Get smart with your money
By Liz Weston
Dear Liz: Every so often your column mentions an organization that lists financial planners that are fee-only. I cannot find this information on your site. Please keep mentioning this in your column.
Answer: You can get referrals to fee-only planners who charge by the hour at www.garrettplanningnetwork.com. If you’re looking for fee-only planners who charge a retainer or a percentage of assets, you’ll find those at
By Liz Weston
Dear Liz: My wife and I co-signed on our daughter’s mortgage, then the home went into foreclosure. My wife and I have no debt and a net worth that exceeds $1 million. We purchased our cars with cash and the single credit card we have with a $35,000 limit is paid off in full each month. Since the foreclosure, our FICO score has been in the “fair” range. We have no plans to take out a loan for anything and plan to continue our “cash and carry” lifestyle. However, the low FICO is a little disconcerting. It appears the only cure is time (measured in years). We welcome any additional guidance.
Answer: You can’t fix your wounded FICO scores overnight, but you could speed up your credit score rehabilitation by adding one or two more credit accounts to your mix. At least one of those accounts should be an installment loan, since scoring formulas want evidence you can handle different types of credit. If you don’t want an auto or personal loan, then consider a “credit builder” loan that puts your payments into a certificate of deposit that you claim when all the payments have been made. Credit builder loans are offered by credit unions and some online lenders.
Is it worth the effort, even though you don’t plan to borrow? In most states (although not California), credit scores heavily influence what you pay for auto and homeowners’ insurance. People who don’t have the best scores can pay hundreds of dollars more each year for coverage. Credit scores also may be used to determine deposits for utilities and wireless service. If you need to rent an apartment, your credit scores matter as well.
If none of those are a concern, you can continue to take the slow road to rebuilding your credit, since the foreclosure will fall off your credit reports after seven years. If you want to speed things along, though, another credit account or two should help.
By Liz Weston
Dear Liz: I sold one mutual fund to invest in another fund with the same company. The tax statement shows this as a capital gain so large that I cannot afford to pay it all in one payment to the IRS. This is a disaster. Is there anything I can do?
Answer: Absolutely. File your tax return on time, since the failure-to-file penalty is much higher than the failure-to-pay penalty. Pay as much as you can when you file the return, and then consider your options.
If you can come up with the remainder within 120 days, then do so. There’s no need to arrange a formal payment plan, but you will owe interest and penalties on the balance until it’s repaid.
If you can’t pay within 120 days, you can ask for an installment agreement. You’ll find an application in most tax software or you can find Form 9465 on the Internal Revenue Service website. You also can try calling the IRS at (800) 829-1040, but prepare for a long time listening to hold music. Budget cuts have left the agency severely short-handed and wait times are considerable.
You also should consider borrowing the money from another source, such as a low-cost personal loan. Another option is to charge what you owe to a low-rate credit card. You’ll pay a small fee for the privilege, but ultimately it may be cheaper than paying interest and penalties to the IRS.
By Liz Weston
Dear Liz: You frequently suggest consulting a fee-only financial planner, such as those who are members of the Garrett Planning Network, which seems like great advice. Can you provide any guidance on how much one should expect to pay for the services of this type of planner? We are a couple living in Los Angeles looking for a pre-retirement evaluation. That would probably include evaluation of existing investments, insurance needs, Social Security, long-term care, etc. How should we evaluate a quote of $3,000 for a full review estimated at 10 hours or $300 an hour?
Answer: The cost for a comprehensive financial plan varies depending on where you live and the planner’s experience level, among other factors. Nationally, the range is typically from $150 to $300 an hour, so $3,000 for 10 hours in Los Angeles is at the high (but not unreasonable) end of the scale, assuming the planner has several years’ experience.
Another way to get a feel for going rates is by interviewing a couple of other fee-only planners in your area. If the cost you’re quoted is dramatically lower, though, make sure the planner isn’t accepting commissions as well. Some planners are “fee based,” which means they accept both fees from clients and commissions on the products they recommend. You can ask for the planner’s Form ADV, a form filed with the Securities and Exchange Commission. Part II of this form contains information about how the planner is compensated.
By Liz Weston
Dear Liz: I own a car that I can no longer afford. Unfortunately, buying it was a poor decision and came with terrible interest rates and terms. I’ve been 30 to 60 days late on the payments for close to a year and have other debts that I haven’t been able to pay. Because of this, my credit is already in the basement. I’m underwater on the car (by about $7,000) and am feeling like the only option is to have it “voluntarily” repossessed. I really feel that if I didn’t have this $400 payment and another $200 a month in car-related costs, I could get my other debts squashed, build some savings and get in a much better place financially. I should mention that I have another (free!) car available to me when I need it and live in an area with reliable public transit, plus I have carpooling options that can get me to and from work at little to no cost. I have no major plans for anything that would require amazing credit scores. I have a stable job and rent an apartment with my boyfriend, who has strong credit but not a huge capacity to help financially. Am I insane? How would I even begin to recover from a repossession?
Answer: Having your car repossessed won’t relieve you of the debt. In fact, your debt is likely to increase.
Repossession costs such as storage, preparation for sale and attorney fees can be added to your loan balance. You’ll owe the difference between that amount and the price the creditor gets for the vehicle when it’s resold, often at auction.
If you don’t pay what you owe, your creditor can sue you — and probably will, given that nice steady job with reliable wages that can be garnished.
So yes, you probably would be insane to think repossession is the answer to your situation.
Usually the best solution when you owe more than a car is worth is to “drive out of the loan” — in other words, to own the car at least until the loan is paid off. In your case, the best solution may be to park the car while you pay it off. A parked car doesn’t need much gas or maintenance (as long as you start it occasionally). You may be able to get discounts on insurance and registration if you don’t operate it.
If you still can’t make ends meet, then get a second job that will bring in some extra cash. Pay off the loan as quickly as possible and then start saving to pay cash for your next car. Also work on repairing your credit so that if you want loans in the future you’ll be able to get decent rates and terms.
By Liz Weston
Dear Liz: When applying for credit or at other times when one must state gross income, how should virtual income be computed and treated? My wife and I have annual tax-free income of about $96,000, not subject to offset of any kind, plus our $8,000 annual property taxes are waived in their entirety, as are our vehicle license fees and many other smaller fees. We have free health insurance through the military and the Department of Veterans Affairs that far exceeds the best plan out there. To state our household income as the money that goes into our bank accounts annually is a serious understatement of our financial position. We do not want to lie on a credit application, but we feel we are not being totally honest no matter how we answer questions asking for gross income.
Answer: Creditors are far more worried about people inflating their incomes than they are about people who understate their financial situations. In short: Don’t worry about it.