March 19, 2012 By

Could son’s unpaid bills harm parents’ credit? Maybe

Dear Liz: Our 24-year-old son lives with us. He failed out of college, has been fired from two restaurant jobs and is working part time at a grocery warehouse. He has neglected to pay his credit card for several months. He also waits until his cellphone carrier threatens to turn off his phone before he pays half of that bill. We are concerned that his poor payment history may start to reflect on our good credit histories. We are retired and may want to build a new house. His bills are sent to our address, and creditors call our home phone number looking for him.

Answer: His debts shouldn’t affect your credit reports and scores unless you cosigned loans or other credit accounts or added him as a joint user to your credit cards.

Note the word “shouldn’t.” It’s possible that an unethical collection agency would try to get you to pay these bills by posting the overdue accounts on your credit reports. That could negatively affect your scores. Check your credit reports at least once a year at http://www.annualcreditreport.com. You also may want to consider ongoing credit monitoring, which can alert you if any collections or other suspicious activity shows up on your reports.

Speaking of unethical actions, you need to consider the possibility that your son could steal your financial identity. He probably has access to the information he would need to open new accounts in your name, including your Social Security numbers. His failure to pay his bills, even though it appears he can, indicates some moral shortcomings. He may not be low enough to rip off his parents, but if you have any suspicions about his trustworthiness, consider putting a credit freeze (also known as a security freeze) on your credit reports. This freeze should prevent anyone from opening credit accounts in your name.

Finally, you can write letters to creditors telling them to stop contacting you. You run the risk that such a letter could lead a creditor to sue your son. But his creditors may sue him anyway if he doesn’t respond to their requests for payment.

Filed Under: Credit & Debt, Kids & Money, Q&A Tagged With: , , , , , , ,
March 19, 2012 By

Stepdaughter wants “everything”: what does she deserve?

Dear Liz: Your column from the person who wanted “heirlooms” from her stepfather is applicable to my situation. My husband’s daughter wants literally everything in my house, even though he and I commingled our assets 23 years ago and have been married more than 10 years. How do I access public records to see if her mother did have a will?

Answer: It’s interesting that your husband can’t clear up this mystery. Presumably he would know whether his late wife had a will and what it said.

You can check with probate court of the county where she died to determine if a will was filed. If she had a living trust, that would be private and probably not filed with the court, but your husband should know what it said.

If she had no will or living trust, then your husband was supposed to follow state law in dividing up her possessions. In community property states, without a will or trust he typically would inherit stuff acquired during their marriage, plus a share of any separately held assets — possessions she brought to the marriage, said Burton Mitchell, an estate planning attorney with Jeffer Mangels Butler & Mitchell in Los Angeles. In other states, your husband might inherit half of her assets, with the other half divided among her children, Burton said.

State laws vary widely and there are all kinds of exceptions to the general rules, so you may need a lawyer’s help in sorting out what belongs to whom.

In any case, you’d be smart to hire an estate-planning attorney at this point. Your stepdaughter may not be able to pursue a legal case after all this time, but she could cause trouble when you or your husband dies. Any time a relative creates a real fuss about an estate division, it’s good to get a qualified attorney’s advice as you craft your own wills or living trusts that spell out who gets what.

As you make your plans, try to be guided by kindness and compassion. Your stepdaughter may not have a legal right to lay claim to every item in your home, but letting her have items of strong sentimental value may be the right thing to do. Just think how you would feel if your father’s second wife gave your mother’s special jewelry or your grandmother’s treasured antiques to your step-siblings. Lifelong rifts and family feuds have started over less.

Then again, all parties need to remember that stuff is just stuff. What’s a precious heirloom to one generation may wind up in the next generation’s garage sale. Resolving to put relationships first, instead of possessions, can really help all sides avoid painful battles.

Filed Under: Estate planning, Q&A Tagged With: , , , , ,
March 16, 2012 By

Friday Follows: What’s interesting out there

Here are some recent, thought-provoking articles that are worth a look:

“Get ready: inflation may hit 15%” from Kathy Kristof on MoneyWatch. Alarmist? Maybe, but there’s a lot of cheap money sloshing around in the economy right now. Once the economy heats up, that fuel could catch fire. If you don’t remember the 1970s, this is a good primer in what to do when prices skyrocket.

“Daily coupon deals may not work for buyers, sellers” from USA Today. I’ve gotten some great deals–and some real stinkers. Some businesses benefit, others don’t. What do you think?

“Bouncing back” from another friend, Melissa Balmain, on Success. How people find the strength to go on in tough times, and how to develop your own “resistance muscle.”

“Bulls, bears and bailouts” from ProPublica captures the highlights of a Reddit chat with Wall Street reporter Jesse Eisinger. Jesse’s answer to why more of the architects of the financial collapse aren’t in jail? “Prosecutors have been overly risk-averse.”

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March 15, 2012 By

5 debit card don’ts

ShopSmart, the excellent magazine from the publishers of Consumer Reports, just came out with a list of ways you shouldn’t use your debit card. Among them:

1. Don’t use your debit card for big purchases or when you shop online. Credit cards can serve as a middleman in disputes, so you’re typically not out any money if there’s a problem.

2.  Don’t take your debit card on trips. Credit cards often have travel insurance; debit cards don’t.

3.   Don’t use a debit card if you’re worried about getting ripped off. You have more protections under federal law with a credit card. You’re only responsible for up to $50 in unauthorized purchases, and credit cards typically waive that small amount. “With a debit card, you can be out $500 if you don’t report the theft or loss of your card or PIN within two business days of discovering the problem,” the magazine noted.

4.      Don’t rely on a debit card if you want to raise your credit score. Debit cards don’t build credit history. Credit cards do.

5.      Don’t use your debit card if you want to earn money on purchases. Banks have eliminated or reduced most debit card reward programs, while many credit card issuers have enhanced theirs.

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March 14, 2012 By

New giveaway: Moonjars!

I’m giving away twelve (12!) Moonjar Moneyboxes. If there’s a child in your life who needs to learn about money, this is a great tool. The three-part cardboard bank allows kids to divvy their cash among three categories: save, spend and share.

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

Click on the tab above this 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. But rest assured, it will.

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!

 

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March 13, 2012 By

Saving for college: what parents need to know

I’m giving a talk this morning to fellow parents about saving for college. I’ll be covering three important topics: why you need to save, how much you need to save and where you should put the money you’re saving.

Why you need to save

A college degree, or at least some post-high school training, is already important if you want your kids to remain in the middle class. That’s only going to become more true in coming years. Read “Should your kid skip college?” for more.

If you can save, you probably should. Financial aid formulas will expect you to have put aside at least something if you’re middle income or above. The idea that saving will hurt your kid’s chances for financial aid is the #1 myth I address is “3 college myths that will cost you.” (You also should read the second part of this series, “Costly college myths part 2.”)

To learn more about financial aid, visit FinAid.org and try out its estimated family contribution calculator. Another good site: TheCollegeSolution.com.

How much you need to save

The answer: A horrifyingly large amount if you expect to pay the whole tab. Even if you start when your child is born, you’d need to save:

  • Nearly $500 a month to pay for a public college
  • Nearly $1,000 a month to pay for a typical private college that currently costs $40,000 a year
  • Nearly $1,500 a month to pay for an elite private school such as Harvard or USC.

If you don’t start saving until your child is older, you’d need to put aside even more to cover the entire bill for tuition, books, room, board and living costs.

(A note: Harvard, like other Ivy League colleges, has committed to capping the cost for education. Families earning $65,000 pay no tuition. Families with incomes between $65,000 and $150,000 will contribute from 0 to 10 percent of income, depending on individual circumstances.  Significant financial aid also is available for families above those income ranges.)

Most families can’t save enough to pay the whole tab. But anything you can save likely will reduce your child’s need to take on debt. You can play with the numbers using SavingForCollege.com’s college savings calculator.

One thing you need to keep in mind: retirement savings must come first. Nobody will loan you the money you need to retire. But try to put aside at least $25 to $50 a month for college, and increase it as you can. Encourage grandparents and relatives to chip in as they can.

Where you should save

Three key points:

  • If your child stands any chance of getting financial aid, don’t put money in UTMAs, UGMAs or other custodial accounts, which are counted as the student’s assets and dramatically reduce financial aid.
  • Savings bonds have very poor returns and aren’t a great way for most to save for college.
  • State-run 529 plans are a good option for many families. The plans have limited impact on student aid awards. The money grows tax-free for college and the contributor retains control. There are estate-planning benefits as well. For more on which plan to use, read “The best and worst 529 plans.”

UPDATE: In my speech, I mentioned how Coverdells (Education Savings Accounts) were changing–I should have been clear that those changes haven’t happened yet. At the end of 2010, Coverdells were scheduled to revert back to their old version, where the limit on contributions was $500 (down from $2,000) and the money could be used only for college (instead of for K-12 as well). Congress actually extended the more favorable rules through 2012, so Coverdells aren’t scheduled to revert to their old form until the end of this year. Congress may extend the rules again, so anyone with a Coverdell may want to wait before they transfer the money to a different type of account.

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March 12, 2012 By

Want to save money on gas? Check out these cards

Credit card comparison site NerdWallet took a close look at gas cards offered by Gulf, BP, Chevron, ExxonMobil and Shell and compared them to 10 cards that offered rewards at any gas stations. Nerdwallet’s conclusion: it doesn’t pay to be loyal to one brand of gas.

NerdWallet found the station-branded cards offered lower rewards and higher interest rates, plus they rarely had sign-up bonuses.

From the study:

There’s a popular misconception that station-branded gas cards will give you better rewards in exchange for limiting your fill-up options. But when you step back and actually compare, the numbers just don’t add up.

So what should consumers do who want gas credit cards?

Consider these no-fee, non-branded gas cards:

  • Pentagon Federal Platinum Rewards: unlimited 5 points per $1 on gas and $250 signup bonus
  • Chase Freedom: 5% cash back on gas for half the year and $200 signup bonus

Filed Under: Liz's Blog Tagged With: ,
March 12, 2012 By

Don’t buy life insurance if you don’t need life insurance

Dear Liz: I recently inherited around $200,000. I’m on track for retirement, so my broker is encouraging me to consider buying a policy for long-term care. He recommends a flexible-premium universal life insurance policy that requires a one-time upfront payment and provides a death benefit as well as a long-term care benefit. It does appear to me to be a better option than buying a long-term care policy in which I pay a certain amount every month, which can of course increase greatly as time goes on, with no guarantee of ever needing or using the benefits and no hope of money paid in becoming part of my estate.

Answer: Long-term care policies can indeed be problematic, since the premiums can soar just when you’re most likely to need the coverage. So if you need life insurance for another purpose — to take care of financial dependents should you die or to pay taxes on your estate — then a life insurance policy with a long-term care rider may not be a bad idea, said Laura Tarbox, a fee-only Certified Financial Planner in Newport Beach who specializes in insurance.

But buying life insurance when you don’t need it just to get another benefit, such as long-term care coverage or tax-free income, is often a costly mistake.

“The golden rule is that you do not buy life insurance if you don’t need life insurance,” Tarbox said. “It would probably be better to invest the money and have it earmarked for long-term care.”

If you decide you want to buy this insurance, don’t grab the first policy you’re offered. Shop around, because premiums and benefits vary enormously. The financial strength of the insurer matters as well. You want the company to still be there, perhaps decades in the future, if you should need the coverage.

What you don’t want to do is take guidance solely from someone who is going to make a fat commission should you buy what he or she recommends.

“Get two or three proposals from different agents,” Tarbox said. “A fee-only financial planner can help you sort through them.”

Filed Under: Insurance, Q&A Tagged With: , ,
March 12, 2012 By

Prepaid cards aren’t a great choice for travel

Dear Liz: I have been granted a Chapter 7 bankruptcy discharge of all my debts. I’m now debt free and plan to stay that way. I’ve been saving like crazy and have enough to afford a cross-country driving trip to attend my son’s wedding. I’d like your advice on using prepaid debit cards to cover expenses such as fuel, food and lodging. My plan is to load each of three cards with an amount of money to cover each category of expense, based on my best research estimates, as a means of controlling how much I spend. If you feel this is a good plan, which would be the best brand of card to use?

Answer: Your determination to stay out of debt is admirable, but prepaid cards are problematic. You don’t have the same federally mandated consumer protections you have with a debit or a credit card, so merchant disputes or a lost or stolen card can wind up costing you big time.

Furthermore, these cards can be expensive. You often pay to activate the card, to load it with cash and to access the cash in transactions. Card comparison site NerdWallet.com studied 40 popular prepaid debit cards and found that the average card cost nearly $300 annually in basic fees. Monthly fees of up to $14.95 took the biggest toll, but $1 to $2 fees per transaction and for ATM use could easily cost a typical user more than $20 a month.

If you’re convinced prepaid cards are the best money-management tool for your situation, though, you might want to choose the American Express Bluebird, which was dramatically less expensive than its competitors in the NerdWallet study. The Amex card charges no monthly or per-transaction fees and allows for direct deposit. ATM withdrawals cost $2 apiece and cash reloads are just a buck, compared with an average of $4.50 with other cards.

Eventually you may want to look into getting a secured credit card to help you rebuild your credit scores, since prepaid cards won’t help with that. A secured card is one in which you make a deposit at the issuing bank, usually between $200 and $1,000, and get a card with credit limit equal to your deposit. You don’t need to carry a balance on these cards, but you do need to have and use credit if you want to rehabilitate your battered credit. NerdWallet recommends the secured cards issued by Orchard Bank and Capital One.

Filed Under: Budgeting, Credit & Debt, Q&A Tagged With: , ,
March 10, 2012 By

Try, try again

One of the most frustrating things about money is that progress may not be permanent.

But it’s still progress—if you keep going.

Here’s what I mean. Say you make a goal to boost your emergency fund. You manage to save a few hundred bucks—and then your car breaks down, or you get a speeding ticket, or you need dental work. There goes the extra money.

That’s where a lot of people give up. Looked at another way, though, the emergency fund did exactly what it was supposed to: it was there when you needed it, and kept you from putting another few hundred bucks on your credit cards. If you keep saving, this small start can turn into something bigger.

In my MSN column, “Why you need $500 in the bank,” I told the story of Wendi Pendleton. Here’s the email she sent me a couple of years ago:

“I just wanted to thank you. During April 2008 I read a column about having a $500 emergency fund. I decided it was solid advice and trimmed my spending that month and saved $500. Realizing how much money I wasted I saved another $500 the next month and so on (and some months more than $500). Even after what would have been a crisis with dental work needed, and a car repair that would have stressed me before, I now have $12,000 in savings I am using as a down payment on my first house, something I never thought would be possible for me on my own. Thank you, you changed the way I looked at my money and spending and improved the quality of my life.”

My challenge right now isn’t saving money—we’re on track with that. My goals involve getting more exercise. The days I don’t get in a full hour’s workout can be discouraging, but my experience with achieving other goals has taught me that any exercise is better than none. When I hit a setback, like my recent bout with the flu, the important thing is not to throw my hands up in despair and retreat to the couch. The important thing is to get back out there, and try again.

I hope you’re making progress on your goals for 2012, including your goals with money. If not, well, maybe it’s time to get off the couch.

This post is a part of Women’s Money Week 2012. For more posts about goals and taking action, see Women’s Money Week.

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