A WEALTH OF KNOWLEDGE ARCHIVES
August 11th, 2011, by Michelle Singletary

Q: Where can an average person find investor(s) to make presentations to acquire funding (ones with history not just façade)?

Gedalyahu

A: One of my favorite television shows these days is ABC’s Shark Tank. I love watching small business owners pitch their business idea in hopes of getting an infusion of cash from a business investor.

But as I watch people make their pitch I often see how little they are prepared for the questions of the investors.

So before you approach any investors for a business proposition, I hope you have done all your homework and planning. That includes researching the business and any competitors. It means having a solid business plan. It means being able to explain to investors how you will make money and what kind of return they can expect.

One place you should start to help find investing money for your business is the U.S. Small Business Administration. Although the agency does not invest directly in small business, it has set up the Small Business Investment Company program or SBIC.

This program was created to fill the gap between the availability of venture capital and the needs of small business start-ups.  According to the SBA, SBICs are privately owned and managed investment funds, licensed and regulated by SBA, that use their own capital plus funds borrowed with an SBA guarantee to make equity and debt investments in qualifying small businesses.

There are more than 300 licensed SBICs in operation. Some SBICs invest in a range of industries while others invest in a particular field or industry.

You can also find a SBIC through the National Association of Small Business Investment Companies at www.nasbic.org. The SBIC has provided almost $60 billion of long-term debt and equity capital to more than 107,000 small U.S. companies, according to NASBIC.

Here’s a link to find out more information about how to tap this resource, including a directory of SBICs organized by state.

A WEALTH OF KNOWLEDGE ARCHIVES
August 8th, 2011, by Michelle Singletary

Q: Is there a best and faster way to bring up your credit score to qualify for a housing loan (like paying off items relating to certain things or more recent items)?

Shawna, CA

A: The best way to keep and improve your credit score is to pay your bills on time.

The next best thing is to pay off or pay down any outstanding credit card balances. Using more than 30% of your available credit limit can have a negative affect on your credit scores. So, you can boost your scores by getting rid of your credit card debt, even if you’ve been paying the bill on time every month.

Be sure not to close any accounts, if you have any outstanding balances on any of your cards. Closing an account while you have balances could bring down your score because it impacts your credit utilization ratio. [The ratio is your total credit used compared to your total available credit.]

You definitely want to pull your credit files and make sure all the information is correct. Order all three of your credit reports at AnnualCreditReport.com. You are entitled to a free report from each of the three bureaus every 12 months. When you pull your files and find any inaccuracies, dispute the inaccurate information.

Some lenders might use a service called “rapid rescore” if you have inaccurate information in your files. The information is corrected and your files are updated in just a few days, helping to boost your credit score. This is a fee-based service offered by lenders and will speed up the time it takes to correct information. For example, rapid rescoring could help quickly remove negative debt information that should have dropped from your credit files after seven years. Typically, you would pay $50 for each account that needs to be corrected. But keep in mind, you should go through a lender to get this service. And, this service can’t change bad debt information if it’s correct.

One thing you want to do is stay away from companies guaranteeing they can increase your credit scores. Unless you are working with a lender to correct items, these companies can’t do anything you can’t do for yourself.

Most importantly, many of the things you can do to increase your credit score will take time. But don’t despair. Your credit scores will increase as new positive information is added to your credit files.

A WEALTH OF KNOWLEDGE ARCHIVES
August 4th, 2011, by Michelle Singletary

Q: I went through a divorce in the past year, and my house has gone to my ex-husband; so I am no longer on the title. However, I am still on the loan, and my ex-husband has been unable to refinance it due to the fact that he modified a loan he had on another house. Now he plans to default on the loan on the house that I allowed him to take in the divorce, and I am worried about my credit.

I am fortunate enough to have bought an owner-financed home that I am required to refinance in two years. I am worried about what my chances of refinancing will be when my ex-husband defaults on the loan. Is there anything I can do?

A: I would never have removed my name from the title while I still have responsibility for the loan. Never.

In fact, as part of the divorce, I would have required my ex to refinance to get me off the mortgage. But that is, as they say, water under the bridge.

I’m sorry to say there is little you can do except try to keep that loan current, and that might mean making the payments, so you and your husband don’t default.

You are right to be concerned about your credit. Missed payments, and certainly a default, will greatly impact your credit history and thus make it very difficult for you to refinance your home.

See if you can work with your ex to keep the mortgage current. Perhaps he can move and rent the house? Or, if you can afford it, maybe you can help with the mortgage until you can refinance.

Talk to your ex about selling the home so you can get rid of this obligation. Hopefully, the home is not under water. If it is (meaning you both owe more than the house is worth), maybe the lender will agree to a short sell. But, even a short sell will still hurt your credit.

In the end, with your name still on that mortgage, you are fully responsible for it. It’s not your husband’s loan, it’s yours and it’s his. And, it’s yours if they can’t collect from him.

A WEALTH OF KNOWLEDGE ARCHIVES
August 1st, 2011, by Michelle Singletary

Q: I am going to retire and have no idea in what order I should spend my money. Do I deplete my IRA first, my savings or my retirement income?

Cambridge, MA

A: When and how to start taking your retirement income is a complicated thing. So much depends on your lifestyle, how much you have and where the money is invested or saved.

A financial adviser could help you answer a lot of your questions. Of course, finding a good adviser can be challenging. If you’re still employed, start by asking co-workers. If you’re retired, ask for recommendations from other retirees. You can also search for a planner by going to the sites of the National Association of Personal Financial Advisors, the Financial Planning Association or the Certified Financial Planner Board of Standards.

In the meantime, check out Nationwide’s “Top Ten List of Retirement To-do’s,” which will help you think about the things you need to do to retire.

You might also read a recent report by the Government Accountability Office about the difficult choices in deciding how to withdraw your retirement income. It gives some great examples on how to take your retirement money.

For example, the GAO interviewed experts who tended to recommend that retirees draw down their savings strategically and systematically and convert a portion of their savings into an income annuity to cover necessary expenses or opt for the annuity provided by an employer. The experts also frequently recommended that retirees delay receipt of Social Security benefits until they reach at least full retirement age. They also suggested people draw down on their savings at an annual rate, such as 4% of the initial balance. The draw-down rate should preserve some liquidity—immediately available funds—in case of unexpected events, such as high medical costs, the GAO said.

Also remember, after you reach age 70½, you’re required by the IRS to take a certain amount out of your traditional IRAs and other tax-deferred accounts every year. You’ll want to draw these required minimum distributions first before tapping other accounts.

A WEALTH OF KNOWLEDGE ARCHIVES
July 29th, 2011, by Michelle Singletary

Q: My 83-year-old mother is being hounded by a debt collector. Other than this incident, she has had perfect credit her entire life. After going to the local hospital ER, she received the customary barrage of bills, which she, Medicare and her supplemental insurer paid within 6-7 months of her visit.

About two years after the date of service, she began receiving past due notices from a debt collection agency concerning a substantial bill about which she had previously never been contacted. She called the hospital, her insurer and Medicare, and all advised her not to pay it.

Now, three years after her ER visit, she is receiving letters from yet another collection agency. She is concerned about her credit rating, but this charge does not appear on either of the three credit agency reports.

What should she do?

Paul
Pampa, Texas

A: Don’t let your mother be pushed around by a debt collector for a debt that she doesn’t even think is hers.

The most important thing right now is to figure out if the debt is legitimate. It’s possible that the hospital transmitted incorrect information about your mother’s bill and then sold that bad information to a debt collector.

According to the Fair Debt Collection Practices Act, every collector must send you a written “validation notice” telling you how much money you owe. The debt collector has five days after contacting you to send the written notice. The notice should include the name of the creditor and what you should do if you dispute the debt. If you don’t owe the debt, you must send a letter to the collector within 30 days of the date you receive the written notification.

So, help your mother compose a letter and send it to the debt collector. If she doesn’t owe any of the money, she should ask that collector to stop contacting her. Tell the debt collector, again, in writing, not to contact your mother again until she receives proof the debt is hers.

My bet is they don’t have verification of the debt. If they continue to bother her without proof, contact her state attorney general’s office. [Go to the site of the National Association of Attorneys General to find information specific to her state.]

To learn more about debt collection and other credit-related issues, visit the Federal Trade Commission’s site and MyMoney.gov, the U.S. government’s portal to financial education.

A WEALTH OF KNOWLEDGE ARCHIVES
July 25th, 2011, by Michelle Singletary

Q: I have severe debt. I’m 25 and want to find a way out before I reach age 30. Is it best for me to just start paying my bills on time or pay off my old debt and pay my bills on time? Which one will have a more positive effect on my credit?

Roshunda, Rochester, NY

A: The best way, going forward, to improve your credit history, and thus the scores used to determine your credit worthiness, is to pay your bills on time.

Under the FICO model, the credit score formula most popularly used by lenders, 35% of your score is based on paying your bills on time. Paying your debts on time, as agreed, has the greatest effect on improving your score. Although paying off old debt will help, it won’t give you the same boost as how you currently handle your debts. Delinquent payments, even if only a few days late, can have a major negative impact on your FICO score.

Here’s something else to consider. If you do slip up and pay a bill late, the longer you pay your bills on time after being late, the more your FICO score should increase. Negative information stays on your credit report, and therefore impacts your score, for seven years. However, older late payments count for less. So over time, older late payments won’t bring down your score forever.

Now, you certainly should make an effort to pay off old debts. Reducing your debt also has a positive impact on your credit score. While the older debts have less impact on your scores, they still have an impact. Further, a lender, especially one thinking about giving you a home loan, will want you to clear up those old debts.

If you want to know more about how to improve your credit score, go to MyFICO.com and click on the link for “Education” and then go to “Improving your score.”

I commend you for wanting to get your financial life in order. Change your financial habits now, and you’ll find such peace in the future.

A WEALTH OF KNOWLEDGE ARCHIVES
July 21st, 2011, by Michelle Singletary

Q: Despite having raised the debt ceiling, the government ignores the ceiling of assets for those on SSI. It has not changed for twenty years. Why?

Bob, Monroe Township, NJ

A: You really are comparing apples and oranges. The debt ceiling that is making headline news right now has to do with the legal limit on borrowing by the federal government. Under debate right now is the fact that the nation’s debt is coming closer to the legal limit of $14.3 trillion. If the ceiling is not increased, the government can’t borrow if it needs to pay its debts, and that may result in the United States defaulting on some of its debt obligations.

Now, as for Supplemental Security Income or SSI, it is a federal program that is administered by the Social Security Administration. Under this program, the Social Security Administration pays monthly benefits to people with limited income and resources, who are disabled, blind or age 65 or older. Blind or disabled children, as well as adults, can get SSI benefits. Unlike Social Security benefits, SSI benefits are not based on your prior work or a family member’s prior work.

So, to qualify for the program, you have to be essentially poor. The ceiling in this case has nothing to do with debt, but a person’s resources and income. You can’t have a lot of money or assets to get SSI. Currently, the limit is $2,000 for an individual or child and $3,000 for a married couple. Social Security does not count everything you own. For example, the following are not counted:

• The home you live in and the land it is on.
• Life insurance with a face value of $1,500 or less.
• Typically, your car, if it is used for employment, to obtain medical care or to transport a disabled individual.
• Burial plots for you and members of your immediate family; and up to $1,500 in burial funds for you and up to $1,500 in burial funds for your spouse.

It is true that because the asset limit is so low, it’s hard for many people to qualify for benefits. SSI eligibility as it relates to assets has not kept pace with the cost of living. One could argue that the asset limit should be raised so more people could get assistance. There’s little chance the asset limit will be raised, given the current federal deficit discussions in which cuts to social safety net programs are a possibility.

A WEALTH OF KNOWLEDGE ARCHIVES
July 18th, 2011, by Michelle Singletary

Q: My daughter is working for the first time this summer. How should I help her manage her money?

A: I can totally identify. My 16-year-old daughter started her first job this summer, working at a summer camp. I’m so proud of her. She hasn’t gotten her first paycheck yet, but we have had numerous conversations about what she should do with her summer salary.

For example, we’ve told our daughter we expect her to tithe or give a tenth of her income to our church. That’s a family value we hold, and we are teaching it to our children. If this is something your family believes in, teach it to your children at a young age, so it won’t be as hard later to tithe when they are making more money.

Talk to your daughter about saving part of her pay for both short-term and long-term things she may need and want. Now is the time to get her into the habit of saving something from every dollar she earns or is given.

Once she gets paid, help her create a budget.

Talk about taxes. Will she need to have money taken out of her pay for taxes? The Internal Revenue Service provides tips for students starting a summer job. Here are a few of them:

• When you first start a new job, you must fill out a Form W-4, Employee’s Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct, use the IRS Withholding Calculator.

• Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.

• Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment—including jobs like baby-sitting and lawn mowing—are subject to income tax.

It’s your job to teach your children good money management. You don’t have to dictate how they spend or that they save every penny, but you should be providing guidance.

A WEALTH OF KNOWLEDGE ARCHIVES
July 14th, 2011, by Michelle Singletary

Q: How can I buy Scandinavian Income Certificates?

Thomas, Baltic, CT

A: I honestly have never heard of such an investment. So, I did what any good investor should do. I did some research.

I didn’t find any legitimate source of information about what is involved in investing in such certificates, if they even exist. I found some ambiguous blog postings about the certificates, but nothing I would rely on to make an investment decision. One posting said the certificates were backed by the wealth created by Norway’s offshore oil and gas exploration.

Personally, I would not invest in something so obscure. Such investments, with little oversight or independent information, are, at the very least, highly risky and, at the worst, come from scam promoters.

I would suggest you do your own research, and start by going to the North American Securities Administrators Association’s (NASAA) Web site. NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

In particular, read this posting: “NASAA Reminds Investors to Investigate Before They Invest.”

“The first step toward becoming an informed investor is to contact your state securities regulator,” said NASAA president and North Carolina Deputy Securities Administrator David Massey. “State securities regulators can help you check out the licensing and background of anyone offering investment advice or selling investments and help you verify that an investment is properly registered for sale in your state.”

The NASAA site also provides links to each state securities regulator. Before investing, check with your state securities regulator.

“An excellent rule of thumb is, if you do not know what it is, nor understand it, do not put your money in the investment,” said Ken McDonnell, director of the American Savings Education Council.

McDonnell says he encourages an individual who needs to investigate an investment option to go to the SEC’s Office of Investor Education and Advocacy Web site or the Financial Industry Regulatory Authority (FINRA) Web site. Both also offer you the option to submit an inquiry to their office.

A WEALTH OF KNOWLEDGE ARCHIVES
July 11th, 2011, by Michelle Singletary

Q: I have five payday loans and can no longer afford the interest payments every two weeks on the loans. I had a plan; however, I made a costly mistake, and the plan went down the drain. Help. What can be done?

A: For our readers who don’t know what a payday loan is, you are very fortunate.

Payday loans are small, short-term, high-interest-rate loans, typically of a few hundred dollars. When borrowers get a payday loan, they promise to repay the debt out of their next paycheck, usually in two weeks. They typically are required to give the lender a post-dated personal check for the amount borrowed, plus the loan fee. Or, more likely, they authorize the lender to withdraw the funds electronically from their bank account. If the loan isn’t repaid on time, he or she is often allowed to roll over the loan for additional fees.

Payday loans are one of the worst ways to get out of a financial jam. Think about it. If you can’t pay your bills now with the paycheck you have, how will you dig out of this hole by promising parts of your next paycheck? You end up always behind.

What you shouldn’t do is go for the hype from for-profit companies that claim they can help you out of this mess.

Instead, try to negotiate with the payday lenders for an extended payment plan. If you can’t work something out, look for a nonprofit consumer credit counseling service at the National Foundation for Credit Counseling’s Web site.

And most importantly, don’t ever take out another payday loan.

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