file. However, I cannot afford to pay the amount they say I owe.
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Should a co-signer settle with collection agency?
January 20, 2013
Dear Liz: My daughter co-signed a student loan for a friend who failed to pay the debt. Now my daughter cannot refinance her home because this loan appears on her otherwise very good credit reports. She has been getting calls from a collection agency.
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Equity-indexed annuity sales pitch is too good to be true
January 13, 2013
Dear Liz: Recently, someone from an insurance company proposed that I stop investing through my 401(k) at work and instead invest in his insurance company contract with after-tax dollars. He claims the funds would be guaranteed so that I would never lose principal, although there would be a cap on how much I could make in any given year. His claim is that it is better to forgo the tax deduction I would get from my 401(k) contributions so that I can take the money out of this contract tax-free in 20 or 30 years. I think I am too old for this program (I am 61 now) but I thought it might be appropriate for my daughter when she enters the workforce in a few years.
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Don't let mortgage debt wreck retirement
January 6, 2013
Dear Liz: I have a first mortgage with a current balance of $32,000 at 5.625% interest. This will be paid off in about 24 months, based on regular payments plus $200 a month extra I am paying on principal. I have a home equity line of credit with a balance of $200,000 at 3% interest on which I am paying interest only ($490) monthly with an occasional principal payment when I can afford it. Between the two mortgages I am making payments of about $1,950 per month.
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Right time to buy a home goes beyond money
December 30, 2012
Dear Liz: I am 28 and single with no children. I graduated from law school a few years ago and have a relatively stable job at a small law firm. I had previously thought I would wait to buy a house until I'm married, but now I don't think I should assume that will happen. Since a mortgage in my area would be roughly equivalent to monthly rental payments, renting seems like a waste of money. But the idea of being responsible for major house repairs is a bit daunting. Is this a legitimate concern? What should be the major factors to consider before buying property? How much should I have saved before I buy a house? And is a condo as bad an investment as I hear?
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Lenders may forgive disabled borrowers' student loans
December 23, 2012
Dear Liz: We have a family member who recently was approved by Social Security for a complete disability claim. This person will never work again but has an outstanding student loan. The lender has a formal mechanism to apply for loan forgiveness, but is refusing to accept medical documentation of the disability. What appeal process is there and how can we force them to act? Do we need to retain legal counsel and incur additional expense to enforce a legal process and achieve loan forgiveness?
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Don't impoverish yourself to pay kids' student loans
December 16, 2012
Dear Liz: I'm in my 50s. My kids have college loan debts that might total more than $200,000. I allowed them to take out loans because I expected to inherit $300,000 to help them pay off the debt. Now that inheritance will not happen.
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Preparing for marriage to military man
December 9, 2012
Dear Liz: I'm about to marry an active-duty military man. We're in the process of marrying our finances, and I have several questions.
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Gift tax rules allow for plenty of giving
December 2, 2012
Dear Liz: My husband and I have given our daughters gifts over the years, but we have never exceeded the $26,000 gift tax limit for a married couple. Do we need to file IRS Form 709 to split the gifts? If so, how to do we file for past years?
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Can heir avoid capital gains taxes on sale of parents' home?
November 25, 2012
Dear Liz: My wife and her brother are selling their parents' home. The parents transferred the deed to their children's names years ago. My wife should receive about $85,000 from the sale. Our yearly income (one salary; she's a stay-at-home mom) is around $75,000. My wife is worried about capital gains taxes and wants to reinvest in another real estate property because she's heard that that will eliminate the capital gains tax. Is that correct? I would really rather invest that money in our current home (finish the basement into a family room, update some items) and pay off our car loan than worry about another property to take care of. What do you think?
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Arrange car loan in advance to get a better interest rate
November 18, 2012
Dear Liz: I recently bought a new car, and the dealer, after running a credit check, told me my Experian score was 783. I have had only credit cards and no loans. This is my first auto loan. They gave me a 3.5% interest rate and I took it reluctantly. I do not like the rate and the need to pay huge interest over time, and am considering paying off the loan as soon as possible as there are no pre-payment penalties. If I am able to pay off my loan in a couple of months (instead of the original five-year loan term), will this improve or adversely affect my credit score? How will this look in the eyes of future lenders?
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Federal student loans are investments — not handouts
November 11, 2012
Dear Liz: I am increasingly annoyed by the entitlement attitude of today's students. Why should the taxpayers (me) pay to educate somebody else's children? I remember when there was no such thing as a student loan. If I wanted to go to college and didn't have the money for tuition, I delayed starting college until I had worked for a year and saved up the money. Many of my friends did this, as did I. Now these kids stand around with their hands out looking for somebody to bring them their education on a silver platter. I wish you would say something about this in your column.
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Public service workers may qualify for loan forgiveness
November 4, 2012
Dear Liz: I am the single mother of four daughters, including one who has a serious heart condition that causes $10,000 to $30,000 in out-of-pocket medical expenses each year. These medical bills have caused me to file bankruptcy twice, but the bankruptcies have not wiped out my student loans.
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Enormous student loans paint parents into a corner
October 28, 2012
Dear Liz: My husband and I took out more than $200,000 in federal parent PLUS loans to pay for our two daughters' college educations. My husband earned over $300,000 when the loans were made. Since then, he lost his job and now makes $100,000. I went back to work and earn $35,000. We finally succeeded in getting a more affordable mortgage, but we are taking about $3,000 out of our savings each month to pay the bills.
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Attending an elite college may not be worth the cost
October 21, 2012
Dear Liz: Please make me feel like I'm doing the right thing. My daughter happens to be very talented academically and athletically. She will graduate from one of the best prep schools in the country. She also plays ice hockey and is being recruited by some of the best schools. However, we are of middle-class means. We were given outstanding aid from her prep school, which made it very affordable. The net price calculators of the colleges recruiting her indicate we won't get nearly the same level of support.
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Talk to credit counselor, attorney when debt is unmanageable
October 14, 2012
Dear Liz: I have a friend who owes $30,000 in credit card debt. I suggested he see a financial advisor who can help him to get out of this situation, but he never finds the time to do it. He pays all his bills on time, but only the minimum required, and there's nothing left for him to save for his old age. He has a good-paying job but still struggles financially. How can we help him?
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Fee-only financial planner can help pare portfolio costs
October 7, 2012
Dear Liz: We have $130,000 invested in mutual funds, but the returns the last few years have been less than 4%. With the financial advisor taking 2% as a fee annually, we are not satisfied with the growth. A co-worker suggested buying blue-chip stocks with a strategy to hold and reinvest the dividends. If this is done in a self-directed plan to avoid the fees, we could be netting 4% plus. Is this a good plan or should we trust the advisor's optimism that our returns will improve soon?
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Is it better to take a lump sum now or an annuity check later?
September 30, 2012
Dear Liz: My former employer is offering the one-time opportunity to receive the value of my pension benefit as a lump-sum payment. The other option is to leave the money where it is and get a guaranteed monthly check from a single life annuity when I reach retirement age. I am 40 and single, and I have been investing regularly in a 401(k) since graduating from college. I have minimal debt aside from a car payment. When does it make financial sense to take a lump sum now instead of an annuity check later?
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Retirement savings, paying off toxic debt should be priorities
September 23, 2012
Dear Liz: I have read tons of books on finance and debt repayment, but I'm having trouble deciding what to do next. My husband and I are 52. He receives a monthly disability income, and I work two days a week. We still have about $105,000 left before our mortgage is paid off. We also owe about $7,000 in credit card debt and $5,500 in overdraft charges.
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Handle debt and bad credit one step at a time
April 18, 2010
Dear Liz: I had good credit until I lost my home in foreclosure and then lost my job. I'm working again, but I went from a salary of $60,000 a year to a salary of $20,000. My credit is messed up and I can't pay my credit card bills. How do I get back on track?
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Pitfall in this saving strategy
April 20, 2008
Dear Liz: I'm self-employed and have a Simplified Employee Pension account. Every year I borrow from an equity line to contribute the maximum to this account. My wife questions whether we are ahead by doing this. I say yes because we obviously save on the amount we pay in taxes and are paying only 5.25% on the equity line. We hope to pay off the loan in six months, plus we get to write off the interest. Is this a good plan?
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Fighting an unethical debt collector
April 6, 2008
Dear Liz: I think I'm being pursued illegally for a debt I don't owe. I visited a hospital in June 2007. It took my health insurer about six months to process the claim. Shortly after I received my benefits statement from the insurer, I received a call from a collection agency saying I had to call back immediately and give my credit card number to pay this debt. Instead, I called the doctor's office the next day. The receptionist told me my account was still open and had not been turned over to collections. I gave them my address and they sent me a bill, which I paid. A month later, I got another call from the collection agency, once again telling me I had to pay that very same day and that I had to call back with my credit card information. My requests to be faxed a bill have been ignored. When I asked that a bill be mailed to my home, the woman I talked to said the address I gave her was false (it wasn't). I just received another call, and the caller threatened to put this debt on my credit report if I don't pay. What is going on here? Is this fraud? I get really nervous with these calls, and I'm not sure what's going on here.
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