Friday’s need-to-know money news

Today’s top story: Money moves to help you feel more in control. Also in the news: How to renegotiate your bills to save money, ways for renters to cope in the financial crisis, and how to protect yourself before your federal student loan servicer changes.

Feeling Out of Control? These Money Moves Could Help
Regain control by revising spending, boosting savings and focusing on daily actions instead of long-term outcomes.

How to Renegotiate Your Bills to Save Money

Renters at Risk: Ways to Cope in the Financial Crisis

Protect Yourself Before Your Federal Student Loan Servicer Changes

Q&A: Here’s why taking money from retirement accounts to pay bills is dumb

Dear Liz: I do not qualify for a coronavirus hardship withdrawal, but I have debt on several credit cards with interest rates above 23%. In 2019, I paid nearly $2,500 in interest charges. I would like to remove $10,000 from my IRA and use it to pay off the debt. I would then put the money that would normally go toward the credit card debt ($500 a month) to pay back the IRA. Would this repayment mitigate some of my tax charges from the withdrawal, and how long do I have to replace the funds, if any?

Answer: Coronavirus hardship withdrawals are available to a large group of people, including those who have lost their jobs or suffered other financial setbacks because of the pandemic, as well as people actually diagnosed with COVID-19, the disease caused by the novel coronavirus.

Coronavirus hardship withdrawals allow people to take out up to $100,000 from individual retirement accounts or 401(k)s without paying early withdrawal penalties or facing mandatory withholding. Income taxes must be paid on the withdrawal, but that bill can be spread over three years.

People who take such withdrawals would have the option of putting the money back within three years. If they can repay the money, they could amend their previous tax returns to get a refund of the taxes they paid on them.

If you don’t qualify for a coronavirus hardship withdrawal, then the rules on taking money from your IRA haven’t changed. You cannot take a loan from an IRA, and any money you withdrew would have to be returned to a qualifying retirement account within 60 days or it’s considered a withdrawal.

You would have to pay income taxes on the withdrawal, plus the 10% federal penalty if you’re under 59½. Most states also tax and penalize such withdrawals.

Even if you could qualify for a coronavirus hardship withdrawal, though, it would be a bad idea to raid your retirement account to pay credit card bills.

Not only is the tax cost high, but you’re also losing the future tax-deferred returns that money could have earned. A $10,000 withdrawal now could mean $100,000 less in retirement funds 30 years from now.

Also, you shouldn’t use an asset that would be protected from creditors to pay debts that could otherwise be erased in case you have to file for bankruptcy.

Too many people drain their 401(k)s and IRAs trying to pay their bills, only to find out too late that their retirement accounts are protected in bankruptcy. Meanwhile, the bills — including credit card balances, medical bills and most other unsecured debts — could have been wiped out.

If you can make your credit card payments but want to reduce your interest costs, you could consider a personal loan to consolidate your debt if your credit is good. If your credit is not good or you are struggling financially, you could contact a credit counselor about a debt management plan that would allow you to pay off your cards over time at lower rates.

You can get referrals from the National Foundation for Credit Counseling.

Another option for people struggling to pay off their credit card debt is to ask the issuers about hardship programs. Many are willing to offer forbearance, which allows cardholders to skip payments, or to temporarily reduce required payments.

If you’re struggling, though, you also should make an appointment with a bankruptcy attorney about your options. You can get referrals from the National Assn. of Consumer Bankruptcy Attorneys.

9 bills where you can cut a better deal

The word “bills” used to be synonymous with “fixed expenses.” But there’s nothing fixed about many of the bills a typical household pays today.

Some bills have introductory rates that expire, shooting monthly costs skyward. Others offer secret discounts or upgrades to those in the know. Providers constantly tweak their plans and pricing, which means long-term customers can overpay by hundreds of dollars a year.

In my latest for the Associated Press, a look at 9 bills where you can negotiate a better deal.

How to Pay Bills When You Can’t Pay Your Bills

stack-of-billsWhen Bruce McClary was a housing counselor, his clients regularly showed up for appointments with grocery bags full of unopened bills.

“It wasn’t unusual. They couldn’t pay the bills, so they didn’t open them,” says McClary, who now works in public relations for the National Foundation for Credit Counseling.

Ignoring bills seems to work — at least for a while. The repo man typically won’t take your car if you’re a little late with your payment (although he can). Credit card companies and student lenders may start to call, but you can always send them to voicemail. Foreclosures can take months, if not years, depending on where you live.

In my latest for NerdWallet, how to put a plan together when the money you have just isn’t enough.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to get fired up about saving money. Also in the news: How much you should be saving for the holidays, using “bill fixers” to negotiate lower rates, and the top beliefs that are keeping you broke.

4 Ways to Get Yourself Fired Up About Saving Money
Keeping yourself motivated.

How Much Should You Save Up for Christmas?
Budgeting tips to keep your holiday spending under control.

Should You Use a Third Party to Negotiate Your Cable Bill?
Welcome to the world of “bill fixers.”

Top 7 Beliefs Keeping You Broke
What’s holding you back from better money habits?

Thursday’s need-to-know money news

stack-of-billsToday’s top story: The bills you need to prioritize when you’re short on cash. Also in the news: Divorcing your financial adviser before your spouse, what to do when you get an inheritance, and the potential drawbacks to buying a home with an FHA loan.

Prioritize These 5 Bills When You’re Short on Cash
Creating an order of importance.

Before divorcing your spouse, consider divorcing your financial adviser
You’ll need someone who’s only in your corner.

What to do when you get an inheritance
Besides tapdancing, of course.

The Drawbacks of Buying a Home With an FHA Loan
Knowing the potential downsides.

FTC Shuts Down 12 ‘Rogue’ Debt Collectors
The tactics they used to collect a debt will stun you.

Daily money managers can help pay the bills

Dear Liz: I read with interest your answers about older people who need a trusted gatekeeper to keep others from taking financial advantage. I want to let you know there’s great help out there for seniors: the American Assn. of Daily Money Managers. We daily money managers provide assistance to people who have difficulty managing their personal bill-paying responsibilities and associated personal paperwork. This service offers a cost-effective way for clients to get assistance with organizing, bill paying, balancing checkbooks and reviewing statements from a trusted source. A daily money manager does not replace the services of other professionals — such as CPAs, banks, financial planners and attorneys — but assists clients with daily affairs and helps maintain records and information that is essential for these professionals. People can find more information at the association’s website, http://www.aadmm.com.

Answer: Thanks for pointing out this resource. Many older Americans have trouble with household money management. They may forget to pay bills or keep track of their account balances, leading to bounced checks. Organizing their paperwork and collecting information for tax returns can become an ordeal. Some people have trusted family members who have the time to take over. For others, daily money managers can be the answer.

Daily money managers are distinct from conservators or guardians, however. They aren’t supervised by the courts, so potential clients need to take care in hiring one. In addition to the AADMM’s website, people may be able to get referrals from financial professionals such as a lawyer, financial planner or accountant. The daily money manager should be insured and willing to work with those professionals.

Daily money managers aren’t limited to helping only seniors. They also can help busy executives, travelers and people with attention deficit disorders who have trouble keeping up with daily financial details.