Ask Liz Weston

Get smart with your money

Loans

Q&A: Spouse balks at wife’s franchise-financing scheme

By

Dear Liz: My wife has an MBA and essentially has been a homemaker due to having a disabled child. She would like to go back to work and has asked me to cosign a $1.5-million loan to buy a franchise. In addition, she would like to use all the savings we have —$140,000 — for a down payment. I am afraid to do this as it took over 20 years to get the emergency fund collected. She earlier suggested using my 401(k) retirement fund for this business. My fear is that she will not be able to manage this business well and I will have to add this onto my own job. The business may fail and all the money would be lost. She is so mad at me and will not talk to me. Please help me with this.

Answer: Your wife understands that her long absence from the workplace makes it unlikely that she will ever see the kind of salary that an MBA normally earns. So she’s decided to bypass regular employment in favor of entrepreneurship.

If there were a decent chance of her succeeding, this enterprise might be considered a gamble. Given the circumstances, however, it’s almost certain to fail. If you commit every spare dollar to the down payment, where will you turn when the business needs additional infusions of cash, as most businesses do in their early years?

There are other businesses she could start and other franchises she could buy that wouldn’t require committing such a huge chunk of your resources. The fact that she’s clinging to this one idea doesn’t speak well of her ability to make good business decisions. Even worse is that when you expressed perfectly rational fears about her scheme, she responded by refusing to speak to you. It’s definitely time to make an investment, but it should be in couple’s therapy rather than in a business.

Thursday’s need-to-know money news

By

W-2 Tax heroToday’s top story: What you need to know about your W-2. Also in the news: How the “Five-Finger Checkup” can save your financial life, the best method for paying off different kinds of loans, and apps that will help manage your money.

6 Things You Need to Know About Your W-2
Deciphering what it means.

How the ‘Five-Finger Checkup’ Can Save Your Financial Life
One question for each finger.

The Best Method for Paying Off Each Kind of Loan
You need more than one strategy.

7 Apps to Help Manage Your Money
Help is at your fingertips.

Q&A: Co-signing for a student loan backfires

By

Dear Liz: My wife and I both had excellent credit scores. Now mine are in the dump. I co-signed for a friend’s daughter’s school loan 10 years ago. I know now this was a bad mistake. I guaranteed $25,000. Now two things have happened: The daughter quit paying the loan and the friendship took a bad turn.

This is seriously hurting my credit. We have already been told when trying to refinance our mortgage that we’ll need to fix the school loan, which is showing more than 90 days behind. The outstanding balance is $20,000. I can pay the loan off. Making payments just adds interest to the problem. Are there any other options to repair my credit that don’t rely on the daughter’s ability to keep the loan current?

Answer: If you can pay the loan off, then do. You are legally responsible for this debt, and the longer it goes unpaid the worse the damage to your credit scores.

If this were a federal student loan, you would have the option of rehabilitation, which can erase some of the negative marks on your credit reports after you make a series of on-time payments. Because it’s a private loan — I know this because federal student loans don’t have co-signers — you probably don’t have a rehabilitation option (although it certainly doesn’t hurt to ask).

Once the loan is paid off, you can proceed with the refinancing but you probably will find that lenders want to base the loan on your battered scores, rather than your wife’s better ones. That means you might not qualify, or you might have to pay a much higher rate. If she can qualify for the refinance on her own, that’s one option. Otherwise, you might have to wait for your credit to heal before you refinance.

Q&A: Bad boyfriend plagues grandparents’ finances

By

Dear Liz: We have raised our granddaughter since birth. She is the apple of our eyes. Then she fell in love. The boyfriend had no job, no car. My husband co-signed a loan for this boy! He didn’t even know the boy’s last name. I was devastated, as we are on Social Security so our income is limited. Our granddaughter couldn’t afford the payments and the boy was useless. They got so far behind that we ended up having to mortgage our home to pay off the truck. We hoped to sell it but of course the kids have broken up and the boy disappeared. When I asked the Department of Motor Vehicles what I could do to get him off the title, they said I couldn’t do anything.

Answer: Your husband is showing signs of cognitive impairment. Co-signing a loan can be (and often is) a lapse in judgment; co-signing for a virtual stranger indicates a more serious problem.

A study for the Center for Retirement Research found that people’s financial decision-making abilities peak in their 50s. By our 70s, our problem-solving abilities typically have declined enough to make us more vulnerable to bad decisions and fraud.

That’s why it’s important to simplify our financial lives in retirement and to consider safeguards that can keep us from being victimized.

Freezing your credit reports at the three major credit bureaus is one good option. That can keep criminals from opening accounts in your names. You would have to thaw your reports to apply for a loan or credit card, and adding that extra “speed bump” to the process could give you time to rethink a bad decision.

If you had children you could trust, you might have your financial institutions send them duplicate statements and discuss any large purchases or investments with them. If you don’t have someone you trust, a licensed fiduciary could serve a similar function. California has a Professional Fiduciaries Bureau within its Department of Consumer Affairs where you can learn more.

At this point, you should check the vehicle title to see if the names are listed with an “and” between them or an “or.” If it’s an “or,” your husband should be able to transfer title to the new owner. Otherwise, you may need to get an attorney to help you get a legal order to remove the boy’s name from the title. Check with your local bar association to see if there are any pro bono or legal aid services that can help you.

Q&A: Loaning money to family

By

Dear Liz: My cousin borrowed some money from us because he said they were behind on their house payments. It was only a small amount, but we said we wanted to sit down with him and his wife to discuss this. He agreed to meet with us in the evening of the day he received our check, but of course he called and said they couldn’t make it. We see them every week at church, and she doesn’t act as if anything was happened, while he avoids eye contact. It’s been three months and they haven’t made a single payment. I can’t imagine how I would feel if I found out that my husband was hiding something like this from me, and I don’t know if we should press the issue or just consider it a personal loss and lesson for the future. Any suggestions?

Answer: Loans to family and friends often become inadvertent gifts, so you were smart not to hand out more than you could afford to lose.

You already know everything you need to know about your cousin, which is that he lacks integrity as well as financial management skills. It’s possible that either or both of these facts would be news to his wife, but chances are good that she already knows. So there doesn’t seem to be much point in embarrassing her if you’ve already decided not to pursue the debt.