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Liz Weston

Q&A: How a card switch affects your credit score

September 6, 2021 By Liz Weston

Dear Liz: I have one American Express card and two Visa cards, all of which I have held for many years. I received notice that my American Express card was being converted to a Visa card. I do not want a third Visa card but have no choice. For credit score purposes, will this conversion appear to be a closing of my old card and an application for a new one? Obviously, closing a long-held credit card and applying for a new one will affect my excellent credit score, which is 830. If I decided to apply for a new American Express card, how would that impact my score?

Answer: Conversions from one issuer to another can have a temporary negative impact on your credit scores as one account is closed and another opened. The effect should be minor as long as you have other open, active accounts.

Within a month or two, the new account should show the same history as the old one, and your scores should recover. (You have more than one credit score, by the way, and your scores change all the time. As long as they’re generally above 760 or so, you should get lenders’ best rates and terms.)

The type of card usually matters less than the benefits associated with the card. If those benefits are useful to you and are enough to offset any annual fee, consider keeping the card. Its long history and credit limit are likely helping your scores.

That doesn’t mean you have to keep a card you really don’t want. The fewer cards you have, though, the more careful you probably need to be about closing one.

You can still add an American Express or other card to your portfolio. Adding a new card typically dings your scores less than five points. The effect is temporary, and the new account could contribute positively to your scores over time.

Filed Under: Credit Cards, Credit Scoring, Q&A Tagged With: Credit Cards, Credit Score, q&a

Q&A: Social Security and the tax torpedo

September 6, 2021 By Liz Weston

Dear Liz: People are typically advised to wait as long as possible (full retirement age or later) to take Social Security to maximize the benefit. If a couple has low expenses and substantial pensions, wouldn’t it make sense to take Social Security earlier, to preserve retirement funds to pass on to their heirs? Social Security payments stop upon death, whereas retirement accounts are passed on to heirs.

Answer:
If your primary concern is preserving an inheritance, maximizing your Social Security payments could help you reduce how much you have to withdraw from retirement funds in the long run.

Starting early also could make you more susceptible to what’s known as the tax torpedo, which is a sharp increase in marginal tax rates due to how Social Security is taxed when someone receives other income. People who only receive Social Security don’t face the torpedo, and higher-income people probably can’t avoid it, but middle-income people may be able to lessen the hit by delaying Social Security and drawing from their retirement funds instead.

One way to preserve assets for heirs is to convert traditional retirement accounts to Roth IRAs. This requires paying taxes on the conversions, but then you wouldn’t face required minimum distributions on the Roth accounts.

Calculating the best course can be difficult. You can pay $20 to $40 to use sophisticated claiming software such as Social Security Solutions or Maximize My Social Security to model various options, or consider consulting with a fee-only advisor.

Filed Under: Q&A, Social Security, Taxes Tagged With: q&a, taxes. Social Security

Q&A: Long-term-care insurance

September 6, 2021 By Liz Weston

Dear Liz: I’d appreciate your thoughts about long-term-care insurance programs. Ours has just announced a 52% rate increase with a possible 25% increase next year. Although I realize that none of us can predict the future, are there any guidelines you can suggest for deciding whether, for example, an 80-year-old in good health needs the maximum 10-year coverage or can get by with a three-year coverage period?

Answer: Most people over 65 will need some kind of long-term care, but most need it for less than three years. You may want to err on the side of caution and opt for a longer coverage period if you have a family history of dementia.

Filed Under: Insurance, Q&A Tagged With: long-term care insurance, q&a

Thursday’s need-to-know money news

September 2, 2021 By Liz Weston

Today’s top story: How video games can level up kids’ money skills. Also in the news: How Twitter became the unlikely hero in a rental car fiasco, what to buy (and skip) in September, and 5 steps to turn your side gig into a full-fledged business.

How Video Games Can Level Up Kids’ Money Skills
These four conversations can help your video game-loving kids learn about money.

How Twitter Became the Unlikely Hero in a Rental Car Fiasco
Here’s how and when customers might use social media to get through to customer service.

What to Buy (and Skip) in September 2021

5 Steps to Turn Your Side Gig Into a Full-Fledged Business
Formalize your freelance business by separating your business and personal finances and making a business plan.

Filed Under: Liz's Blog Tagged With: Kids, rental cars, September shopping, side gigs, Twitter, video games. money skills

Wednesday’s need-to-know money news

September 1, 2021 By Liz Weston

Today’s top story: Where to turn when a natural disaster upends your finances. Also in the news: 5 ways women can combat investing disadvantages, Ask a Travel Nerd on when to book holiday travel, and why your rent is often more than a mortgage payment.

Where to Turn When a Natural Disaster Upends Your Finances
Act quickly to get free aid first, then turn to financial tasks like contacting insurers and creditors.

5 Ways Women Can Combat Investing Disadvantages
Here are some of the investing disadvantages Americans say women have, and advice on how to overcome them.

Ask a Travel Nerd: Is It Time to Book Holiday Travel Yet?
Despite ongoing uncertainty caused by the pandemic, it still makes sense to book your holiday travel early.

Why Your Rent Is Often More Than a Mortgage Payment
The extra costs baked into your monthly rent.

Filed Under: Liz's Blog Tagged With: ask a points nerd, holiday travek, natural disasters, rent vs mortgage costs, women and investing

Tuesday’s need-to-know money news

August 31, 2021 By Liz Weston

Today’s top story: How to get free money for college and help to find it. Also in the news: 4 alternatives to big banks, workplace scams to watch out for, and unexpected things you could buy with crypto.

You Can Get Free Money for College — and Help Finding It
The FAFSA qualifies you for federal financial aid. And it’s not too late to submit it for this academic year.

Tired of Your Big Bank? Consider These 4 Alternatives
Become more than just a number.

Scam Alert: Avoid a Big Mistake in a New Job
CEO fraud and other scams try to get employees to purchase gift cards, send money or divulge sensitive information.

Unexpected Things You Didn’t Know You Could Buy With Crypto
From home goods to travel.

Filed Under: Liz's Blog Tagged With: big bank alternatives, cryptocurrency, FAFSA, free college money, workplace scams

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