Thursday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: What can be learned financially during a parent’s last days. Also in the news: How to reduce your credit card debt through balance transfers, what new college grads should know about money, and should you buy life insurance for your kids.

5 financial lessons from a parent’s last days
What can be learned during a difficult time.

Save Thousands on Credit Card Debt with Balance Transfers
Playing the balance transfer shuffle.

What New College Grads Need To Know About Money
The “real world” is expensive.

Should You Buy Life Insurance for Your Kids?
Determining the best savings strategies.

Five Little Money Leaks That You Can Plug Right Now
Stopping the drips.

Q&A: How long do unpaid accounts and judgments remain on credit reports?

Dear Liz: My credit reports don’t show any of my old unpaid collection accounts. I also have one judgment that is not showing from 2005. My wife (who has perfect credit) and I are looking to apply for a mortgage. What will the lender find? I recently applied for a credit card to start rebuilding my credit. The issuer approved me for a card with a $1,000 limit and told me my score was in the high 700s. I am so confused.

Answer: If your collection accounts are older than seven years, your lender shouldn’t see them when it reviews your credit reports. Most negative marks have to be dropped from reports seven years and six months after the date the account first went delinquent. Civil judgments also have to be dropped after seven years unless your state has a longer statute of limitations; in that case, the judgment can be reported until the statute expires. California’s statute of limitations for judgments is 10 years.

If none of those negative marks shows on your reports and you’ve handled credit responsibly since then, your credit scores (you have more than one) may well be excellent.

Since you’ll be in the market for a major loan, you and your wife should get your FICO scores from MyFico.com. Mortgage lenders will look at all six scores (one from each of the three credit bureaus for you and your wife), basing your rate and terms on the lower of the two middle scores. If that score is 740 or above, you should get the best rate and terms the lender offers.

Your FICO scores will cost $20 each, which is a bit of an investment. You can get free scores from various online sites, but those aren’t the FICO scores that mortgage lenders use and are of limited help in understanding what rate and terms you’re likely to get.

Does Paying Off Old Debts Help Your Credit Score?

Dear Liz: How can I get a clear and complete picture of the debts that are hurting my credit score? I have my credit report already. I’m a bit lost and I need to get my credit cleared up to buy a home.

Answer: You actually have three credit reports, one at each of the major credit bureaus: Experian, Equifax and TransUnion. Your mortgage lender is likely to request FICO credit scores from each of the three, so you need to check all three reports.

You get your reports for free at one site: http://www.annualcreditreport.com. There are many sites masquerading as this free, federally mandated site, so make sure that you enter the URL correctly. You may be pitched credit scores or other products by the credit bureaus while you’re on this site, but you won’t be required to give a credit card number to get your free reports. (If the site is demanding that you give your credit card number, you’re at the wrong site.)

You should understand that old, unpaid bills may be depressing your scores, but paying them off may not improve those scores. In other words, the damage has been done. You may be able to reduce the impact if you can persuade the collectors to remove the accounts from your reports in exchange for payment, something known in the collections industry as “pay for delete.” But you probably can’t erase the late payments and charge-offs reported by the original creditor before the accounts were turned over to collections, and those earlier marks against you are even more negative than the collection accounts.

That’s not to say you should despair. Over time, your credit scores will improve as you handle credit responsibly. But you shouldn’t expect overnight miracles.

Friday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s big story: What you can get removed from your credit report. Also in the news: How to tell if your partner is a sound financial match, which Olympic medal would your savings plan win, and why online dating can be hazardous to your wallet.

What Can I Get Removed From My Credit Reports?
Patience is key.

Want To Know If Your Partner Is A Financial Match? Take These 8 Steps
Financial compatibility is crucial in a relationship.

Which Olympic Medal Would Your Savings Habits Win?
Go for the gold!

The Financial Risks of Online Dating
That dreamboat on the screen could actually be a nightmare.

How I went from $50,000 in debt to $50,000 in savings
It can be done!

How to pay off your credit card debt

Dear Liz: I’m confused about paying down credit card debt. Some say to pay the lowest-balance cards first and others say the highest balance or the one with the highest interest. I have almost $16,000 on credit cards ranging from a $4,930 balance on a card with an 8.24% interest rate to $660 on a card with an 18% rate.

Answer: Actually, the first question you should ask is “How much credit card debt do I have compared to my income?” If your balances equal half or more of your annual earnings, you may not be able to pay it all off. You should make appointments with a legitimate credit counselor (such as one affiliated with the National Foundation for Credit Counseling at http://www.nfcc.org) and a bankruptcy attorney (referrals from the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org).

If your situation isn’t that dire, the fastest way out of debt is to pay the minimums on your lower-rate cards and send as much money as possible to your highest-rate card. Once that’s paid off, concentrate on paying off the next-highest-rate card, and so on. Some people instead like to target balances from smallest to largest to get a quicker feeling of victory, but you typically pay more in interest with that approach.

Use inheritance to pay credit cards, not mortgage

Dear Liz: I will be inheriting around $300,000 over the next year. My instincts are to pay down debt with this money. I have two homes and for practical reasons need to keep them. One home has a $260,000 mortgage balance at 5%. The other has a $130,000 mortgage at 4%. We have $35,000 in credit card balances. Some are telling us to invest. I think we should pay off all the credit cards and then pay down the larger mortgage by $100,000 or more. Am I on the right track?

Answer: Paying off your whopping credit card debt is a great idea. You need to figure out, though, what caused you to rack up so much debt and fix that problem. Otherwise, you’re likely to find yourself back in the hole.

Paying down a mortgage is a trickier proposition. Most people have better things to do with their money than prepay a low-rate, tax-deductible debt. Before they consider doing so, they should make sure they’re saving adequately for retirement, that all their other debt is paid off, that they have a substantial emergency fund of at least six months’ worth of expenses, and that they’re adequately insured with appropriate health, property, life and disability coverage. Those with children should think about funding a college savings plan.

If you’ve covered all these bases, then paying down and perhaps refinancing the larger mortgage makes sense.

Single mom’s expenses leave no money for food

Dear Liz: I’m a single mom with three kids. My mortgage is $1,700. My other monthly bills include $355 for a car loan, $755 for school tuition, $350 for utilities, $790 for credit cards, $200 for gas, $208 for braces and $235 for a 401(k) contribution. This leaves no money for food. I get no child support. How can I pay down my credit card debt? I don’t have any money for a baby sitter or I could get a second job.

Answer: The way you pay down credit card debt is by reducing expenses and increasing income to free up extra cash. If that’s not possible, you may need to consider bankruptcy, given the amount of debt you’re carrying.

If you’re paying only the minimums on your credit cards, that monthly bill indicates you have close to $40,000 in credit card debt. Since you can’t cover your basic expenses, you’re probably adding to that debt pile every month. That needs to stop.

You don’t say why you aren’t receiving child support, but if the father isn’t dead or disabled he should be helping to support his kids. Your state has an enforcement agency that can help you. Child support enforcement is often part of a state’s social services department, although it may also be offered by the state attorney general or its revenue (tax) department.

One obvious, if painful, place to trim is private school tuition. If the school can’t offer you financial aid, you should consider placing your kids in the best public school you can manage.

What you don’t want to do is trim your retirement plan contribution. You’re probably getting a company match, which is free money you’ll need to sustain yourself in retirement.

In general, your “must have” expenses — shelter, transportation, food, utilities, insurance and minimum loan payments — should equal no more than 50% of your after-tax income. If your must-haves exceed that level, it will be tough to make ends meet, particularly if you’re trying to pay off debt and save for the future.

Wednesday’s need-to-know money news

Today’s top story: 8 tax breaks expiring at the end of 2013. Also in the news: How to monitor your credit after a data breach, when it makes sense to have credit card debt, and could cheaper insurance convince you to buy a self-driving car?

8 Tax Breaks Expiring at the End of 2013
Teachers aren’t going to like this.

How to Monitor Your Credit After a Data Breach
Vigilance is key.

When Does It Make Sense to Have Credit Card Debt?
Credit card debt isn’t always a bad thing.

Will cheaper insurance sway you toward a self-driving car?
Are you ready to let someone (or something) else do the driving?

10 ways to avoid car-buying gotchas
Be prepared to walk away.

Tuesday’s need-to-know money news

Credit card backgroundSurviving unemployment, the pros and cons of taking a personal loan to pay off credit card debt, and where your state ranks on the list of America’s most debt-free.

How to survive a job loss
Tips on how to get through one of life’s most difficult times.

Use Personal Loan to Cut Credit Card Debt?
Is trading one debt for another a smart idea?

4 signs of financial immaturity in teens
Could your teen already be on the road to financial ruin?

6 Financial Mistakes We Don’t Make Anymore (and 2 We Still Do)
What financial mistakes are we still making in the “new normal”?

The Most Debt-Free States in America
This list may surprise you.