January 3, 2014 By

Friday’s need-to-know money news

Today’s top story: Assessing the damage created by holiday spending. Also in the news: Stress testing your personal finances, New Year’s resolutions for baby boomers, and finding help with getting out of debt.

Did the Holidays Hurt Your Credit?
Analyzing the Christmas carnage.

Stress-Testing Our Personal Finances
Preparing your finances for unexpected crises.

New Year’s Resolutions Boomers Should Make
Establishing better financial habits.

8 Tips to Find Help With Your Debt
You don’t have to do it alone.

The Best Online Tools for Your Housing Search
Your new home could be just a click away.

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January 3, 2014 By

Starting over in your 50s, and other curveballs

Man Seeking EmploymentLosing a job late in life can be devastating, and rebuilding can be tough. Here’s how writer Teresa Mears puts it:

Americans in their 50s and 60s, who expected to be at the peak of their careers before retirement, are finding themselves playing catch-up. While they may never get back the lives they had before, there are steps they can take to improve their retirement prospects.

Jean Chatzky and I offer advice about those steps in “10 ways to get your retirement plan back on track.”

Job losses can have another side effect, besides derailing your retirement: they also can derail your credit scores. I talked to Kelley Holland for CNBC about why that matters and what you can do about it in “What your poor credit rating is costing you.”

I also discusses debt for a series of interviews with Spectrem’s Millionaire Corner, including “Debt is Not Just a Four-Letter Word,” “What Every Buyer ‘Auto” Know about Car Loans” and “You Don’t Want to Overdose on Student Loan Debt.”

Speaking of student loan debt, there are ways to erase some of your federal education loans—but too many people don’t know what they are. Read more in “5 ways do-gooders can erase student loan debt.”

My other recent education columns for Reuters including “Debunking the myth of college rejection rates,”  “3 ways to fix financial aid form flaws” and “That break from college? Stopping out leads to dropping out.”

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December 23, 2013 By

Use a credit card like a debit card to avoid debt

Dear Liz: Here’s a suggestion for the reader who prefers a debit card to a credit card so she will not get in debt: Use your credit card as a debit card. Every month I pay any credit card balance plus an additional amount equal to a month’s average purchases. Then I keep track of what I spend so I don’t go over that amount during the billing period. This is the same as paying the bill one month ahead. I don’t go into debt at all and still get my reward points.

Answer: Another way to accomplish the same end is to check your credit card balance every week and move that amount to a savings account. When the bill is due, you can move the money back to checking from savings and pay in full. It’s important in any case to stay on top of your balances and make sure you’re not spending more than you can pay off each month.

Filed Under: Credit & Debt, Credit Cards, Q&A Tagged With: , ,
December 17, 2013 By

New giveaway: “Confessions of a Credit Junkie”

Confessions of a Credit Junkie High Res OriginalCongratulations to Kim from Davis, California, who won the copy of Mary Hunt’s “The Smart Woman’s Guide to Planning for Retirement” that I was giving away last week.

This week’s giveaway is Beverly Herzog’s “Confessions of a Credit Junkie.” Beverly made big mistakes with her credit, but was able to dig her way out. In the process, she became an expert on credit and credit cards. Whether you need inspiration for dealing with debt or just want some tips for getting the most out of your cards, Beverly’s book will be a big help.

To enter, 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!

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December 12, 2013 By

Join our credit chat tomorrow

liz-credit-mythsI’ll be hosting a live video panel discussion about credit myths and facts tomorrow, Dec. 13, at noon Eastern/9 a.m. Pacific. Joining me will be John Ulzheimer of SmartCredit.com, Gerri Detweiler of Credit.com and Maxine Sweet of Experian.

This is a reprise of a conversation we had at FinCon13, the financial blogger conference held in St. Louis this fall. People there really seemed to get a lot out of it, so we thought we’d share our insights with a broader audience.

My panelists have the inside scoop on the credit industry. John has more than two decades’ experience working in the consumer credit industry, including stints with credit bureau Equifax and credit score creators Fair Isaac (creators of the FICO scoring formula). Gerri’s my go-to expert on consumer credit and debt collection; she’s also the author of the books “The Ultimate Credit Handbook” and “Slash Your Debt.” Maxine Sweet leads Experian’s consumer education efforts and knows how to give clear, concise (and correct!) answers to your questions.

You’ll find the live video stream here. Please bookmark the site and join us tomorrow for insights you won’t find elsewhere. Thanks!

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December 3, 2013 By

Failed business loan strains couples’ finances

Dear Liz: We took a home equity loan against our house to open a business in 2006. We also ran up credit card debt for the business. The business went under, and we’re struggling to pay off the loan, which is $150,000 (a $1,150 payment every month), and the credit card debt, which we got down to about $20,000 from $37,000. Is there any way to get relief from the loan since it was a legitimate business (a franchise we bought from another franchisee)? We don’t know what to do and have been taking money out of our savings to pay the debt.

Answer: Your home equity lender doesn’t care whether you spent the money on a “legitimate business” or an around-the-world cruise. The lender expects to get paid, and chances are it will, since you secured the loan with your house. Failing to pay a home equity loan can trigger a foreclosure.

If you have equity in your home, you may be able to do a cash-out refinance of your current mortgage to pay off the loan. You’d wind up with a bigger primary mortgage, but a longer payback period and a lower interest rate should reduce your total debt payments. Another option is to sell your home to pay off the debt so you can start over.

What you shouldn’t do is dip into your savings without a real strategy for resolving this debt. A session with a fee-only financial planner could help you understand your options. The planner also may suggest a consultation with a bankruptcy attorney.

Filed Under: Credit & Debt, Q&A Tagged With: , ,
November 27, 2013 By

Can you be too focused on paying off debt?

It’s probably my Lutheran upbringing that makes me wary of extremism in any form. Moderation in all things, doncha know.

Lately, I’m noticing extremism when it comes to paying off debt.

People think they’re doing the right thing by targeting student loans and mortgages for early payoff. But they could be hurting themselves if they’re stinting their retirement funds or leaving themselves with too little financial flexibility.

Let’s take student loans. Their interest is tax-deductible. If they’re federal loans, they have fixed rates and a number of consumer protections, including the ability to delay payments if you run into economic hard times.

Once you prepay those loans, though, the money’s gone. You can’t borrow it back, as you could with a line of credit.

I just heard of another family that rushed to pay off student debt, only to face an emergency fund on fumes when the father was furloughed.

Mortgage pre-payers face a similar problem these days. Before the financial crisis, they could have opened a new equity line even if their incomes were diminished or non-existent. These days lenders are wary of anyone who’s lost a job, which can make borrowing against a home problematic when you’re facing a financial crisis.

One solution is to open a home equity line of credit and keeping it open and unused for emergencies. Another is to simply make sure your debt payoff strategy makes sense with your larger financial picture. If you’re not saving enough for retirement or emergencies, those should be your priorities long before you target low-rate, tax-deductible debt.

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November 25, 2013 By

Monday’s need-to-know money news

Help at financial crisisToday’s top story: How to work towards a debt free 2014. Also in the news: PayPal and credit ratings, finding the cheapest holiday gifts, and how to avoid financial pitfalls this Thanksgiving.

Tips for Paying Off Debt in 2014
Starting the new year off on the right foot.

Can PayPal Hurt Your Credit?
Conversely, could bad credit prevent you from getting a PayPal account?

Where to Find the Cheapest Holiday Gifts
Presents that won’t lead you to the poor house.

Have a Happier Thanksgiving by Dodging These Spending Pitfalls
The bourbon in the pecan pie doesn’t have to be top shelf.

The greatest, most underused credit card perk
Two words: price match.

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November 18, 2013 By

Beware debt reduction offers

Dear Liz: What is your opinion of debt reduction programs? I am constantly receiving mail from various companies, and I was wondering if they are legit. They claim they can reduce my debt, which sounds promising, but I am hesitant to get involved with them.

Answer: You’ve got good instincts.

Many of the companies sending out these solicitations say they can settle your debt for pennies on the dollar. What they often fail to mention is that the debt settlement process can result in your being sued by your creditors and having your credit trashed. That’s assuming they try to settle your debt at all, rather than just disappearing with any money you pay them in advance.

If you’re struggling with too much debt, you should make two appointments: one with a legitimate credit counselor (visit the National Foundation for Credit Counseling at http://www.nfcc.org for referrals) to see whether you qualify for a debt management program to repay your credit card debt, and another with a bankruptcy attorney (check the National Assn. of Consumer Bankruptcy Attorneys at http://www.nacba.org for referrals) to see whether a bankruptcy filing might be appropriate for your situation.

Filed Under: Credit & Debt, Credit Scoring, Q&A Tagged With: , , ,
October 25, 2013 By

Why millennials have to be smarter than their parents

Help at financial crisisNerdWallet recently published a fascinating study contending that high debt loads will prevent today’s college graduates from retiring before age 73. I have a few nitpicks with the study, but the underlying message is clear: millennials will have to be a lot smarter than previous generations if they want a decent, on-time retirement.

First, my nitpicks.  NerdWallet contends the current average retirement age is 61. It’s actual 62 for women and 64 for men, according to the most recent research by Alicia Munnell, director of the influential Center for Retirement Research at Boston College. (Munnell authored another interesting brief showing that the “real” Social Security retirement age is now 70, which gives people the same expected length of retirement they had back in 1940. Furthermore, an argument could be made to move it to 73 for millennials, who will live even longer than Boomers. I won’t make that argument, though, since I wouldn’t have to wait that long…I’m sure most others wouldn’t, either.)

The NerdWallet study also assumes that paying off student loans inevitably will prevent millennials from making significant contributions to their retirement funds for the first 10 years of their careers—years when they would get the most benefit from retirement contributions. Thanks to the miracle of compounding, $1,000 contributed to a retirement account can grow to $20,000 or more by retirement age. Wait 10 years to contribute that first $1,000, and your growth is cut by half, to $10,000.

So here’s what millennials should know:

Retirement contributions can’t wait. Retirement really has to be your top priority from the time you get your first paycheck. You can’t get back lost opportunities to save and nothing—including debt repayment—is more important than this.

Don’t be in a rush to pay back student loans. Federal student loans, especially, are flexible debt with a ton of consumer protections. If you can’t pay your student loans and contribute to a retirement fund, then consolidate your loans to a longer payback period so that you can put some money away for tomorrow. Yes, you’ll pay more interest on your loans, but that cost will be swamped by the growth of your retirement accounts once you factor in the tax breaks and compounding you’ll get. If you have a company match, the calculation’s even more of a slam dunk.

Get a better 401(k). Beggars can’t be choosers, and many millennials will have to take what they can get in this very tough job market. As they build their skills and networks, though, they should start looking for positions with companies that offer good 401(k)s with generous matches. In the meantime, they should contribute to any workplace plan that’s offered. No plan? Set up an IRA with automatic transfers to fund it. You’ve got to find a way to save if you want to quit work someday.

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