Q&A: 30-year versus 15-year mortgage

Dear Liz: Regarding the 57-year-old woman who wanted to refinance to a 15-year mortgage, why didn’t you present the benefits of keeping the low interest and low payments available on a 30-year loan and investing the difference? In 30 years the house would be paid off, but there would also be a pot of cash available if the difference were invested in a diverse portfolio. Too many people make the emotional decision that a paid-off house is necessary in retirement, then they end up having no cash when they might need it.

Answer: You’re right that when cash is tight, keeping a mortgage can make sense. Given her teacher’s pension, other savings and desire to pay off the home faster, the 15-year loan is a reasonable option. The faster payoff schedule also means that she can turn around and tap more of the equity in the unlikely event she needs a reverse mortgage later in life.

Q&A: ‘Stay at home’ credit card isn’t foolproof

Dear Liz: Regarding updating automatic payments when a credit card is replaced, I have found that using a separate credit card that never leaves home for automatic payments is a good idea. It’s very unlikely that this “stay at home” card would get hacked like a card I use in stores or ATMs. Does this seem like a good idea?

Answer: The security advantage of hiding a card at home is “pretty minimal, and approaching zero,” said Bob Sullivan, consumer security expert at BobSullivan.net and author of the book “Stop Getting Ripped Off.”

Any credit card can be hacked, as numerous database breaches have shown us. Once you use the card — with a merchant, at an ATM, on the Web or over the phone — you have no control of where its numbers are stored or how secure those databases are.

“The risk that it’s stolen from a database of cards outweighs the risk that a waiter or a compromised machine might steal it,” Sullivan said.

It may be more convenient to monitor automatic payments if they’re all on one card. But if the card is hacked, you’ll still have to reset all those payments.

Q&A: Financial help for seniors

Dear Liz: In your response to the person whose friend was erroneously declared deceased by the Social Security Administration, you suggest that the older person consider finding help in managing her finances. Please recommend checking the American Assn. of Daily Money Managers for such help. I have a certification from this professional organization and we help thousands of people in this predicament. You can find more information at www.aadmm.com.

Answer: Handling the details of daily finances can get challenging as we age. Many people have trusted family or friends who can help monitor their accounts, make sure bills are getting paid and keep an eye out for signs of financial abuse. For those who don’t, a daily money manager can be a godsend.

Q&A: Fixing your credit scores after a bankruptcy

Dear Liz: How do you repair credit scores after filing for bankruptcy? My husband and I are in this situation and are looking to reestablish credit and increase our credit scores. Also, how long do closed accounts appear on the credit report?

Answer: Filing for bankruptcy may have actually helped your scores. Researchers at the Federal Reserve Bank of Philadelphia found scores typically plunged in the 18 months before people filed for bankruptcy and rose steadily afterward. The average credit score before someone filed Chapter 7 was 538.2 on Equifax’s 280-to-850 scoring range. By the time filers’ cases were discharged, their average score was 620.3.

You can continue the upward trend with a credit-builder loan. These loans, typically offered by credit unions, put the money you borrow — usually $500 to $1,000 — into a certificate of deposit or savings account that you can claim once you’ve made 12 monthly payments. Your payments are reported to the credit bureaus, so you can build a decent credit history and your savings at the same time. If your local credit union doesn’t offer these loans, check to see if there’s a community development financial institution near you that does. You can find links to these at www.cdfifund.gov. Another option is Self Lender, an online company that makes credit-builder loans.

If you don’t already have a credit card, you can accelerate your scores’ rehabilitation with a secured credit card. You make a deposit, typically $200 to $2,000, with the issuing bank and get a credit line equal to that deposit. You should use the card lightly but regularly, being careful not to charge more than about 30% of its credit limit and paying the balance in full each month.

Another option is to wait until your scores are in the mid-600s and then apply for a regular credit card.

The bankruptcy will remain on your credit report for 10 years, but it will have less effect on your scores as time goes by as long as you continue to use credit responsibly.

Q&A: How to pursue money owed to heirs

Dear Liz: My stepmother passed away in December 2006, and her executor, who was her financial planner, distributed the estate according to her trust. A while after this, I discovered that she had a life insurance policy that hadn’t been addressed. The executor pursued this and found that $80,000 was due to the three primary heirs. However, he kept saying things were “in process.” At least a couple of years later, he said he had the check but didn’t know how to proceed because the estate was settled and also the insurance company had been taken over by another company. I finally saw the actual check (in April 2016) that he had. He claims he’s pursuing this but keeps going silent on us for extended periods of time. What can we do?

Answer: One possibility is that he showed you a phony check after pocketing the money. The other possibility is that he’s stunningly incompetent. It’s not clear which option is more disturbing.

Any estate planning attorney, or financial planner who has taken an estate-planning class, could tell him that life insurance proceeds typically pass outside the probate process, which means the estate wouldn’t necessarily have to be reopened. (Even if the estate did need to be reopened, every state has procedures for doing so.)

“I would think that the executor could merely endorse the check over to the three heirs,” Los Angeles estate planning attorney Burton Mitchell said. “Or he could open an estate bank account, deposit the check, write a check to the beneficiaries and then close the account.”

At this point, of course, the check may too stale to cash, but that’s not an insurmountable problem either. The current insurer would be able to reissue the check if the assets haven’t been turned over to the state or “escheated.” If the money was escheated, the executor can file a claim with the state to get it back.

Blaming his inaction on the insurance company takeover is absurd. All he needed to do was to call the new insurer, which has all the records of the old one.

The heirs have a number of options. They can petition the probate court to order the executor to distribute the life insurance proceeds. They can hire an attorney to help them do so or to contact the executor to demand he act, or both. They also can file a complaint with the company that employs him (assuming he’s not self-employed), with the regulator that oversees him and with the entity that issued his credentials, assuming he has any.

What they shouldn’t do is wait any longer. The executor’s inaction has already cost them years of lost potential investment returns.

Q&A: Getting out of a bad car loan can be tricky

Dear Liz: My car payment is $465 a month with a 22% interest rate. I need to get out of this car and into a lower car payment. My credit is poor. What is the best solution to go about this?

Answer: There are a number of solutions, most of which probably won’t work for you.

If you could do without a car for a while and owe less than this car is worth, you could sell it to pay off the loan. The fact you haven’t already done so indicates that you either need a car or have no equity, or both.

Fixing your credit could help you get a better deal, but that’s tough to do with an unaffordable car payment. You need to have enough free cash flow to put a down payment on a secured credit card or make monthly payments on a credit builder loan, which are two of the best ways to rehabilitate your credit. Your finances also have to be sound enough that you don’t miss payments on any credit obligation, including the car.

If you bought an overpriced jalopy from a “buy here, pay here lot,” or you were approved at a regular dealership but your rate got jacked up at the last minute, the dealer may have violated Truth in Lending laws that would allow you to get out of the deal. You’d probably need an attorney to help you pursue this option. You may luck out and find one that can help you at your local legal aid society. Otherwise, you could check with the National Assn. of Consumer Advocates to see if you can find affordable help.

Even if you were successful in getting out of this loan, of course, you still are likely to need a car and you’d still have bad credit, which means that you probably wouldn’t get a better deal on the next car than the bad one you have now.

If you can, the best option might be to get a second job or ask for overtime hours to pay this loan off as fast as possible. Then you could get a credit builder loan, which puts the money you borrow into a certificate of deposit you can claim after making 12 monthly payments. This small loan could be enough to significantly boost your credit scores and give you some cash to make a down payment on the next vehicle.

Q&A: Friend erroneously declared deceased

Dear Liz: I have an elderly friend who was recently erroneously declared deceased by the Social Security Administration. She received no notice of this declaration and her first awareness that something might be wrong was when her personal checks and automatic payments to utilities and others began to bounce. When she called her bank, she was informed that all of her accounts had been frozen by the Social Security Administration.

My friend is now faced with multiple returned check charges, threatening phone calls and cut-off services. Efforts to straighten things out with Social Security and her bank have been only moderately successful so far. Although they will probably clear things up eventually, this will take time and quite a bit of legwork on her part.

Under what authority does Social Security freeze someone’s assets? And is this common? Aren’t they required to at least notify someone of impending action? After all, when any one of us does in fact die, we still have financial obligations and such actions can only create headaches for survivors.

Answer: The Social Security Administration doesn’t freeze bank accounts, but it does erroneously declare people dead a few thousand times every year. Financial institutions check Social Security’s death notices and may freeze or close accounts as a result. It can take weeks or months to clear up the confusion.

People in this situation should visit their local Social Security office and bring some identification, such as a driver’s license or passport, to establish that they are, in fact, alive. Social Security will issue a letter called an “Erroneous Death Case — Third Party Contact” notice that can be shown to financial institutions, doctors and others who may have been misinformed of their deaths. Your friend should not only ask that services be restored but that bounced-check fees and other costs be waived. There’s no guarantee that they will be, but she should ask.

Your friend also might consider whether it’s time to ask for help in managing her finances. It sounds from your description as if she didn’t notice the problem for quite some time. Utilities don’t shut off service at the first missed payment. Threatening phone calls — presumably from collection agencies — typically don’t start until accounts are months overdue. She should consider adding a trusted person to her checking account or at least sharing online credentials so that another set of eyes is monitoring what’s going on with her money.

Q&A: Job hopping can be a good strategy for young workers

Dear Liz: I am a millennial and just started a new job at a very small company. I really like the work I do and the leaders of the company. However, I don’t make enough to move out of my parents’ home and be financially secure. I live in the Washington, D.C., area and make $50,000. For an entry-level position it’s a good salary, but this area is so expensive. I wanted to stay at this company for at least two years to add stability to my resume. Now I’m considering moving to a cheaper area so I can move out on my own and not face a financial strain. But I don’t want to be a millennial job hopper, and I don’t want to disappoint my boss.

Answer: Being a millennial job hopper can actually be a good thing in the long run. A 2014 study for the National Bureau of Economic Research found that people who switch jobs more often early in their careers have higher incomes later in life. Economists Martin Gervais, Nir Jaimovich, Henry Siu and Yaniv Yedid-Levi contend that young job-changers are more likely to find their true calling, which leads to greater productivity and higher income. Sticking with one job can mean settling for paltry raises, while changing jobs can mean bigger jumps in pay.

Changing locations, meanwhile, can be a powerful way to boost your standard of living. Living on a below-average income in a city with above-average costs can be a recipe for misery, so congratulations on being willing to explore alternatives. Since you’re living in one of the costliest cities in the U.S., those alternatives include most of the U.S.

The good news is that you have a job and a place to live, so you can take your time searching for what’s next. In the meantime, you can build up your savings to help pay for the move.

As for disappointing your boss, understand that most bosses are grown-ups. They realize that people can and do move on to better opportunities.

Q&A: How to build a cushion against all those pesky expenses

Dear Liz: We’re both retired and live on retirement checks. When expenses exceed our income, we draw from savings, but the balance is going down fast due to a new air conditioning unit, real estate taxes, etc. How do we put that money back and build a cushion in the checking account so our savings isn’t used to cover us month to month?

Answer: You need an emergency fund for truly unpredictable expenses, but you also should have a bunch of savings “buckets” to cover less regular but still predictable expenses. These would include property taxes, insurance, home repairs, car repairs, vacations, medical bills, holiday expenses and any other bill you face regularly but not monthly. You can track these buckets in a spreadsheet or set up separate savings accounts for each goal. Online banks typically let you set up multiple savings subaccounts for free.

Here’s how it works. If your next property tax installment is due in six months and you’ll owe $3,000, you transfer $500 a month into the property tax savings account to cover that bill. If you’re planning on a vacation in nine months, divide the expected cost by nine and transfer that amount to savings each month.

Estimating some costs can be tricky. You often can use last year’s spending as a guide, or seek out authoritative sources. Edmunds.com’s True Cost to Own feature, for example, can help you estimate repair and maintenance costs for many vehicles. With home repairs, Consumer Reports can help you calculate how long various systems tend to last and how much they cost to replace, which will allow you to save accordingly. Or you can just use the rule of thumb to put aside 1% of your home’s value each year into an account to cover maintenance and repairs.

You may not always guess correctly, but setting aside something throughout the year can help you meet these big expenses as they arise without having to dip into your emergency fund.

You may discover that you can’t set aside enough to cover these less regular expenses and still pay your monthly bills. If that’s the case, you may not be able to afford your current lifestyle and may need to trim some costs.

Q&A: Parents paying a child’s private student loans

Dear Liz: My husband and I are paying my youngest son’s private student loans. My husband is paying two loans and I’m paying three. I have plans to retire next year. Should I tell the lenders after I retire and give my loans to my son to take over?

Answer: If these are private student loans, then you and your husband probably co-signed them with your son. That means you’re equally responsible for the debt and can’t just walk away without consequence.

Some lenders do release co-signers if the student borrower is creditworthy. The lenders typically don’t volunteer information about this option, so your son would need to request it. The Consumer Financial Protection Bureau has a form letter your son can use to ask for information about the process.

If that doesn’t work, your son may be able to refinance or consolidate the loans with a new lender to get your names off the loans.

All this assumes your son is willing and able to take over this responsibility. If he’s not and you stop paying, your credit scores will suffer and you could face collection actions.