Quit gambling to curb debt

Dear Liz: I have a terrible habit. I’ve been clean and sober for 24 years now, but I’m a gambler. I’m in debt over $100,000. Yes, it’s bad, but it used to be worse: I owed $204,000 to banks, loan sharks, family members, you name it. In the last seven years I’ve been able to cut the debt in half, but when I’m done paying off the debt I’ll be 62 with no savings and no 401(k) plan. I’ll get a pension from my work of about $3,400 a month and $1,400 from Social Security. I’m afraid $4,800 a month will not be enough for me. Is there anything I could do now to make things better?

Answer: You don’t have a habit. You have an addiction. And it’s not clear you’re dealing with it, since you refer to yourself in the present tense as a gambler. If you’re still gambling, all your efforts to pay off your debt and build a financially secure future for yourself are likely to be pointless. Although $4,800 a month is more than most people have in retirement, you’re right that it won’t be enough to feed your addiction.

If you haven’t already, check out Gamblers Anonymous, a 12-step program based on the principles of Alcoholics Anonymous.

Anyone who wants to build a retirement fund can contribute to an individual retirement account (IRA) or Roth IRA, as long as the person or the spouse has earned income. You can contribute up to $5,000 a year if you’re under 50, or $6,000 if you’re older.

Income doesn’t play role in FICO score

Dear Liz: I have high student loan debt. When I pull my FICO scores from Equifax and TransUnion, the only thing that’s keeping my scores low is that I have a 99% debt-to-income ratio on my student loans. The length of credit history and payment history are fine. I have two credit cards and I use 20% or less of the credit limits, paying in full every month, but I still have mediocre scores of 620 to 680. What to do in this situation?

Answer: Income is not a factor in calculating your FICO credit scores, so your debt-to-income ratio wouldn’t affect your scores. What you may be referring to is your credit utilization — how much of your available credit you’re using. While high utilization of credit cards and other revolving accounts can hurt your scores, it’s unlikely that high balances on installment accounts would be enough of a negative to make your scores so low.

What you need to do is pull your credit reports and examine them closely to see what’s wrong. You may have late payments or collection accounts you don’t know about, or you could be the victim of identity theft.

It’s time to cut spending if debt is rising

Dear Liz: You’ve made it clear that we should try to keep our credit card balances to no more than 30% of the credit limits. Many of us haven’t been able to do that because we’ve needed to put charges on or take cash advances from credit cards while we’ve had no work, so 50% was the revised goal. However, if still more charges or advances have to be done, is it better to still spread them around so that all credit cards are over 50% but below 60%, or is it better to just “max out” one card and keep the rest of them under 50%?

Answer: How about plugging the leaks that are causing your financial ship to sink, rather than musing over how much water you can take on before you sink?

Steadily growing credit card debt is a clear sign it’s time to make changes to get your spending in balance with your current income. That’s because carrying credit card debt is simply too dangerous to your financial health and can lead you straight to Bankruptcy Court. It’s too easy to see something as a “need” and charge it, rather than make the tough decisions to cut back on what you can no longer afford.

For credit scoring purposes, it’s better to spread out the balances. For life purposes, it’s better to stop charging.

Liz Weston is the author of “The 10 Commandments of Money: Survive and Thrive in the New Economy.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.