Dear Liz: Recently you wrote about debt being forgiven after seven years, but in your book “Deal With Your Debt,” I’m sure you said after four years credit-card debt is usually not collectible. Could you clarify? When I tell debt collectors about this, they merely laugh.
Answer: That’s understandable, because there is no forgiveness for most debt. It’s legally owed until it’s paid, settled or wiped out in Bankruptcy Court.
Each state sets limits on how long a creditor has to sue a borrower over an unpaid debt. Those limits vary by state and the type of debt. In California, credit card debt has a four-year statute of limitations. Creditors may continue collection efforts after four years; they’re just not supposed to file lawsuits.
Seven years is how long most negative marks, such as unpaid debts, can remain on your credit reports. Technically, most unpaid debts are supposed to be removed seven years and 180 days after the account first went delinquent.
Today’s top story: How to protect yourself from credit card breaches. Also in the news: The best ways to pay for college, how to avoid year-round tax scams, and what happens to your debt after you die.
Shelter yourself from payment card breaches
How to protect both your finances and your identity while shopping.
The Best Ways to Pay for Your Child’s College Education
How to combat the rising cost of a college education.
Tax-related scams don’t hit just during tax season
Beware of these year-round scams targeting your taxes.
Who Will Inherit Your Debt When You Die?
One thing you don’t want to leave behind.
Why These 4 Personal Finance Myths Perpetuate Money Problems
People remember where they were when they heard about big historical events, like the planes flying into the World Trade Center buildings. Finance geeks remember where they were in September 2008 when they heard that the Prime Reserve Fund had “broken the buck.” A money market fund’s share price had just dropped below $1 for the first time, and this was a huge deal. Money market funds were supposed to be safe–I almost said “safe as houses,” but given the subsequent real estate recession, maybe not. Anyway, it wasn’t hard to envision this news triggering a Depression-era run on the funds where individuals and institutions stored trillions of dollars of cash. The funds wouldn’t be able to meet all the demands for withdrawals and the banking system would grind to a halt. From there, the collapse of the whole financial system would no longer be a fantasy of end-of-the-world preppers. Of all the bad news that fall–and there was a ton–that’s the story that really made it clear how close we were to the brink.
We avoided the worst, but our close call should have put every financial regulator on his or her toes. Unfortunately, secret recordings made by a now-fired Fed attorney make it clear that watchdogs are instead cuddled in the arms of the financial institutions they’re supposed to regulate. This is a gigantic story, one that financial author Michael Lewis calls “The Ray Rice video for the financial sector.”
Today’s top story: How to save on closing costs when buying a new home. Also in the news: Unnecessary credit cards fees, money management lessons for teens, and why you should never feel self-conscious about being frugal.
5 Ways to Save on Closing Costs
You’re already spending enough on the house.
Check Your Credit-Card Bills for These Added Fees
Your bank may owe you a refund.
5 Basic Money Management Lessons for Teens
If only they came in the form of text messages.
6 Reasons to Consider Semi-Retirement
Working part time could be good both financially and socially.
Why You Should Never Feel Self-Conscious About Being Frugal
Be proud of your money management!
Today’s top story: The fear of outliving your retirement savings. Also in the news: Credit scores reach new highs, fun ways to teach your kids about money, and steps to protect yourself against credit fraud.
Big retirement fear: Outliving your savings
What you can do to prevent it.
Credit Scores Hit New Highs – But You Should Aim Higher
The higher the better.
4 Fun Ways to Teach Your Kids About Money
How to make teaching your kids about money fun.
9 Steps to protect against credit card fraud
Lessons from the Home Depot and Target breaches.
Help! 2 Debt Collectors Are Calling About the Same Debt
Twice the annoyances with none of the fun.
Today’s top story: Why putting things off until tomorrow can become expensive. Also in the news: Tips on college scholarships, how to have peaceful conversations about money, and how to break the cycle of living from paycheck to paycheck.
I’ll Do That Tomorrow: The High Cost of Procrastination on Personal Finance
Doing it tomorrow can cost you money.
Confessions of a Master Scholarship Coach
How to help your kids earn money for college.
How to Keep a Money Talk From Becoming a Money Fight
Keeping the peace during a stressful conversation.
5 Ways Your Yard May Be Scaring Off Potential Homebuyers
Make sure the outside looks as good as the inside.
Common “Debt Traps” That Keep You Living Paycheck-to-Paycheck
How to break the cycle.
Today’s top story: How to keep track of your spending while using multiple credit cards. Also in the news: Scrutinizing promotional offers from credit cards, how to make your student loan payments manageable, and the one tax move you need to make right away.
How to Keep Track of Your Spending on Multiple Credit Cards
There are apps that can help.
Beware credit card promotion offers
As always, read the fine print.
How to make student loan payments manageable
Don’t become overwhelmed.
1 Tax Move You Need to Make Now
It’s never too early to start preparing.
5 Behaviors That Predict Poor Money Management Later
There’s still time to get on the right track.
Dear Liz: I have $8,000 in savings. Should I use it to pay the accrued interest on federal student loans that go into repayment soon? Or should I pay credit card debts of $662 at 11.24%, $3,840 at 7.99% and $3,000 at 6.99%?
Answer: Pay off the credit card debt. The interest isn’t tax deductible, and balances you carry on credit cards just eat into your economic well-being.
Your student loans, by contrast, offer fixed rates, a wealth of consumer protections and tax-deductible interest. You needn’t be in any rush to pay them off, particularly if you’re not already saving adequately for retirement and for emergencies. Federal student loans offer the opportunity to reduce or suspend payment without damaging your credit scores should you face economic difficulty and the possibility of forgiveness. Those aren’t options offered by credit card issuers.
If your student loan payments exceed 10% of your income when you do go into repayment, you should investigate the federal government’s “Pay as You Earn” program, which offers more manageable payments for many people, especially those with large debts and small incomes.