Ask Liz Weston

Get smart with your money

Liz Weston

Monday’s need-to-know money news

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download (1)Today’s top story: How to keep track of your spending while using multiple credit cards. Also in the news: Scrutinizing promotional offers from credit cards, how to make your student loan payments manageable, and the one tax move you need to make right away.

How to Keep Track of Your Spending on Multiple Credit Cards
There are apps that can help.

Beware credit card promotion offers
As always, read the fine print.

How to make student loan payments manageable
Don’t become overwhelmed.

1 Tax Move You Need to Make Now
It’s never too early to start preparing.

5 Behaviors That Predict Poor Money Management Later
There’s still time to get on the right track.

Q&A: Credit cards vs student debt. Which should be paid off first?

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Dear Liz: I have $8,000 in savings. Should I use it to pay the accrued interest on federal student loans that go into repayment soon? Or should I pay credit card debts of $662 at 11.24%, $3,840 at 7.99% and $3,000 at 6.99%?

Answer: Pay off the credit card debt. The interest isn’t tax deductible, and balances you carry on credit cards just eat into your economic well-being.

Your student loans, by contrast, offer fixed rates, a wealth of consumer protections and tax-deductible interest. You needn’t be in any rush to pay them off, particularly if you’re not already saving adequately for retirement and for emergencies. Federal student loans offer the opportunity to reduce or suspend payment without damaging your credit scores should you face economic difficulty and the possibility of forgiveness. Those aren’t options offered by credit card issuers.

If your student loan payments exceed 10% of your income when you do go into repayment, you should investigate the federal government’s “Pay as You Earn” program, which offers more manageable payments for many people, especially those with large debts and small incomes.

Q&A: Will having no debt affect our FICO score?

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Dear Liz: My wife and I have paid off our mortgage, we have no car loans, and we pay our credit card balances completely each month, which means that we basically pay no interest. We have four credit cards that are active and a couple more that are rarely used. My FICO score is currently just above 800. At some point we will need to replace our cars and will need car loans, so our FICO scores will be important. Since we currently have no mortgage, no car loans or any other loans, will our FICO score slowly drop, and will that affect our car loans?

Answer: Paid-off loans typically don’t disappear from your credit reports, at least not immediately. Many lenders continue to report these closed accounts for years, which contributes positively to your scores.

Even if none of these paid obligations show up on your reports, though, your responsible use of credit cards should support your high scores. Just continue to use your cards lightly but regularly and pay off all balances in full.

Since you have time before you plan to replace your cars, consider paying cash for them, or at least making a substantial down payment. It’s typically best to use loans only for assets that appreciate — and cars certainly don’t do that.

Q&A: Which work years determine Social Security?

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Dear Liz: My wife and I are both 59. We expect to retire in two or three years. We would not take Social Security until probably 67 because we will not need it when we retire. But would our Social Security benefits be less because we do not work for those five years before applying to Social Security? Is Social Security affected at all by the last few years of income or simply by the total lifetime deposits into the system?

Answer: Your Social Security benefits are based on your 35 highest-earning years. So if you’ve worked more than 35 years, a few years at the end of your career in which you earn less or don’t earn anything at all shouldn’t affect your benefits.

While you’re researching your options for claiming Social Security, check out the “claim now, claim more later” strategy that would allow one of you to claim spousal benefits while allowing his or her own benefit to grow. It’s one of a number of strategies available to married couples that can significantly increase the amount of Social Security benefits over a lifetime. Another important factor to consider is that one of you is likely to survive the other, perhaps by many years, and will have to get by on a single check. You should make sure that check is as large as it can be to lessen the chances the survivor will face poverty in old age. You can find more information about Social Security claiming strategies at the AARP site (aarp.org).

Friday’s need-to-know money news

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selfie_bannerToday’s top story: Could the dreaded selfie stop credit card theft? Also in the news: The pros and cons of tuition reimbursement insurance, tips on how to avoid losing value on gift cards, and Home Depot’s credit card breach is the biggest one yet.

Could Selfies Stop Credit Card Fraud?
Could having your picture on your credit card deter thieves?

Is Tuition Reimbursement Insurance A Good Investment?
Protecting your investment in your child’s education.

7 Tips to Avoid Losing Gift Card Value
Depending on where you live, gift cards may never lose their value.

Home Depot Breach Bigger Than Target’s
56 million credit cards are at risk.

Stop Treating Money Like Your Master, Start Treating it Like a Tool
Don’t give money more power than it’s worth.

“England is sinking. Scotland is rising.”

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DSC04008The narrator of the museum documentary we were watching in Edinburgh was referring to the geology of the United Kingdom, not its economy or politics.

Yet the phrase resonated somehow. Since devolution, when the Scottish Parliament was established after nearly 300 years of British rule, the Scots have definitely taken their own way.

One thing travel can do is help you better understand the world, and I understood Scotland a bit better after learning some of its history this summer. Its union with England was mostly supported by wealthy landowners, merchants and investors who wanted access to England’s colonies. The common people were not so enthralled. After that came the Highland Clearances, when tenant farmers were booted off their traditional holdings so that wealthy landowners could raise sheep instead. The evictions came with little notice and left a lot of suffering in their wake.

So maybe it’s not surprising that many Scots are suspicious of any system–political, social or economic–that favors the rich at the expense of regular people.

While England slashed public benefits after the financial crisis, Scotland restored tuition-free college education for its residents and added free long-term care for its elderly. (Actually, in-home care is free. Care in nursing homes is means-tested.)

As a result, Scotland is moving closer to the European model, where long-term care is at least in part funded by the government in many countries and where college education at public universities is free or very low cost.

These outlays might surprise people who believe the stereotype that Scots are tight with their money, but a Scotsman explained to me that what his people really like is good value for their money.

Renewable energy is a big thing in Scotland, too. The Scots surpassed their goal of 31% by 2011 and its 2020 target has been boosted from 50% to 100%. Again, that’s more like Northern Europe than the rest of the U.K.

Now Scotland is on the brink of deciding whether it wants to be independent. The U.K.’s prime minister, David Cameron, has promised Scotland more control if it stays with the union. So either way, it looks like Scotland may continue to rise.