A WEALTH OF KNOWLEDGE ARCHIVES
November 23rd, 2011, by Michelle Singletary

Photo by Carterse, Flickr Creative Commons

Q: What advice would you give high school students who want to attend college, but lack financial means, without being discouraging, given the cost of higher education and the debt from student loans?

Patricia
KC, MO

A: The cost to attend college keeps going up—often, faster than inflation. And the amount of loans taken out to pay for tuition, fees, books and room and board continues to rise. For many families, the cost of higher education is out of reach, while others can manage it only if they take on debt that could take decades to pay off.

I certainly don’t want to discourage someone from getting a college education. But, I do discourage taking on debt to get that education. So, go to school, but just know that to avoid debt, your experience may be different than what so many students have come to expect.

For example, I’ve advocated for a while that, when faced with high education costs, families should not rule out community college. It’s an affordable way to get two years of study under your belt. When the student graduates from community college, he or she can transfer to a four-year university.

If money is tight and your college savings are low or nonexistent, then perhaps having your student live on or near campus or away from home isn’t an option. Take room and board off the table, and college becomes more affordable.

Of course, apply for financial aid and any and all scholarships you can. Make sure to fill out the Free Application for Federal Student Aid (FAFSA). Take work-study if it’s offered.

Most importantly, don’t be so brand conscious when it comes to selecting a college, especially if it comes with a high price tag. I tell all high school students, as I’ve told my own children, that they determine the type of college experience they will have.

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

Q: What options are available for settling a $14,000 default judgment filed in 2008 in California?

Santa Ana, CA

A: First, I should explain a default judgment.

One might end up with a default judgment when the debtor (or defendant) didn’t appear in court or respond to a complaint filed against him or her. California law does provide some room for a person to get relief from a default judgment, according to the Sacramento County Public Law Library.

You can ask for the judgment to be vacated if “actual notice” wasn’t given so that you could defend your case. You might be able to get the judgment set aside because of “excusable neglect.” Examples of excusable neglect according to the law library include:
• Illness that disables the party from responding or appearing in court;
• Failure to respond because you relied on your attorney to do so;
• Failure to appear at trial because you relied on misinformation provided by a court officer.

For more information about removing a default judgment, go to the website of the Sacramento County Public Law Library. You should also go to the California Department of Consumer Affairs’ site and read the section entitled “Setting Aside a Judgment Against a Party Who Didn’t Come to the Hearing.”

And, you should check with an attorney, because you may have passed the time in which you can ask the court to set aside your default judgment.

If you can’t get the judgment set aside, try talking to the debt collection company, especially before any action is taken to garnishee your wages. If you have a lump sum of cash saved up, the creditor might consider taking a reduced sum.

A WEALTH OF KNOWLEDGE ARCHIVES
November 17th, 2011, by Michelle Singletary

Q: It appears for many people, including me, that the purchase of a timeshare has shifted from an asset to a liability: growing maintenance fees, whether you use it or not; can’t sell or even give it away. How can I get out of this obligation?

Fort Worth

A: Many experts would have told you before you purchased your timeshare not to consider it an asset. For years, it’s been hard for people to sell a timeshare for a profit of enough money to even get back what they paid for it. And, of course, the recession hasn’t helped timeshare owners, especially those who borrowed to buy one.

If you are having financial difficulty paying your timeshare loan or maintenance fees, try to rent it to raise some money to cover the resort expenses. You can, of course, list your timeshare for rent on various Internet sites, but be sure you know all the rules for renting. And, be careful about checking out renters.

If you want to sell your timeshare because it’s become a financial burden, or you don’t want to try and rent it every year, you probably need to find a broker. Again, be very careful about who you get to help broker the sale. There are a lot of timeshare resale scams and schemes in which companies charge you an upfront fee and then do little to nothing to help you find a buyer. One resource you should check is the American Resort Development Association’s Resort Owners’ Coalition. The website was created to help timeshare owners who want to safely maneuver the timeshare secondary market.

Timeshare resale is one of the top scams listed by the Better Business Bureau (BBB). The BBB says, nationwide, it’s seen a significant increase in timeshare-related scams, which usually involve companies charging timeshare owners thousands of dollars up front and falsely promising to quickly sell the timeshare property. A lot of the companies are preying on people who are struggling financially.

“With the rise in fraudulent resale practices and the far too many dishonest resellers preying on consumers, it is necessary to establish legitimate guidelines to help safeguard consumers and ensure a safe resale experience with reputable companies,” said Howard Nusbaum, president and CEO of the American Resort Development Association, the industry’s not-for-profit advocacy group.

On their site, you will find information on the resale process, tips on selling and consumer advisories on the various resale scams currently being investigated by state authorities.

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

Photo by Allison Johnston, Flickr Creative Commons

Q: I don’t have enough money to go around. What solution do you have?

A: It may not help to know, but you are not alone. So many people have more expenses than income. Consider these facts:

• In a 2011 survey by the National Foundation for Credit Counseling, 64% of Americans said they wouldn’t have the savings to deal with a $1,000 unplanned expense.
• Nearly 20% would have to borrow the money.

More than half of all Americans—55%—are living paycheck to paycheck, spending more than or all of their household income.

You may have more money than you think. Or at least you may have a number of places where you can cut your expenses to find the money to save more and reduce any debt that you have.

But, your journey has to start with some self-examination. Before I have you do a detailed budget, I want you to try something. In my latest book, The Power to Prosper: 21-days to Financial Freedom, I have people do a financial fast. This isn’t a traditional fast. It’s a fast to help curtail your consumption so that you can balance your budget.

The book will give you far more details than I can here; but, basically, during this fast, you will not shop or use your credit cards for 21 days. You will refrain from buying anything that is not a necessity. And by necessity, I mean the bare essentials, such as food and medicine. During the fast, you continue to pay your regular bills, such as your rent or mortgage, cable or cell phone bills, etc. The point of this fast is to shut down your consumption and use of plastic—debit and credit.

When you follow the fast through the book, you will get daily assignments to help you look at how you are spending your money.
As part of the fast, you will find tools to help you prepare a budget. Budgeting is key to bringing balance to what you are spending. If you don’t have enough money to cover your expenses, you are either going to have to cut your expenses or increase your income. But, even increasing your income may not solve your problem long-term if you don’t have a handle on your spending.

So, get the book and try the fast. I think you will find help in living within and below your means, even if it means making some tough decisions.

A WEALTH OF KNOWLEDGE ARCHIVES
November 10th, 2011, by Michelle Singletary

Q: I’m in my late 40s with no biological children. I have assets of about $400,000. I’d like to allocate $100,000 in a portfolio with a well-known investment management firm that I have dealt with for many years and am happy. But, I’m also looking to buy a home with cash. My question is: Should I choose the diversified conservative growth? What should I do?

A: You really need to seek the advice of a financial adviser. Even if I could tell you how to invest $100,000, I would not do it in this forum. That’s because when investing you have to look at the big picture. You have a great nest egg, but you need a plan to go along with that money. Here are just a few questions you need to ask yourself (and put to an adviser):
• Where do I want to live?
• How much do I want to spend on a home?
• Should I use some of my savings to pay off any debt that I have? (Hint: Yes; if you have credit card debt, car loan or student loans, pay them off).
• How much do I want to save for retirement?
• When do I want to retire?
• How much will I need in retirement, based on how I want to live?

You asked how much risk to take with the $100,000, but that is up to you, not me. The question of how you invest depends on when you need the money and how much risk you are willing to take.

So, take some of your money and hire a fee-only financial planner to help you come up with a grand plan for your financial life.

A WEALTH OF KNOWLEDGE ARCHIVES
November 7th, 2011, by Michelle Singletary

Q: After having a family emergency and losing my job, I have almost $8,000 in credit card debt. I am making the minimum payments, but my savings are zero. I was looking for some information online on to how to pause my debts until I get another job or to save some money to pay them in full. Please let me know if there is any way to do this.

Miami Beach

A: You should contact the credit card lender (or lenders). Explain your situation and see if you can get a forbearance, which would pause your debts. As you might expect, given the economy, the creditors are hearing from a lot of people in financial trouble; so, you may not get anywhere with your request, but it doesn’t hurt to try.

And please don’t fall for the pitches from companies claiming they can get you out of debt quickly. Such claims come with a high price. You could end up paying thousands to a company—money that could be used to pay down your debts.

If going straight to your credit card company doesn’t work, contact a consumer credit counseling agency by going to the National Foundation for Credit Counseling website. The agency may be able to get your minimum payments down to make them more affordable while you try to recover from your unemployment.

A WEALTH OF KNOWLEDGE ARCHIVES
November 3rd, 2011, by Michelle Singletary

Q: I’m a single mother of two children, ages 16 and 13. I do not have any credit cards (haven’t for over 10 years). My problem is my $100,000 in student loans on which I am far behind. The payments are a bit over $500 a month. My only other debt is my mortgage ($2,150 a month) and my car note ($350 a month).

My credit score is now in the low 500s. It used to be in the 700s when I was in deferment for my student loans. I can’t make the $500 payment on my two student loans. What can I do?

I am also financially responsible for my father, who is retired and receiving his annuity and Social Security benefits, which leaves him with nothing after his mortgage, car notes and utilities are paid. I pay for gas for his car, his prescriptions and groceries, as well.

I’ve got so much on my shoulders, and I don’t know what to do anymore.

Alexandria, VA

A: Let’s deal with the situation with your father first.

Perhaps, the two of you need to figure out if there is a way to consolidate your households, so that you are living under one roof with one mortgage payment. While I believe adult children should, when they can, help out their parents, you are in a precarious financial situation. You can’t handle your bills, let alone expenses for your father.

Most important is the situation with your student loans. It’s vital that you understand that you need to make every effort to avoid defaulting on your student loans. Your student lenders have some powerful collection tools. For example, they can get a wage garnishment, which will allow them to deduct 15% of your disposable income per pay period. I’m sure you would not like that to happen.

Contact your lender immediately and see if you can work something out to ease your burden. There is a relatively new program that can adjust your payments to make them more affordable. It’s called the Income-Based Repayment (IBR) program, which allows borrowers with federal student loans to base their monthly payments on their income and family size. But, in order to qualify for the program, you can’t be in default. That means you are going to have to get out of default. For more information on how to do that, visit the Student Loan Borrower Assistance Web site.

If you can get current on your loans, I think the IBR program will help make your student loan payments more manageable.

A WEALTH OF KNOWLEDGE ARCHIVES
October 31st, 2011, by Michelle Singletary

Q: I currently have about $85,000 in debt. I don’t want to file for bankruptcy, but I make less than $30,000 a year. Is there any way to try to fix my credit and avoid bankruptcy or is that the route I should take?

Anabel
Lawrence, MA

A: Having $85,000 in debt can certainly be overwhelming. But, I applaud you for not immediately resorting to bankruptcy.

Here’s the thing. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 now requires individuals seeking bankruptcy protection to get credit counseling from a government-approved organization within 180 days before they file. Filers also have to complete a debtor education course to have their debts discharged.

The rule requiring a pre-bankruptcy counseling session will help you figure out what’s best for you, because your session has to include an evaluation of your personal financial situation, a discussion of alternatives to bankruptcy and a personal budget plan.

Generally, the session will cost $50 or less, depending on where you live. If you cannot afford to pay the fee for credit counseling, you should request a fee waiver from the counseling organization before the session begins. You can find a list of approved agencies on the U.S. Justice Department’s “List of Approved Providers of Personal Financial Management Instructional Courses.” You can also search for an agency on the National Foundation for Credit Counseling’s Web site.

A WEALTH OF KNOWLEDGE ARCHIVES
October 27th, 2011, by Michelle Singletary

Q: I have a question about a loan that turned into a collection account in 2009. This loan had an adjustable interest rate, and my monthly payment went from $300 to almost $600 over the course of about 6 months. I called and tried to work with them to lower my monthly payment, since it had become unaffordable for me. They would not work with me, and my payment continued to increase, until I finally defaulted on the loan.

The company then contacted me to set up a repayment plan, and I ended up with a monthly payment of $300—the same payment I had requested and was refused. I have been making that payment on time ever since.

I ran my credit report and was surprised to learn that, even though I am current on my payments, the status of my account is a “charge-off,” and the report says I am past due for the entire balance. I disputed this, saying that we had agreed on a monthly payment; but the status of the account remains unchanged. It appears as though I defaulted and am no longer paying on the loan.

How is it benefiting me to make my payments if it still shows as a charged-off account? Am I just wasting my money paying them every month to get the same result as if I didn’t pay them at all?

Castaic, CA

A: The truth is you are in default on your original debt agreement. You are not paying as agreed, even though you believe the deal was dreadful. Before you agreed to the $300 payment, you should have gotten your creditor to agree—in writing—to the new payment amount. Additionally, you could have asked (also in writing) that the creditor report you as current.

But since that didn’t happen, there is still benefit to making the payments on the debt. If you default again, the creditor could take you to court and get a judgment, allowing them to pull money out of your bank account or garnish your wages. That would further damage your credit history. And, you would lose control of your own money. So, your new payment agreement helps avoid a court action against you.

There is an eventual upside. Your credit has already been damaged by this one debt. Negative information stays on your credit reports for seven years. However, the closer you get to hitting that seven-year mark, you will begin to see your credit rating improve if you stay current on all your bills. So, each year you get further away from the charge-off, the less impact it will have on your credit history.

A WEALTH OF KNOWLEDGE ARCHIVES
October 24th, 2011, by Michelle Singletary

Q: We have a $45,000 mortgage, which will be paid off in five years. We also have $45,000 in credit card debt, and we have no savings. As we are nearing retirement, I want to refinance, consolidate our bills and have money to put away for emergency purposes. My husband wants to own our home, maybe do credit counseling to get rid of debt. But, this will not give us any money we might need. He keeps hearing that owning your home is the most important thing you can do.

Is that true, and is there a way we can do this, so we can accomplish it all?

Boulder Creek, CA

A: Can I be blunt?

It may be that your trying to have it all is what led you to having so much credit card debt.

I don’t like to take sides, but in this case, your husband is right about staying on your path to pay off your home. At least he’s right that it’s important to get rid of that great debt burden.

But, in one way, you are right. It’s not a good idea to be “house rich and cash poor.” That expression means you’ve put all your cash into your house, leaving you with no savings. That’s not good, because as you are now realizing, you still need an emergency fund. So, if you and your husband have been making extra mortgage payments, stop that for now, until you can build up your savings.

The thing that concerns me is that you want to consolidate the credit card debt and take out more debt to create a cash cushion. Don’t do that. Don’t add to your debt load. You should not build an emergency fund with borrowed money. That’s not an emergency fund. It’s adding to your burden.

Again, listen to your husband and get help from a non-profit consumer counseling agency. The agency can assist you in creating a repayment plan for that $45,000 in credit card debt. Go to the National Foundation for Credit Counseling Web site to find an agency near your home. It might take you three to five years to get rid of that debt; but, with cuts and discipline, you can do it.

Most importantly, try to start saving something. Start small with perhaps $50 a month. But, make it a priority to build that emergency fund before you actually need the money. I also hope you’re saving for your retirement.

And, consider this. In five years, if you stay on track, you won’t have a monthly mortgage payment. You can then take that money you were using for your mortgage and add it to your plan to build an emergency fund. In addition to building up your fund, you can boost your retirement savings.

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