Dear Liz: I need to refinance my home. My credit score has slipped a bit over the last year (still pretty good) and my wife has lost her job. I’m concerned that if we get denied, that will impact my credit score. Some have told me that inquiries from potential lenders can hurt the score but being denied doesn’t show up. What are the facts?
Answer: The credit scoring formula used by most mortgage lenders, the FICO, combines all mortgage-related inquiries made within a certain period and counts them as a single inquiry. (The period is generally 45 days.) Single inquiries typically knock less than 5 points off your scores. The scoring formula also ignores any inquiries made within the previous 30 days. That allows you to shop for a mortgage without unduly damaging your scores.
Being denied credit doesn’t knock any further points off your scores. Given your situation, though — lower income and lower scores — it would make sense to talk to a few lenders before submitting any applications so you’ll have a better idea of whether you’re wasting your time. Also, consider talking with a housing counselor approved by the Department of Housing and Urban Development. (You’ll find a link at http://www.hud.gov.) These counselors keep up with various refinancing programs and may be able to guide you to one that works in your situation.
Dear Liz: You recently suggested people consider putting their charitable donations on automatic. While I have automatic deductions for savings because I do not want to constantly remind myself to do it, I want to remind myself of all other expenses. For me, prudent money management requires attention to all expenses. Your thoughts?
Answer: Many people find that automatic payments make their lives easier. They’re able to meet their obligations (and avoid late fees, in the case of bill payments) while minimizing time spent in repetitive tasks each month.
But none of your expenses should be “out of sight, out of mind.” Automatic payments don’t eliminate the need to carefully review your credit card and bank transactions each month. Reviewing your bills periodically, and making adjustments as necessary, is an important part of responsible money management regardless of whether you take advantage of automatic transfers.
Credit card debts can be settled for pennies on the dollar. Not so student loan debt. Borrowers usually can’t threaten bankruptcy to get a settlement, and the federal government has extraordinary powers to force borrowers to pay. (The feds collect between $1.11 and $1.22 for every $1 owed.)
But in the right circumstances, student loan debt can be settled. My latest column for Reuters explains who might be in a good position to try: those who have a lump sum to offer, and whose prospects for paying up otherwise are dim.
Also, in case you missed it, check out “Saving for college? 529 plans aren’t as safe as you think.” These tax-advantaged plans are still the best way for most families to save, but you need to keep a close eye on your mix of stocks, bonds and cash as your kids approach college age. Bond-heavy portfolios are common in the final years of age-based plans, but those could be in for some shocks if interest rates rise.
Food stamp benefits to 47 million people were cut Nov. 1–and further cuts may lie ahead.
Food banks already depleted by the lousy economy are now bracing for an influx of new patrons. So if you’re not among the one in seven Americans currently receiving food stamps, please consider a donation to your local food bank to help meet this growing need.
The best donation is cash (or checks, or payment by credit card). Food banks have relationships with food makers and distributors that allow them to get much better deals on bulk purchases than what you can get at the retail level. The Los Angeles Regional Food Bank, which my family supports with a monthly donation, can provide four meals for every $1 donated.
If what you can offer is food, though, or your skills in organizing a food drive–that’s good, too.
You can find your local food bank through the Feeding America site.
Today’s top story: Preparing your home for the winter months. Also in the news: Common credit card myths, how to save on your Thanksgiving travel, and what you shouldn’t buy on Black Friday.
Seven Essential Home Maintenance Tips for Winter
Preparing your home for the cold months ahead.
5 Common Credit Card Myths
Time for some mythbusting.
Money Saving Tips For Thanksgiving Travel 2013
Going over the river and through the woods doesn’t have to cost a fortune.
How to prepare your ‘retirement landing’
Avoiding turbulence as you approach the runway.
13 Things Not to Buy on Black Friday
Just because it’s on sale doesn’t mean it’s a bargain.
Today’s top story: How to manage your elderly parents’ money and protect them from identity theft. Also in the news: Changes to health savings accounts, open enrollment season, and personal finance tips from evil millionaires.
How to Manage Your Elderly Parent’s Money
Protecting elderly parents from identity theft.
The Best Personal Finance Tips from Evil Millionaires
Who better to learn from?
How to Make Smart Benefits Choices for 2014
How to approach open enrollment season for 2014.
7 Tips to Cut Flight Costs During the Holidays
How to arrive at your holiday destination for less.
Treasury Loosens Rules on Health Spending Accounts
Up to $500 can be rolled over to the next year IF your company offers the option.
Today’s top story: Fighting back against bad credit. Also in the news: financial horror stories, retiring on one million dollars, and mastering your finances through TED talks.
Haunted By Bad Credit? 5 Ways to Fight Back
Busting the ghosts of bad credit.
Top 5 TED Talks to Master Your Finances
Listening to the experts.
6 Financial Horror Stories That Could Happen to You
Read with the lights on.
Can you retire worry-free on $1 million?
10 people you’re not tipping enough
Tips on tipping.
Today’s top story: Tackling your financial fears. Also in the news: How to trust your financial advisor, curbing holiday spending, and how to sell your haunted house.
Fear of Finance: 5 Tips to Make Dealing With Money Less Scary
It’s time to face your fears head-on.
How Do I Know I Can Trust My Financial Advisor?
Trust is key.
Wellness quantified: These 6 healthy habits will save you money
Nurturing your wallet can be as important as nurturing your body.
3 Ways to Curb Pre-Holiday Money Stress
These tips could help you actually enjoy the holidays.
Real Haunted Houses: What Owners Need to Know
How to sell your house and the spirits hanging out in the attic.
Today’s top story: What veterans need to know about VA mortgages. Also in the news: Generation Y and retirement, the dangers of car title loans, and what the World Series and retirement have in common.
What Veterans Need to Know About Getting a Home Loan
Navigating the world of VA mortgages.
Retirement Tip for Gen Y: Save Now!
Taking control of your financial future.
The Consumer Perils of a Car Title Loan
Easy money can come at a huge price.
7 Things the World Series Can Teach Us About Retirement
Be prepared for extra innings.
The five worst things you can do with your money
Short of just setting it on fire.
Dear Liz: I’m in my late 60s and plan to retire in about two years. I have a pension that will pay close to my current take-home income. I also have about $500,000 in annuities and IRAs. These plus Social Security make retirement look good. But right now finances are tight. Should I continue to put $1,300 a month into my retirement plan or use that money for expenses and travel now — while we’re still relatively young?
Answer: You appear to be in the fortunate position of being able to try a “practice retirement.”
The term was created by mutual fund company T. Rowe Price after it discovered that people who have saved substantial amounts for retirement by age 60 may not have to save much more to have a comfortable retirement. Just putting off the day when they take Social Security and tap their retirement funds may be enough. That’s because Social Security benefits grow about 7% to 8% a year, plus inflation adjustments, for each year you delay starting your checks. Not starting retirement plan distributions also allows your nest egg to grow, and the delay shortens the length of retirement you’ll need to cover.
T. Rowe Price found that people who have saved four to eight times their annual income by their early 60s may be able to crank back on their retirement contributions. Instead, they could use the money to “practice retirement” by taking some trips and doing some of the other things they had planned for golden years while continuing to work.
The company recommends practice retirees continue to contribute enough to employer retirement plans to get any available match (it’s free money, after all), while delaying the start of Social Security to age 70 if possible.
T. Rowe Price researchers assumed that its practice retirees would live only on their savings and Social Security. The fact that you have such a generous pension means you may not need as much saved as they recommend. In any case, if this idea appeals to you, run it past a fee-only financial planner who can review your situation and ensure the plan is viable for you.