Dear Liz: My wife and I sold our house and have to be out by the end of the month, but we can’t find a place to live because of our bad credit. If we don’t move out, we will lose the sale and still have to pay the real estate agent his commission. We’ve applied with about 65 landlords and each one checked our credit, which has caused our scores to fall further. We live on Social Security checks of $1,367 a month. We’re in our 70s and not in good health and we don’t need this stress. Help!
Answer: Having a guaranteed income is attractive to a landlord, but the fact that you’re having credit problems would be a big concern to many. Landlords worry that you’ll mismanage your money and won’t be able to pay the rent.
Not every landlord does a credit check, however. If you steer clear of big apartment complexes run by professional management companies, you may find that individual “mom and pop” landlords are more willing to be flexible — particularly if your credit problems were a temporary problem and have been fixed by selling your home. You may be able to seal the deal by offering to pay several months’ rent upfront, perhaps from the proceeds of your sale, said attorney Stephen Elias, author of “The Foreclosure Survival Guide.”
You can start your search for sympathetic landlords by asking your real estate agent for referrals or checking the rental listings on Craigslist for postings that appear to be made by individuals rather than management companies.
Another option is to ask someone to co-sign the lease with you. The co-signer’s good credit could help you get the place, but if you fail to pay your rent, the co-signer’s credit will suffer.
Dear Liz: As a parent of a college freshman, I rushed out and closed out one of my son’s 529 college savings plans, thinking I would use the money to pay his expenses for the whole year. It turns out I will have pulled out $6,000 too much in 2010, because I was charged only for one term of room and board. Can I prepay the extra in 2010 for 2011 room and board and tuition as a valid college expense to avoid any 2010 taxes on the extra funds? If not, do you have any suggestions to avoid 2010 taxes?
Answer: Withdrawals from a 529 plan are trickier than many people think. They’re tax free only to the extent that you pay qualified higher education expenses in the same calendar year that you take the distribution — and that other tax breaks aren’t used.
Qualified expenses include tuition, fees, books, supplies, equipment and additional expenses for “special needs” beneficiaries. Qualified expenses do not include insurance, sports or other activity fees, transportation costs or the purchase of a computer, unless it’s required by the school.
If you pull out too much, you have to pay income tax and a 10% federal penalty on the earnings portion of the excess withdrawal. (For example, if your account totaled $10,000, and $6,000 was earnings while $4,000 represented your original contributions, you would pay the penalty on 60% of any excess withdrawals.)
There’s another way you might get hit. If you were planning to use an education tax credit, such as the Hope or Lifetime Learning credit, you would have to deduct from your qualified expenses the amount used to generate the credit. Let’s say you used $5,000 in tuition expenses to generate a $1,000 Lifetime Learning credit. That $5,000 would have to be deducted from your qualified expenses total, which would further reduce the amount of your 529 withdrawal that’s tax free. You wouldn’t have to pay the penalty on the excess withdrawal created by the tax credit adjustment, but you would have to pay income tax on any earnings.
Now the good news: You are allowed to prepay next year’s costs to help boost your qualified expenses total. If it’s been less than 60 days since the withdrawal, you also would be allowed to roll the excess distribution over into a new 529 account.
Fortunately, you discovered the problem before the end of the year. If you’d learned about the problem only when you started preparing your tax return next spring, as many people do, it would be too late and you would be stuck with the extra tax and penalty.
NerdWallet–creators of ever-so-helpful guides to frequent traveler programs and credit cards–just launched a tool to help you make the most of your online shopping.
NerdWallet’s new online discount tool lets you type in the name of a store and see every rewards offer available from the online shopping malls.
If you don’t know what an online mall is: It’s basically a portal, offered by credit card and travel rewards programs, where you start your shopping to rack up extra rewards points or frequent flyer miles. If you wanted to order something from Target, for example, you could start at an online mall offered by your airline, hotel or credit card rewards program and collect extra points or bonuses for that minimal effort.
The problem is that these online malls offer vastly different deals. One mall might offer 2 bonus points for every dollar spent at the destination retailer while another offers 10, or cash back. Enter NerdWallet, which captures them all and allows you to compare.
I’m about to create our holiday cards, for example, so I typed “Shutterfly” into the tool. Up popped 15 offers ranging from Choice Hotels Privileges Mall’s 14 bonus points for every dollar earned to Discover’s 10% cash back. (Which kind of made the 4 bonus points offered by the United Airlines and Chase online malls look a little puny.)
Cool tool, and just in time for holiday shopping.
Dear Liz: When would you say filing for bankruptcy would be necessary, or is it ever? I have approximately $30,000 in credit card debt, $50,000 in student loans and a $104,000 mortgage. I’m unemployed and can’t find a job that would cover day care for a toddler as well as after-school care for a special-needs child. However, my field is finance — go figure, huh? — and I don’t want to kill my chances of resuming my career with a bankruptcy. What can I do?
Answer: Bankruptcy is sometimes the best of bad options, particularly when you’re facing unsecured debts such as credit card bills that equal more than your annual income or that would take you five or more years to repay. Five years is typically how long you’d be required to chip away at your unsecured debt in a Chapter 13 bankruptcy repayment plan, although given your lack of employment you may qualify for a Chapter 7 liquidation bankruptcy, which would erase your credit card debt.
Your student loans typically can’t be wiped out in a bankruptcy, nor can your mortgage. But you probably qualify for economic hardship options that would allow you to reduce or suspend payments on any federal student loans. Private student loans don’t have similar provisions, but you may be able to work out a payment plan with your lenders or you may have enough financial room to pay them if your other debt is wiped out.
By federal law, a bankruptcy can’t be used against you in employment decisions. Employers may, however, hold against you the late payments, charge-offs and collection accounts that frequently precede bankruptcy, so the protection offered by the federal law may not be of much help.
It’s a tough call to make, and you’d benefit from some advice. Consider contacting a legitimate credit counselor, such as one affiliated with the National Foundation for Credit Counseling, to see if a debt management plan could help you. But you also should talk to an experienced bankruptcy attorney so you understand all your options and the possible consequences of each.
Dear Liz: I saw the letter from the gentleman whose wife was called by a collector about a $496 cellphone bill from 2002 she supposedly owed. I had a similar experience about six years ago when I received a demand for an unpaid cell bill from years prior. I called the collection agency handling it and they were extremely rude and threatening. So I asked for proof, but all they sent was a copy of my signature, which could have been for anything. So I went to the state attorney general’s office, and the collection agency dropped the matter. I think this is a scam and people should be warned.
Answer: Many debt collectors buy old debts for pennies on the dollar, and sometimes these accounts come with little documentation about how the debt was incurred, how much it is and who actually owes the money. These debt collectors often cast a wide net when trying to track down the borrower, and sometimes they latch on to the wrong people.
The federal Fair Debt Collection Practices Act specifies that, when challenged, third-party debt collectors are supposed to verify that the debt is legitimately owed by the person they’ve targeted. But the Federal Trade Commission has noted that “the limited information debt collectors obtain in verifying debts is unlikely to dissuade them from continuing their attempts to collect from the wrong consumer or the wrong amount.”
“Many collectors currently do little more to verify debts than confirm that their information accurately reflects what they received from the creditor,” the FTC noted in a February 2009 workshop report. “This is not likely to reveal whether collectors are trying to collect from the wrong consumer or collect the wrong amount.”
The FTC has asked Congress to update the federal law to require that debt collectors at least make a “reasonable” investigation of the consumer’s dispute. So far, though, Congress hasn’t acted.
If you challenge a debt collector and it doesn’t provide proof of the debt, turning to your state’s attorney general or consumer protection office may be your best alternative. Another option is to hire an attorney to fight back against particularly aggressive collectors who may be violating debt collection laws. You can get referrals at the National Assn. of Consumer Advocates at http://www.naca.net.
Setting up finances as a couple
- Liz Pulliam Weston
- Recent columns
Many couples have only joint bank accounts, some have only separate accounts and some have a combination. Also, more on paying down a mortgage versus saving for retirement.
Dear Liz: My husband and I have been happily married for a year but have reached a disagreement on how to handle our finances. I think that we should have a joint bank account only to pay bills, with each of us putting in a percentage of our income into it while retaining separate accounts for everything else. He thinks that we should have just a joint account. I’m the main breadwinner, so it’s primarily my money that would be going into the account, and I’m just not comfortable having only a joint account. While I have no problem spotting my husband for things, I don’t like the idea of his being able to spend my money without my say-so. I’m also concerned that if we share an account we won’t be able to surprise each other as we will both be able to see what purchases have been made. Finally, I’m worried that we will both make plans for the same money and that will cause checks to bounce. What is your advice on how to handle this?
Answer: There’s no one right way to set up your finances as a couple, and it may take some trial and error to figure out what works for you.
Half of married couples have only joint bank accounts, according to a Harris Interactive poll, while 18% have only separate accounts. Twenty-nine percent take a combined approach, with both joint and separate accounts, and 3% have no bank accounts.
Those who decide to hold all their accounts jointly often say it helps them to be on the same page financially and supports the idea that they’re working as a team. Those who opt to keep their finances separate may have suffered through bad financial experiences with partners, including divorce, that makes them wary of mingling money.
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The joint-plus-separate approach allows for a bit of both worlds: joint handling of bills and other expenses while keeping some money separate for each person to spend as he or she chooses. If you opt for this approach, though, you’ll need to make sure that all the accounts are adequately funded. For example, the joint account will need to have enough money to cover all the bills you’re likely to face, and the separate accounts should have enough for reasonable personal expenses. Being stingy with the grocery money or a lesser-earning partner’s “allowance” shouldn’t be an option.
What may matter more than the configuration of accounts is how you handle spending decisions. Many couples have a “talk to me” amount, which means any purchase above a certain dollar amount must be discussed with and agreed upon by the partner. The limit could be $50, $100, $500 — it depends on the details of your finances.
You’ll also need to discuss how much to allocate for retirement, debt repayment, vacations and other big expenses, since those budget items affect how much is left over for other spending. And if you have a joint account, both of you should have online access so you can check the balance frequently to avoid overdrafts.
With a little experimentation and a lot of communication, you can find a way to handle your finances that works for both of you.
Dear Liz: This is regarding the couple in good financial shape who asked if they should save more for retirement or focus on paying down their mortgage. I suggest you recommend that 60-year-olds pay off their mortgage under any circumstances. They can afford to miss out on investment income. They can’t afford to be stuck with a mortgage. I’ve read some sad testaments to this. To those telling you how many more years they plan to continue working, they should take into consideration that they may not be allowed to continue working.
Answer: It’s true that many people are forced to retire earlier than planned, but that in itself isn’t a reason to prioritize paying down a low-rate, potentially tax-deductible mortgage over saving more for retirement.
The two people in question were 50 and planning to retire in 10 years when they turned 60. They had no credit card debt or other loans except for a 15-year mortgage at 4.5%. If they’re in the 25% federal tax bracket and itemize their deductions, that would be an effective rate of just 3.4%. In any case, it’s a pretty cheap loan and one that would be paid off within a few years of their retirement. They almost certainly would be far better off taking advantage of opportunities to put more money into 401(k) accounts and Roth IRAs.
Focusing on paying down a mortgage may seem like the smart choice because it saves on interest, but it can leave people poorer in the long run if they’re ignoring opportunities to get retirement account matches, tax breaks and better returns on their money.
Since everyone’s situation is different, though, they’d be smart to find a fee-only financial planner to offer personalized advice.
Want some sound financial advice that’s truly fee, with no strings attached? Find it at Financial Planning Days around the country, events that are co-sponsored by the nation’s largest group of advisors, the Financial Planning Association. (Other sponsors include the Certified Financial Planner Board of Standards, the Foundation for Financial Planning and the U.S. Conference of Mayors.)
Not only will you get no-cost advice, but participating planners won’t be pushing any investments, products or services. In fact, they won’t even be allowed to “prospect”–they won’t be giving out their business cards or “following up” with call later.
What a refreshing change from a world where so many are selling so much under the guise of giving disinterested financial advice.
The FPA, in case you don’t know, recently adopted the fiduciary standard for its members. Basically, what that means is that members promise to put your interests ahead of their own. That’s what you’d want from someone giving you advice, but the association had to weather no small amount of struggle and controversy to put that in place.
And in another nod to putting people first, the FPA revamped its home page to put consumer-oriented information front and center, including tips and advice. The previous site focused more on providing information to financial professionals.
So, hats off to the FPA. Check out the Financial Planning Days website for the free advice day nearest you.
Today’s Wall Street Journal has an article about how this Congressional inaction is giving the Treasury Department fits, since normally by now the Treasury would be preparing withholding tables for employers–and nobody knows what the right withholding will be.
But the real story is contained in the graphic that accompanies the article, which shows how much your income taxes are likely to go up if Congress fails to act and the tax breaks expire:
- A household making $40,000 would see its paychecks shrink by $95 a month if it had no children, $135 if it had one child and $165 if it had two children.
- A household making $80,000 would see its monthly paychecks shrink by $145 with no kids, $150 with one and $180 with two.
- A household making $100,000 would clear $270 less per month with no kids, $300 less with one and $335 less with two.
I can’t imagine that anyone in today’s economic climate would be happy to see his or her paycheck shrink by that much.
My next book, “The 10 Commandments of Money: Survive and Thrive in the New Economy,” won’t be released until Jan. 20.
But if you pre-order it now and forward me your email receipt, you’ll get some free stuff:
- I’ll send you a free chapter from one of my earlier books, “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” The chapter talks about how to use technology to set up your financial life to run smoothly with the least hassle and anxiety.
- I’ll also send you a periodic newsletter with money trips, advice, Q&As, links to my MSN columns and other helpful stuff. (I’ll make it easy to unsubscribe if you want, or you can just subscribe to the newsletter only using the box on the right side of my home page.)
You can pre-order “The 10 Commandments of Money” at Amazon, Barnes & Noble, Borders, or Indie Bound. Once you get your email receipt, forward it to LizWestonBookOffer@gmail.com. I’ll email you back a PDF of the book chapter and sign you up for the newsletter.