My book is out! Get it for free.

DWYD cover2013Deal with Your Debt” is now available, and I’m giving away five copies this week.

To enter to win, leave a comment here on my blog (not my Facebook page).

Click on the tab above the post that says “comments.” Make sure to include your email address, which won’t show up with your comment, but I’ll be able to see it.

If you haven’t commented before, it may take a little while for your comment to show up since comments are moderated.

The winners will be chosen at random Friday night. Over the weekend, please check your email (including your spam filter). If I don’t hear from a winner by noon Pacific time on Monday, his or her prize will be forfeited and I’ll pick another winner.

Also, check back here often for other giveaways.

The deadline to enter is midnight Pacific time on Friday. So–comment away!

Huge debts? Where to find help

Dear Liz: My husband and I are in a huge amount of debt. I understand that there are nonprofit agencies that can sit down with us and help us develop repayment plans and strategies. How do I find a reputable one?

Answer: Contact the National Foundation for Credit Counseling at (800) 388-2227 for a referral to a legitimate, accredited, nonprofit credit counseling agency in your area. A counselor can review your financial situation, help you with budgeting and see whether you’re a candidate for a debt management plan, which would allow you to pay off your credit card debt over time, perhaps at a lower interest rate.

You also should consider making an appointment with an experienced bankruptcy attorney. You can get referrals from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org. A credit counselor may try to steer you away from bankruptcy, whereas an attorney can let you know if it might be a better option.

Unfortunately, many people wait too long before they contact a credit counselor. They may be approved for a debt management plan but find themselves unable to stick with the plan long enough to pay off their debt. In other words, they continue to struggle with debt that they ultimately can’t pay. Understanding all your options, including bankruptcy, can help you make a better choice about what to do next.

How to help a friend with big debts

Dear Liz: I have a friend who owes $30,000 in credit card debt. I suggested he see a financial advisor who can help him to get out of this situation, but he never finds the time to do it. He pays all his bills on time, but only the minimum required, and there’s nothing left for him to save for his old age. He has a good-paying job but still struggles financially. How can we help him?

Answer: If your friend can pay only the minimum on his debt and can’t save for retirement, he’s in a deeper hole than he probably realizes. Many people in his situation wind up filing for bankruptcy, often after years of throwing money at impossible-to-pay debt.

Your friend should make two appointments: one with a legitimate credit counselor (referrals from the National Foundation for Credit Counseling at www.nfcc.org) and another with an experienced bankruptcy attorney (referrals from the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org).

The credit counselor will review his financial situation and see whether he qualifies for a low-interest repayment program that would allow him to pay off his debt within five years. The bankruptcy attorney will let him know whether bankruptcy might be the better option.

As a friend, you can pass these suggestions along to him, and even offer to go with him to one or both appointments if he’s comfortable with that idea. But you can’t force him to face reality or take any action until he’s ready to do so. One thing you definitely shouldn’t do is lend him money. He’s not managing the debt he has, and you don’t want your loan winding up with the rest of his bills in Bankruptcy Court.

Botched remodel holding up refinancing

Dear Liz: My husband and I are wondering whether it is time to file for bankruptcy. We have about $20,000 in credit card debt, largely because of a home addition and remodeling project my husband began five years ago. It has been much more costly and time consuming than he anticipated and is not even close to being finished. That prevents us from being able to refinance, which would free up money to pay our debt.

A mortgage broker recently suggested we apply for a home equity line to get enough cash for materials and labor to finish this project. We pay our mortgage and two car loans on time and make at least minimum payments on the cards.

My husband’s health has been declining, making it very difficult for him to do physical work on this project, and one of our kids has had two surgeries in the last few years, so there have been a lot of medical bills as well. How should we proceed?

Answer: You’re having trouble managing the debt you already have, so it’s definitely risky take on more. On the other hand, if you have enough home equity to get a line of credit, that could be a path out of this mess.

First, though, make an appointment with an experienced bankruptcy attorney (you can get referrals from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org). A credit card balance of $20,000 isn’t by itself insurmountable, depending on your income, but the fact that you’re not paying much more than the minimums on your cards is a huge red flag — as are those medical bills.

The lawyer can review your situation and let you know whether bankruptcy is even a reasonable option. Each state’s laws differ, so you need to consult an expert.

If you decide instead to take out the home equity line, make sure you hire a competent and well-recommended contractor to finish what your husband started. The last thing you need is for someone else to botch the job.

Now available: My new book!

Do you have questions about money? Here’s a secret: we all do, and sometimes finding the right answers can be tough. My new book, “There Are No Dumb Questions About Money,” can make it easier for you to figure out your financial world.

I’ve taken your toughest questions about money and answered them in a clear, easy-to-read format. This book can help you manage your spending, improve your credit and find the best way to pay off debt. It can help you make the right choices when you’re investing, paying for your children’s education and prioritizing your financial goals. I’ve also tackled the difficult, emotional side of money: how to get on the same page with your partner, cope with spendthrift children (or parents!) and talk about end-of-life issues that can be so difficult to discuss. (And if you think your family is dysfunctional about money, read Chapter 5…you’ll either find answers to your problems, or be grateful that your situation isn’t as bad as some of the ones described there!)

Interested? You can buy this ebook on iTunes or on Amazon.

Don’t pay grandson’s credit card bills

Dear Liz: I hope you can offer me some advice regarding a large credit card debt. My 28-year-old grandson is currently enrolled in college part-time and is employed. Over the last few years, he was not in school and unable to find work. He has, consequently, accumulated a total debt of $7,000 on his three credit cards. What would you advise him to do? He is paying the interest only on his debts as that is all he can afford.

Answer: Today’s minimum payments require credit card borrowers to repay a portion of principal along with the interest owed that month. If he truly is paying only interest, then he’s paying less than the minimum required and his credit scores have probably taken a big hit.

Let’s assume that he’s actually paying the minimums on his cards. He needs to increase his payments if he wants to work his way out of debt faster. That will require earning more income (by working more hours or taking a second job), cutting expenses or both.

Seven thousand dollars is not an insurmountable amount of debt, and certainly not something he should file bankruptcy over. But he may want to talk to a legitimate credit counselor about budgeting strategies or, if he’s really in a bind, a debt management plan that would allow him to pay the debt off over time at lower interest rates. He can get referrals from the National Foundation for Credit Counseling at http://www.nfcc.org.

What you shouldn’t do is offer to pay this debt, even if you can. Struggling to repay this debt could teach him not to carry balances in the future. If you pay the debt, the only thing he learns is that he can count on Grandma to bail him out of his own messes.

When you should consider bankruptcy

The conventional wisdom—that people who file for bankruptcy are deadbeats who choose not to pay their debts—is typically dead wrong.

Ask any bankruptcy judge or trustee. Most people who file for bankruptcy don’t do it as a first resort. Most people, in fact, put off filing for far too long. They struggle for years with impossible debts, often draining retirement funds or home equity in vain attempts to satisfy their creditors. The tragedy is that the money they’re pulling from their IRAs or their homes would be protected from those same creditors if they had filed for bankruptcy sooner. But they try to do the right thing, and as a result wind up far worse off than they might have been.

Add up all your unsecured debts. Unsecured debts include:

  • Credit card debt
  • Medical bills
  • Unsecured personal loans
  • Loans from friends and family

Unsecured debt does not include auto loans, mortgages or student loans.

If your unsecured debts equal half or more of your current income, then you should make two appointments:

  1. Visit the National Foundation for Credit Counseling and set up an appointment with a legitimate credit counselor. These folks can tell you if you may qualify for a debt management plan that would allow you to pay off your credit card debt within three to five years. Credit counselors try to help you avoid bankruptcy, so to get a complete picture of your options you should also:
  2. Visit the National Association of Consumer Bankruptcy Attorneys and get a referral to a nearby experienced bankruptcy attorney. The attorney can review your situation and let you know your options in bankruptcy court. Many of these attorneys offer free or discounted initial sessions.

Even if you’re determined to avoid bankruptcy, you should consult with a bankruptcy attorney about your situation if you’re being sued over your debts or your wages have been garnished to pay your debts. Once the courts are involved, you need a lawyer’s help.

Restoring credit scores after bankruptcy

Dear Liz: I had credit scores over 800 with no late payments ever. Unfortunately, a medical issue required me to charge $24,500 to a credit card. That led to a bankruptcy, which was discharged in July 2011. My scores dropped to 672, and they’re currently around 680. I’m paying two unsecured credit cards in full each month plus an auto loan that was reaffirmed in bankruptcy. I would like to continue rehabilitating my scores by applying for another loan. When a company requests my credit scores, does it also see my bankruptcy, and would that prevent me from getting credit?

Answer: Some lenders look just at credit scores, while others request credit reports along with your scores. Your bankruptcy or your scores could cause lenders to charge a higher interest rate or refuse to give you credit.

It’s not clear that the scores you’re seeing are FICO scores, however. A bankruptcy would have dropped your FICOs into the 500s, and it’s unlikely they would return to the high 600s in less than a year. What you may be seeing are VantageScores, which have a different score range: 500 to 990, compared with FICO’s 300 to 850.

If you want to see your FICO scores, which are the ones most lenders use, you can buy them for about $20 each at MyFico.com. Scores offered at other sites typically aren’t FICO scores but may be VantageScores or “consumer education scores” that aren’t widely used by lenders.

You’re doing the right things by using a mix of credit (credit cards and an installment loan) and paying your bills on time. You should know, though, that there’s no way to quickly restore your scores to their old levels. It typically takes seven to 10 years for FICOs to recover from a bankruptcy.

But let’s back up a minute. You almost certainly made a mistake by charging your medical care to a credit card. You may have been able to qualify for a discount on your care if you hadn’t. Many medical providers offer charity programs that cut or eliminate the bill for people making up to 400% of the federal poverty line. A single person could make up to $44,680 and still qualify for a break under many providers’ programs.

If you make too much to qualify for financial aid, you could still have negotiated a discount by asking the provider to charge you the same rate that its largest insurer pays. The uninsured are often charged a much higher “sticker price” for medical care than what insurers pay, but if asked, many providers are willing to provide the same discounts.

If nothing else, you probably could have qualified for an interest-free payment program. Once you charged the bill to your card, however, you lost all your leverage to get a discount.

You’re not going to win the lottery. But if you do, read this.

With so much talk about the record Mega Millions jackpot, I thought I’d throw in my two cents:

First cent: You’re not going to win. The odds are ridiculous.

Second cent: If you should win this or any other windfall, even a much smaller one, you’ve got some work ahead of you.

If you’ve never had money, you may not realize how much effort it takes to manage it wisely–and not lose it. You don’t want to wind up like the folks featured in SmartMoney’s “Why lottery winners go bankrupt“–lottery winners who went bust, or even to jail.

So here’s my MSN column “You won the lottery. Now what?” When you don’t win, you can still read it for advice about what to do should any major windfall enter your life.