Q&A: Credit CARD Act

Dear Liz: I have a business credit card that offers cash rebates. It has an interest rate of 15.24% on purchases and 25.24% on cash advances. I carry balances in each category. Each month the issuer posts my entire payment to my lower-interest purchases balance and nothing to my cash advance balance. I telephoned to complain but I was told that they will not post any payments to my cash advance balance until my purchases balance is completely paid off. I thought that there was a federal regulation that payments had to be posted to the highest-rate debt balance first. Am I mistaken? If not, to which federal agency can I complain?

Answer: There is indeed a federal law that requires payments in excess of the minimum to be applied to the highest-rate balance. It’s part of the Credit Card Accountability Responsibility and Disclosure Act of 2009. But the Credit CARD Act applies only to consumer credit cards — not business cards.

It’s not a good idea to carry a balance on any credit card, but it’s even more dangerous to carry a balance on a card that lacks the consumer protections promised in the Credit CARD Act. Talk to the bank that has your business checking account to see if you can arrange a lower-rate loan to pay off your balances.

Q&A: Helping a mentally ill family member

Dear Liz: I want to offer some bit of advice to the woman with the mentally ill, homeless son. She didn’t say which state he lives in, and I’m guessing it’s not California. There are so many wonderful programs here. I did help a woman my age (late 40s at that time) get off the street by convincing her to let me drive her to PATH (People Assisting the Homeless). It took a few tries but she finally got into my car. PATH took over after that. She has been on Supplemental Security Income for years and lives in a low-income housing tax credit building. Tell the mother that there are social workers dedicated just to representing people that are both homeless and mentally ill in all 50 states. There is also subsidized housing available in all 50 states. She just needs to put her worry into action to find the right social worker or organization. They have the know-how to proceed and help her son. I’m not saying that this will be easy, but she will feel better if she persists in trying to find the right resources for her son and it just might work.

Answer: Thank you for suggesting PATH as a possible solution for homeless people in Southern California. The mother thought there was no help available in the state where her son lives, but every state has at least a few programs for the mentally ill. Getting low-income housing is another matter because many programs have far more applicants than availability.

The mother can certainly make inquiries and suggest possible solutions for her son. But she still needs to set boundaries in how much time and money she dedicates to his problems. She is elderly, on a limited income and several states away from her son. She deserves a little peace at the end of her life, which may mean making peace with the idea that his fate is not in her hands.

Q&A: Special needs trust

Dear Liz: Your suggestions about resources to help a parent with an emotionally ill adult child were very helpful. But from a financial standpoint, don’t you think you should have discussed a special needs trust for the time when the parent dies? Whatever assets she has, most likely her home, should be put in this trust to protect her son’s eligibility for government benefits (Supplemental Security Income and Medicaid, for example). An inheritance could jeopardize his eligibility for these programs. It will be overseen by a responsible party and can never be taken as part of a potential lawsuit. This is something I recommend to my clients as a geriatric social worker.

Answer: Thank you for the suggestion. Given the brevity of this column, it’s impossible to cover all potential angles to every situation. In this case, there was no indication that the son was receiving government benefits or that his mother had sufficient assets to be concerned about an inheritance.

That wouldn’t be unusual. One study for the National Bureau of Economic Research found that 46% of Americans have less than $10,000 in financial assets when they die. Many single-person households (57%) have no home equity.

Still, even a small inheritance can disqualify someone from SSI, and losing access to Medicaid health coverage would be catastrophic for people who depend on the program. So parents who have both an heir who needs these programs and assets that might outlive them should discuss a special needs trust with an estate-planning attorney.

Q&A: Social Security and Divorce

Dear Liz: Can my 63-year-old ex-husband, who was a slacker who never worked, collect on my Social Security? I am 59 and happily remarried. He hasn’t remarried. We were married for 25 years before I left him.

Answer: Since you were married for more than 10 years, your former husband can apply for spousal benefits based on your work record. He can’t do so, however, until you’re old enough to get retirement benefits, which means he has to wait another three years until you’re 62. If you were still married, he would have to wait until you actually applied for your own retirement benefits to get a spousal benefit. That requirement is waived for divorced spouses to keep a vengeful ex from deliberately withholding the right to benefits. His ability to claim spousal benefits on your work record would end if he remarried.
Any spousal checks he gets won’t affect or reduce your benefit or any benefits claimed by your current spouse. Should you die first, both your current and your former husbands could claim survivors’ benefits — again, without affecting each other’s checks

Q&A: Credit card interest rates

Dear Liz: I have had a certain credit card for over five years. I just received a letter stating that my interest rate was going to be raised from 10.24% to 12.24%. My FICO score is 819 and I have never had late payments on any of my cards. I called the issuer to complain about this change but they will not reduce the rate. The letter states that they obtained my FICO score of 819 from Experian and used the score to make the decision to raise my APR. They told me that they are raising rates across the board for customers with FICO scores over 800. Why are credit card companies allowed to do this? It is so unfair.

Answer: Credit card companies are no longer allowed to raise interest rates arbitrarily on individuals’ existing balances, as they could — and often did — before the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. Now card issuers are allowed to raise your interest rate on an existing balance only if you’re 60 days or more late with your payment, a promotional rate has expired or the index to which a variable-rate card is linked has gone up.

Credit card companies can, however, raise your interest rate going forward for pretty much any reason they want, and new balances will accrue at the higher rate. Also, the CARD Act’s restrictions apply only to consumer credit cards; business credit cards aren’t covered by the law.

Changeable rates are just one of the reasons why it’s not smart to carry credit card balances. Since you have high credit scores, though, it should be easy for you to find another card with a low promotional rate. Some cards now offer a 0% rate for 12, 15 or 18 months, although you’ll typically pay a balance transfer fee of around 3%. Sites such as CreditCards.com, NerdWallet and LowCards.com, among others, list these competitive offers.

Once you get the new card, you should work to pay off the entire balance before the promotional rate expires.

Q&A: Early withdrawal penalties on CDs

Dear Liz: You told a reader to be suspicious of a bank’s offer to waive early withdrawal penalties on a certificate of deposit. But several credit unions allow early withdrawals from five-year CDs after the account holder turns 59 1/2. These credit unions will even allow you to get higher-interest CDs at other credit unions with no penalty after 59 1/2 . My husband and I and sister did this for many years until just a few years ago. I even do Roth conversions every year and take money from five-year CDs with no penalty and go to the place with the highest interest rate. There are many rewards and unexpected privileges at credit unions. When my husband passed and I disclaimed his traditional IRAs, the children were allowed to keep the 6% interest on those CDs until they matured, even after they were changed to inherited IRAs.

Answer: Credit unions, which are owned by their members, often have better rates and terms than banks, although some banks also offer to waive early withdrawal penalties after 591/2 on certain CDs.

But no one should rely on a verbal assurance that a fee will be waived. The offer to waive the fee should be in writing and kept with other financial documentation.

Q&A: Saving for retirement

Dear Liz: After many years of unemployment, I finally got a full-time position. It is a state job with a pension. How much do I need to save for retirement? Can I focus on paying off debt and saving for college, and trust I will be OK in retirement?

Answer: Your long stint of unemployment should have taught you that no job, and no plan for your life, is guaranteed.

You may have to work for the state for years to become “vested” in the plan, or eligible for a retirement check. In order to actually retire, you typically have to stay employed by the state for a decade or more. Even then, your check in retirement may not replace a big chunk of your salary. Traditional defined benefit pensions tend to offer the highest benefits to those who work for the system for decades.

A lot can happen while you’re waiting for your pension to build. You could get fired or laid off or suffer a disability that limits your ability to work. The pension plan itself could change.

If your employer doesn’t pay into the Social Security system, that adds another layer of uncertainty to your future. You could wind up without a pension, or only a small pension, and less Social Security than you might have had with a job that did pay Social Security taxes.

That’s why it’s essential to save for retirement even with the prospect of a good pension. You may be offered a tax-deferred workplace plan, or you can save on your own through IRAs or taxable accounts.

Q&A: Credit freezes

Dear Liz: Is there a way to lock my credit history and access to prevent the unscrupulous from opening accounts in my name? Maybe I’m rare, but I have enough existing credit cards, don’t have a mortgage and essentially have no debt, and I want to keep it that way. I suspect businesses that make their living issuing credit reports will resist this ability, but I want to do all I can to make it tough for anyone to steal my identity.

Answer: You can lock up your credit reports with what’s known as a credit freeze (also called a security freeze). The three major credit bureaus — Equifax, Experian and TransUnion — have information about how to do this on their websites. You also can find general information about credit freezes on Consumer Reports’ site.

Credit freezes can prevent new account identity theft — someone opening new credit accounts in your name. Lenders typically check credit reports when they get new credit applications. If they can’t access your reports thanks to a credit freeze, they’re unlikely to approve the application.

Of course, the freeze applies to you as well. If you change your mind and want to apply for a new account, you’ll need to temporarily thaw the freeze.

Other entities also check credit reports, so you may need to lift the freeze if you apply for a job, insurance, new utilities or cellphone service. You typically have to pay fees (which range from $2 to $15, depending on your state) to each bureau to lock up your credit and another set of fees to thaw it.

Credit freezes won’t interfere with your ability to use your credit cards or prevent your current lenders from accessing your reports.

Credit freezes also won’t prevent other types of identity theft, including tax refund fraud, medical identity theft and criminal identity theft (which occurs when criminals give law enforcement your information when they get arrested, rather than their own).

Still, credit freezes are a good solution if your identity has already been stolen or you’re at high risk because your Social Security number has been swiped or exposed in a data breach.

Credit bureaus may suggest you put a temporary fraud alert on your reports instead, or pay for credit monitoring or identity theft “protection” (which actually doesn’t protect you against anything but simply offers an early warning if your reports are compromised). A credit freeze is a more secure solution, but you have to weigh the potential hassle and cost against the benefit.

Q&A: How to help family while on a limited budget

Dear Liz: My son, who is almost 50, is mentally and emotionally challenged. He has been unemployed and homeless for years. Although not a criminal, he’s been in jail a few times because of his explosive, combative nature. There seems to be no help for him in the state where he lives. I do send a few dollars for his basic needs when I can, but must be careful with my budget. Do you have any tips that might be helpful in this situation?

Answer: You’re living with a heartbreaking situation. You want to help, but given your age and financial circumstances your ability to do so is limited. Unless you set some boundaries, you could run through your savings and possibly wind up homeless yourself.

You’ll find some helpful resources at the National Alliance on Mental Illness (www.nami.org), which offers information and, in many locations, support groups for families. Another place to find comfort, insights and suggestions would be a 12-step group for co-dependency, such as Co-Dependents Anonymous (www.coda.org), Al-Anon (www.al-anon.org) and Nar-Anon (www.nar-anon.org). Substance abuse often accompanies mental illness, so you may find it helpful to talk to others who have dealt with problem drinkers (Al-Anon) or addicts (Nar-Anon).

Every state has at least some resources for the mentally ill. You can start your search at MentalHealth.gov to see what might be available where your son lives and let him know the options. But as the members of any support group will tell you, you cannot fix another human being or force him to change. What you can do is to take care of yourself.

Q&A: Rolling traditional IRA to a 403(b)

Dear Liz: My husband and I both have employer-sponsored 403(b) retirement plans. We each also have a Roth IRA, and I have a traditional IRA that I started in the 1980s before I started work with my current employer. I do not actively contribute to this traditional IRA as I am contributing the maximum amount allowed into both my Roth IRA and my 403(b) plan. My husband is also maxing out on his Roth and 403(b). We are both in our 50s. Should I contribute anything into my traditional IRA? Should I see if I can roll it into my 403(b)? Or roll it into my Roth? Our adjusted gross income is high enough where I would not be able to take the deduction if I did start contributing. Your thoughts would be greatly appreciated.

Answer: If you can’t get a tax deduction for your contributions, then putting the money in a Roth IRA is usually the better option — assuming, of course, that your income is under the Roth limits (which it sounds like it is). Nondeductible contributions reduce the income taxes owed on any withdrawals from a traditional IRA, but withdrawals from a Roth can be entirely tax-free.

If you have a good, low-cost 403(b), rolling your traditional IRA into it could be a good choice. It would be one less account for you to have to monitor and coordinate with your other savings.

You won’t be able to roll your traditional IRA into a Roth without triggering a (possibly hefty) tax bill. The older you are, the harder it is to make a good argumen