Liz Weston

This week’s money news

October 10, 2022 By Liz Weston

This week’s top story: Smart Money podcast on buy now, pay later loans and credit reports. In other news: What to do if your homebuying plan got scrapped this year, when the car market will return to normal, and 3 steps to lower the cost of your debt.

Smart Money Podcast: Money Hot Takes, and Too Many Credit Cards
This week’s episode starts with two hot takes from our hosts about buy now, pay later loans and credit reports.

What to Do If Your Homebuying Plan Got Scrapped This Year
Elevated prices, rising interest rates and steep competition are interrupting millennials’ plans to buy homes.

When Will the Car Market Return to Normal?
Car prices skyrocketed during the pandemic. It’s unlikely they’ll drop significantly anytime soon, experts say.

3 Steps to Lower the Cost of Your Debt
There are ways you can reduce the expense, but it helps to know each method’s details and trade-offs.

Q&A: ‘Fee based’ vs. ‘fee only’ financial planners: There’s a big difference

October 10, 2022 By Liz Weston

Dear Liz: How do you find a fee-based financial planner? I just inherited a lot of money, and trying to figure out our future is stressing me out.

Answer: That’s understandable. Getting sound advice can mean the difference between growing your newfound wealth and wasting it. But finding a good, honest, competent planner requires some work.

Most advisors aren’t fiduciaries, so they aren’t required to put your interests ahead of their own. Instead, they can recommend investments that cost more or perform worse than available alternatives, simply because the recommended investments pay them more.

Such advisors often call themselves “fee based,” hoping you’ll confuse them with “fee only” planners. Fee-only planners are compensated only by the fees you pay; they don’t accept commissions or other compensation that could influence their advice.

The National Assn. of Personal Financial Advisors and the Alliance of Comprehensive Planners are two organizations that represent fee-only planners, many of whom charge a percentage of your investable assets. You can find fee-only planners who work on an hourly basis at Garrett Planning Network and those who charge monthly retainer fees at XY Planning Network.

Interview at least three candidates. Ask them how they are paid and what your “all-in” costs — their fees plus the cost of investments they recommend — are likely to be. Ask about, and verify, their credentials. (You can check a certified financial planner’s status at cfp.net/verify-a-cfp-professional.) Find out about their education and experience, including whether they’ve advised people similar to you.

They should be willing to assert in writing that they will be fiduciaries. Finally, check their backgrounds, including their disciplinary history, at BrokerCheck.finra.org.

Q&A: Health savings account rules

October 10, 2022 By Liz Weston

Dear Liz: I established a health savings account when I was self-employed using an HSA-compliant healthcare plan. Now I am employed. My employer does not offer a health plan that was designated as an HSA, but my deductible is $7,000, higher than the minimum for an individual. Can I continue to contribute to my existing HSA?

Answer: Unfortunately, no. To contribute to an HSA, you must be covered by an HSA-compliant high-deductible healthcare plan, and you may not be covered by other health insurance, including Medicare.

HSAs were created as a way to encourage people to choose high-deductible health insurance plans, but many people use them as an additional way to save for retirement. HSAs have a rare triple tax break: contributions are pretax, the account can grow tax deferred and withdrawals are tax free if used to pay qualifying healthcare expenses.

Unlike flexible spending accounts, which are “use it or lose it,” HSAs allow people to roll unused balances over from year to year. Plus, balances can be invested for long-term growth. Many people value these tax advantages so highly that they pay medical expenses out of pocket, leaving their HSA balances to grow for the future.

But HSA-compliant health insurance policies must meet certain criteria, including a minimum deductible of $1,400 for individuals and $2,800 for families for 2022. (The average deductible in 2021 was $2,349 for individuals and $5,217 for families, according to KFF, the healthcare research organization formerly known as the Kaiser Family Foundation.) The maximum out-of-pocket limit — including deductibles and co-pays, but not premiums — is $7,050 for individuals or $14,100 for families in 2022.

As you can see, you’ve wound up with the worst of both worlds: a very high deductible with no option to save in an HSA. Perhaps your employer is compensating you so handsomely in other areas that you can overlook this deficit in your benefits. If not, it might be time to look for an employer who can offer more.

How to handle your medical bills

October 3, 2022 By Liz Weston

When she was 19, writer Emily Maloney found herself facing about $50,000 in medical debt after hospital treatment for a mental health crisis. The debt followed her throughout her twenties, hurting her credit and leading to stressful calls from collection agencies.

Her experience is all too common: The Consumer Financial Protection Bureau reports that about 1 in 5 U.S. households carries medical debt. People with medical debt are more likely to face anxiety, stress or depression and avoid filling prescriptions because of the cost.

In Kimberly Palmer’s latest for the Associated Press, learn how to handle your medical bills.

Q&A: Investigate a credit score drop

October 3, 2022 By Liz Weston

Dear Liz: I had an 836 credit score as of last week. I’m a business owner and have been using my company credit card to pay bills on a large project to get 2% cash back. I charged $52,000 of the $70,000 I have available on that one card. (I have about $175,000 available across the three business cards I have) and my credit score went down to 699! I pay my cards off within days of receiving my statements. Is this a bad use of my cards? How long do you think it will take to get my score back up? Side note: I don’t need any more credit, but my business line of credit is coming up for renewal and I am buying a new truck in two months. Do you think this will be an issue?

Answer: Lower scores could cause you to pay more for credit, so it’s worth fixing this issue promptly.

There’s nothing wrong with using your cards to get rewards, as long as you’re paying your balances in full and not using too much of your available credit. Ideally, you’d use less than 10% of the limit on any card at any given time. (Credit scoring formulas pay close attention to the amount of credit you’re using on each revolving account as well as how much of your available credit you’re using overall.)

If you need to use a lot more of your credit limit, consider making more than one payment a month. Some people make bi-weekly or even weekly payments to keep their balances low.

(The balances that factor into your scores are typically the amounts that you owe on your statement closing date.)

Credit card issuers typically report to the credit bureaus every month, so it shouldn’t take more than 30 days for lower balances to improve your scores.

It’s a little unusual, however, for a business credit card to affect your personal credit scores. Typically, business accounts don’t show up on your credit reports, even if you used your personal credit history to apply for the cards. You may want to pull your three credit reports from AnnualCreditReport.com to see if other problems may have contributed to your score drop.