Ask Liz Weston

Get smart with your money

Liz Weston

Book giveaway! Free! Free!

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DWYD cover2013My new book “Deal With Your Debt” will be released in a few days (you can order it here), and I need to make some room on the bookshelf. So I’m giving away five copies of my previous book, “The 10 Commandments of Money.”

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. 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!

The death knell for hotel rewards cards?

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credit card detailed 1Rewards card ninjas have long loved hotel rewards cards because the associated loyalty programs tend to be a lot more generous and easy to use than airline cards.

That may be changing.

Brian Kelly at The Points Guy has an excellent series of posts on the coming changes in hotel rewards programs, and there’s not much good news. (You can start with his post “The State of Hotel Loyalty Programs: A Devaluation Story.”) Starwood and Marriott are diluting their programs, but some of the most dramatic changes are in the Hilton HHonors program, which will not only require more points for most stays but will upgrade a bunch of properties to higher, more expensive categories. Hotels like the Conrad Tokyo will go from 50,000 points per night to 80,000 to 95,000 points.

In a warning to hotel loyalty programs, Kelly says these changes could come back to haunt them:

As you hack away more and more of the value proposition, I think you’ll realize that consumers are actually pretty smart and will start shifting their spend towards chains that actually reward loyalty and not punish it. This may not come in the form of traditional points, but many boutique hotels offer far more enriching experiences with more amenities and at cheaper prices. This Hilton devaluation was so brazen that I do think it will hurt them dearly in the end when Amex and Citi cardholders reduce their spend or cancel their cards. In fact, if the impact is so negative, I could see those issuers coming after Hilton since there are likely clauses in the contracts that state that Hilton can’t materially change the program (since the credit card companies are buying millions of dollars worth of points that their cardholders can use at a later time and date). I’ll be complaining to both American Express and Citi about the Hilton changes and hope everyone else considers doing so as well if you don’t like the changes.

Even if you plan to stay loyal to your card, the program devaluations underscore what has always been true: you don’t want to hoard rewards. Earn ’em and burn ’em to make sure you get the most value.

What to do with extra cash when an auto loan is paid off

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Dear Liz: I’ll be done paying off my car in a couple of months. What’s a good strategy for redirecting that money once it’s paid off? Should I use the whole amount each month to start saving for my next car, or would I be better off splitting it up and putting it into several savings “buckets” such as retirement, emergency and my next car? I’m 35, have an emergency fund equal to four months’ living expenses and only one other debt, a very low-interest student loan.

Answer: If you aren’t already contributing to a retirement plan, you should be. If you aren’t contributing enough, that should be your priority even before you pay off your debt.

Market researcher and Yale University professor Roger Ibbotson has found that people who start saving for retirement after age 35 have an extremely difficult time “catching up.” They’ve lost a crucial decade or more, and often can’t set aside enough to offset their late start.

If you are on track for retirement and are comfortable with your emergency fund, saving to pay cash for your next car is a reasonable course.

Does paying down installment loans help your credit?

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Dear Liz: I know a high balance on a credit card hurts your credit score and that it’s best to keep balances low and pay them off each month. But does the same theory hold true for installment borrowing such as auto or student loans, which obviously have a higher balance in the beginning of the loan repayment period?

Answer: Paying down installment loans will help your credit score, but typically not as dramatically as paying down balances on revolving debt such as credit cards.

The leading FICO credit scoring formula is much more sensitive to balances on revolving accounts. The wider the gap between your available credit and the amount you’re using, the better.

Should life insurance be renewed in retirement?

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Dear Liz: My life insurance policy of $500,000 will end in four years, when I’m 63. My wife’s policy ends at age 62. Our kids are 28 and 25 and successfully launched with careers. I also have a $180,000 life insurance policy through my job that expires when I plan to retire, also at age 63. My wife and I have long-term-care insurance policies. We have $170,000 in an active investment account plus $1.4 million in our 401(k)s. Our kids also have trust funds that they will get when they turn 30 of about $80,000 each. Should I buy more life insurance for 10 to 15 years? Our estate, which is in a living trust, will pass to the kids. Our house is worth about $1 million.

Answer: The first question you must ask when it comes to life insurance is whether you need it. If you have people who are financially dependent on you, you typically do. If your wife has sufficient retirement income should you die, and vice versa, then you probably don’t.

So-called permanent or cash-value life insurance is often sold as a way to pay estate taxes, but again, it doesn’t look as if you’ll need that coverage. Congress increased the estate tax exemption limit for 2012 to $5.12 million, and that amount is tied to inflation going forward.

Still, this is a good question to pose to a fee-only financial planner, and you should be seeing one for a consultation before you retire in any case. Retirement involves too many complicated, irreversible decisions to proceed without help.

Old check may still have value

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Dear Liz: You recently answered a question from a reader who found an old refund check that couldn’t be cashed. You pointed out that checks typically must be cashed within six months or they’re worthless. But your reader should check the unclaimed-property department of his state. Each state has laws that all companies must follow that typically require them to turn over or “escheat” amounts from uncashed checks, dormant checking accounts, unclaimed utility deposits and other accounts. The consumer should write a letter to the company that issued the check (sent certified mail) with a copy of the front and back of the check to find out whether they escheated the funds. The consumer should also check Unclaimed.org and talk to the state that the company is based in along with his current state. Please encourage him to keep the check and not give up. Unclaimed-property laws are not well known, and they are there to protect the consumer.

Answer: Thanks for your suggestion. Not all companies follow the laws regarding unclaimed property. If this company had, it presumably would have referred this customer to the appropriate unclaimed-property department when he called asking for a replacement check. Still, checking the state treasury departments on Unclaimed.org is relatively easy and certainly worth a try.