WGN-TV Show Notes

Q: Who is responsible for credit card debt of a person who dies without an estate?

A: When you die, whatever you leave behind becomes part of your estate. So if you have any retirement income, annuities, stocks, bonds, cash in a checking account, or if you own a house, furnishings, jewelry, artwork, clothing or a car, these all become part of your estate.

If you owe money and pass away, your estate will pay off those debts from the assets you have. If you have no cash, stock, or bonds, your furniture, car, and jewelry will be sold to pay off your debts. If you own nothing, your debts die with you.

This is what will typically happen with credit card debt. The only exception would be if the deceased had someone as a co-signer of the account, typically a spouse or child. If that’s the case, the credit card company could pursue the spouse or child for repayment.

Q: I often listen to you on the radio and was wondering if you could direct me to a source to answer my financial question?

My husband and I have a combined gross income of approximately $150K. We have approximately $60K in credit card debt and were wondering if it would be beneficial to sell stock at a loss to pay off credit cards – and also claim the loss on income tax? How can we find out if this is a viable plan or should we continue to pay the cards off slowly? A: You should sell your stocks and pay off your credit card debt. Why? Because you’re not making any money in the stock market but are paying 11 to 20 percent on your credit card debt. When you pay off that debt, you will effectively earn whatever your net interest rate is on the debt.

Good luck, and thanks for listening to me on Newstalk 750 WSB. I’ll be subbing for Clark all next week, so stay tuned!

Q: My question is concerning my Credit Card debt: I have about $12,000 in 5 Cr. Cards with an average interest rate of 17%. I want to pay them all off.

My Options: I have a huge tax return check coming my way in about 2 weeks.

Q1. Should I use the Tax return money to pay off my Cr. Card debts, or should I invest this money.

Q2. Do you think I should try to get a home equity line of credit at a low rate and pay the Cr. Cards off.

A: You should pay off your high-interest, non-deductible debts first. That’s because when you prepay a debt, you’re effectively earning the interest rate the debt carries on each dollar. So if your credit card debt is being charged 17 percent, prepaying that debt actually earns you 17 percent on your money. That’s way better than the stock market or any other kind of investment I can think of.

Once your debts are paid off, then you can use the cash you would have paid each month to service the debt to start building a retirement fund. If you qualify, I suggest you open a ROTH IRA and start investing those after-tax dollars in an index mutual fund.

Q: Would it be wise to switch to the line of credit or is it better to continue with the equity loan till it is paid off? Is there anything else we could do to free up some cash / reduce our debt quicker?

A: Pay off your home equity loan with the line of credit that is much cheaper. Don’t take out any additional cash, just do the balance transfer thing. Then, use the savings each month to prepay the home equity loan, so you can pay it off in 3 years.

You have a lot of equity in your home, but if cash is tight, you don’t necessarily want to dip into it. Just make sure your mortgage is as low as it can be, given the current refinance activity. If you can refinance for the balance only at a 5/1 ARM (fixed for 5 years at 6 percent or just better, no closing costs (check your credit union), you might pay less than you are.

Q: My husband and I are considering selling our home and using some of the proceeds from the sale to pay off our $13,000 credit card debt. We estimate that we’d have $15-$20k left to serve as the down payment on our next home. Is that a financially sound strategy, or will we incur tax penalties for diverting some of those funds to debt repayment?

A: It’s a great idea to pay off your credit card debt with home proceeds. Since you are allowed to keep up to the first $250,000 (up to $500,000) in profits tax free when you sell your home as long as you’ve lived there for 2 of the last 5 years, you’re most likely fine. There are no tax penalties as long as you’re within the scope of the rules.

Now, do some plastic surgery on those cards and make the decision that you will not charge anything you cannot pay off at the end of the month.

Q: By getting the free fico score or purchasing the full credit profile, am I not defeating my purpose of having a good credit reference, that is, the more inquiries for your credit, the more likely your request for credit will be turned down?

A: When you purchase a copy of your own credit history it does not count against you nor is it listed as negative information. It’s only when someone else pulls your credit history that you can start to get into trouble — and, one credit pull won’t kill you, it’s 4 to 6 within a short period of time (unless you’re buying a car or a house).

Q: I need to know all about credit cards. If I pay my balance in full it is good or bad for the history? I need answers from both views as a consumer & a credit card company.

Is having a high balance on credit card is good or bad especially when applying for a car loan. What APR will I get & whether this APR is anything to do with my credit card history.

Also if my balance is high…whether I will get a low APR or high APR.

A: I don’t know why you care about the credit card company, but as a consumer, you should strive to pay off all of your balances in full and thereafter, make sure you do not charge more than you can pay off each month.

Paying your credit card debt on time is what gives you a higher credit score. If you don’t carry any balances, this is the best thing you can do.

As for getting a higher or lower APR, that depends on your credit score. To check out your credit score, go to myFICO.com and pay $12.95. You’ll get a copy of your credit history and your credit score, plus useful suggestions on how to raise your credit score.

Q: Today on WGN you talked about credit card debt and how to get out of it without bankruptcy. We have some credit card debt, and receive low-interest or no-interest credit card offers in the mail every day. I recently made some balance transfers to a new low-interest card. (I cut up and canceled the old cards.) I was thinking that when the six-month low-interest period is up, I’ll switch the whole mess to another low- or no-interest card. Will card-hopping to keep my interest rate low damage my credit rating, as long as I keep canceling the old cards? We have tried calling and explaining our situation and trying to negotiate the rate down, but the card companies have never been willing to negotiate.

A: Card-hopping and using the savings to prepay the debt is your best bet for paying off credit card debt. Make sure you cancel your old cards in writing and that you never cancel an account that has a balance on it (bad for your credit score). But keep this up and you’ll soon be debt free.

Good luck, and thanks for watching the WGN Morning News. See you tomorrow at 7:35 a.m. for “Ask Ilyce.”

Q: My question is in regards to our credit card debt. We each have about $2000 on our cards at 14.9%. We are paying more than the minimum, but we want to get them paid off quickly. We get card applications for intro rates of 1.9% for 12 months all the time. Is a balance transfer bad to do? I have never heard you or Clark talk about it. I don’t want to mess with our good credit score on a balance transfer. Maybe it is a bad way to look at it, but I will take the higher interest for now to protect my credit later.

A: Clark and I both believe transferring a balance to save money is a good way to go. It can hurt your credit history a little, but paying down your balance faster and saving money has its rewards, too.

(What hurts your credit is that you haven’t kept a credit card for a long period of time — not the actual transfer itself).

Try to find a card that has 0-2 percent interest for the first 6 to 9 months, and then pump all of your “savings” back into paying down the card.

Thanks for listening to the Clark Howard show and for saying such nice things about my books. Two of my other books might help: 100 Questions You Should Ask About Your Personal Finances and 50 Simple Things You Can Do To Improve Your Personal Finances.

Q: I have been thinking of using one of these companies, what should I look for in such a company. How will debt consolidation affect my credit report/status? I am a new home owner and my goal is to pay off my creditors to be able to pay more towards my mortgage to pay it off sooner.

A: I’ve answered your question this week on the Clark Howard show, but here are some quick guidelines (for more detailed information, check out my weekly column next week — it should be posted after the 28th, when my web guy gets back from vacation)

  1. Ask how the company is funded. Typically, the creditor gives back a portion of the amount collected.
  2. Ask who will be your counselor, and how that person is trained. There are special courses and certifications the counselor can have, or it can be someone whose last job was the Psychic Network.
  3. Ask how much it will cost. Debt management programs can be free, or very low cost, or they can be expensive. Cheap is $15 or less per month. Expensive (and not worth it) is $75+ per month. Also, ask how long the initial consultation will be (90 minutes or more is the right answer).
  4. Ask if the company has a national affiliate. Then, check out the company. A good company is the National Foundation for Consumer Credit. Their CCCS branch offices are independently owned and operated, and some are better than others, but it’s a very safe starting point.
  5. Ask if they use technology for automatic withdrawals, e-mail and telephone vs. in office visits and other conveniences.
  6. If it feels strange at all, walk out. You might have just saved yourself from being scammed.

Q: I have a credit card debt that was turned over to a collection agency. I am currently in the process of disputing the amount owed to the creditor/collection agency. I have submitted letters to the three major credit reporting agencies, requesting them to investigate several inaccurate items. One of the items I feel is inaccurate is the debt that has been reported to the collection agency. If the reported amount is shown to be inaccurate and consequently removed from my credit report, am I still liable for the debt amount to the collection agency?

A: If you owe the debt, you owe the debt. If it has been inaccurately reported, then that sum will be corrected and you will owe that amount.

Unlike a supermarket that will give you an item free if its cost is inaccurate in the computer, just because a company makes a mistake in reporting your debt doesn’t mean you get out of repaying what you owe.

Q: My husband and I have run up our credit cards and owe about $20,000. ( Don’t faint). We have excellent credit and are paying about 700.00 to 800.00 per month to get them paid off. They are running from10.9% to15.9%. We have 4. We own a home that we paid $99.500 for in 1997. The prices have gone up in our neighborhood and are averaging around $125,000. We would like to consolidate our credit card bills so that we are paying one payment a month. I received a pre-approved loan application from Capital One that would consolidate our credit cards into one. The rate they are charging is 10.9%. We would have a fixed monthly payment of less than $350.00 per month, though we would pay more, and there is no penalty for early payoffs. Would this be the best route for us, or can you give me some alternate suggestions. We are no longer using credit cards by the way.

A: Anything you can do to lower your monthly cost and save money (legally!!!) is a good idea. Go to www.bankrate.com and see if there isn’t a better credit card deal out there for you. You should also investigate a home equity loan (since you’ve stopped charging) because the interest rate maybe less and it’s tax deductible.

Q: My younger sister is in a major financial rut – she needs serious help! She has over-extended herself with credit cards and is preparing to start paying back her student loans (which will equal over $300 a month). She pays no rent and has a very small car payment, but yet she says that she still has no money.

Is there some kind of credit counseling service available (not the kind that consolidates your debt) that can help her straighten out this mess? What is your suggestion. I am willing to pay someone to help her!

A: She can spend a few hours with a fee-only financial planner who can help her budget. But that may cost you $500, which is a waste. Consumer Credit Counseling Services has a budget program that doesn’t affect her credit history. The debt program does, however. She should learn how to budget and manage her funds effectively. If she’ll let you, go with her to the sessions so you can help her understand how she needs to manage her money.

Q: I have a question about business credit cards and your personal credit record.

My brother and I recently started a small business and was considering getting a small business credit card to use instead of our business bank account debit card. My question is this, what effect does the business credit card limit have on your personal credit? I noticed the only way to obtain a business credit card is to provide a officer’s personal information (personal Social Security # and such). The business credit card limits can run up to $100,000 and I didn’t want $100,000 of “potential” debt to pop up on my personal credit rating, since I’m also starting to look to purchase a house.

Is there a danger here?

A: If you personally guarantee the purchases, then the card may affect your personal credit history. Some cards do and some don’t. Check with the card companies to see what their policy is before you sign on.

Q: I have a charge off for $1,000.00 and my wife has a judgment for $3,000.00. We have been able to payoff everything else and these are the only negatives. In your professional opinion which one do you think we should try to payoff first? Or do you think it would be wise to push back trying to purchase a home until after we have cleared these both up?

A: I’d probably try to pay off one or the other — perhaps the $1,000 to make sure that only one negative thing shows up. When you pay off the charge-off, negotiate that they will put “paid in full” on your credit report. You don’t want any leftover bad news.

Q: In 1995 my son bought a 1995 Chrysler Intrepid when he and his wife were both employed at what appeared stable employers. Very soon thereafter, however, they both lost their jobs and during the period of unemployment got in serious arrears on several accounts. They tried in vain to make the payments on the Intrepid. After about a year, they gave up the losing battle, and asked a member of the Chrysler Financial Corporation to come and pick up the Intrepid, as they could no longer pay for the vehicle. They have not had the vehicle since 1996.

A couple of years ago, a legal firm that specializes in collections started aggressive collection tactics. My son and his wife thought that Chrysler Financial Corporation, the original lender, had a legal right to collect the original debt due to some obscure corporate loophole. However, I think it’s possible that my son and his wife have erroneously paid several thousand dollars to this collection firm, and may be able to get the money returned.

Please advise on the following:
1. Is it legal for a collection agency to collect money for a vehicle that is not, and has not been, in my son’s possession since 1996? (Chrysler has long since resold the vehicle and gotten their money.)

  1. If it is not legal, can my son get his money back? If so, how should he go about it? I appreciate being able to ask you for this counsel. My son cannot afford legal advice, but makes too much money to qualify for legal aid. He is on the brink of bankruptcy.

A: I think your son should call Clark’s Consumer Action Center at 404-892-8227. I think they may be able to guide you further with respect to this question.

Q: A family member is 75 years old and owns a condominium in Marin County, California worth approximately $350,000-$400,000. Although she has suffered more than one stroke in the past, she has fully recovered and is in relatively good health with possibly many good years left to live. Her only income is her monthly Social Security check which is approximately $850. Her monthly expenses are approximately $1,400. Although these expenses could be reduced by maintaining a strict budget, her expenses still exceed her income. Other than basic living requirements including homeowner’s association fees, her additional expenses are prescription drugs, $100 month golf membership, and minimum payments on a $25,000 household credit line and $15,000 accumulated credit card debt. In addition, she does own some stock which is rapidly diminishing since she sells stock every couple of months to cover major expenses such as property taxes.

Family members became aware of her financial troubles last year and are struggling with the best way to resolve them. We have heard about reverse mortgages and would like more information to determine if this is the most viable option for her. We want her debt eliminated and a budget developed for the future. However, we are unsure of her alternatives and would like some advice.

Can you tell us more about reverse mortgages and do you have any suggestions given her circumstances?

A: A reverse mortgage may be one option, but there may not be enough there to keep up with the monthly expenses she has.

Many local lenders now offer reverse mortgages. The best places to get information are from a book called Your New Retirement Nest Egg, and the Fannie Mae website, www.homepath.com (you could also go to www.fanniemae.com).

Your Aunt will need to cut her expenses to the bone, including that golf membership. A reverse mortgage can be structured to pay off her debts and give her the rest to live off of. But know that will only be about half of what the property is currently worth, or $150,000, perhaps a little more.

To make that last over the next 10-20 years will take careful budgeting and planning. I’m glad she has someone like you to help her take an interest.

Q: I hope you are having a great holiday season. I will jump right into my question. I took out several student loans to put myself through law school. I graduated in 1997 and my loans have been in forebearance since that time. I have consolidated all but the one private loan which they told me cannot be consolidated. The reason I have deferred payment on the loans for this long is that I am still in the process of receiving my bar certification in Florida and in Georgia. I originally took the bar in Florida and due to a serious lapse in judgment on my part, was not admitted. I cannot take the Georgia Bar until Florida admits me. I am in the process of reapplying in Florida. Due to this delay I have been unable to earn the kind of money that I expected at this time in my life.

As a result of this situation my finances were in pretty bad shape. I got behind on my credit card payments and one of my student loans went into default. But with the help of my wife I have paid off all but one credit card and was working on getting the student loan out of default. The student loan is private and was bought by a company named TERI. They turned over the collection to a company named RMA. The people from RMA called and offered a plan that would allow the loan to be re-purchased if the terms of the deal were met. I was told by them that once the loan was repurchased it would be as if the loan was new and I would be eligible for economic hardship, forebearance etc. I met the terms agreed upon which were $570 payments for 6 months. However, I have now been told that there is no economic hardship available and I must begin repayment in January.

I feel that I was purposely misled by RMA just to receive the funds I sent them. They are now denying that they ever told me the loan would have any chance at economic hardship. I unfortunately did not receive this language in writing but was told this many times as was my wife. They said that it could not be put in writing because if we did not meet the terms of the agreement the deal would be negated. They were threatening to sue me so I went along with the arrangements based on our oral commitment We have been told that if payments are not resumed, TERI is going to pursue legal action. I would like to know what my options are at this point. This loan is about $40,000 and I am able to make payments of about $250 per month but not the $600 they are demanding. Is there anything that can be done based on the misrepresentations of the collection agency? Is bankruptcy an option given that this is a private student loan and not backed by the government? I would prefer to pay the debt that I owe but I do not make enough right now to pay my living expenses and the full amount.

A: Without anything in writing, it will be difficult to prove the promises you were made. As an attorney, you know that you can talk to an attorney about representing you with this company. If you are represented, they may take a different tact. Your other option is to file for a reorganization, which will damage your credit, but may give you the time you need to pay off these loans. Finally, consult with your local Consumer Credit Counseling Service Center about whether they might be able to negotiate on your behalf. Again, you may be negatively affecting your credit, but it will be better than a bankruptcy

Q: I was listening to the broadcast of your guest hosting on the Clark Howard Show, and the caller was a young gentleman 30 years old, and his interest was in paying down his credit card debt of $7,500.

You advised that he consider allocating most or all of his available funds to eliminating the debt before starting to direct funds to savings. This makes sense because of the large difference between the low interest rates paid on money market funds and the high rates charged by credit card companies.

What I am seeking your opinion on is this. Given the callers aggressive plan to pay the debt off in one year, how advisable is it for him to transfer the debt to a new account assessing a lower interest rate, then when that offer expires, close the account, transfer the remaining debt to a new creditor with a lower rate, and pay then balance off with them in full? I realize that this type of jumping around is not for everyone. However, in this case it has the potential for reducing the interest payments. How do you feel about this and what are the pros and cons of such an approach?

A: I think it’s a great idea, but the question didn’t even come up because I’m fairly certain that if he is contemplating such a drastic pay-off, he’s probably already thought of it.

I think if you can do a balance transfer, it’s a great idea. And I’d recommend it to anyone in that situation.

Q: My situation is not different from many others that have gone to college and have come out with huge debt and not enough income to cover all expenses. My situation is that I have approximately $180,000 worth of debt broken down like this.

Mortgage $115,000-Bought brand new in 1998
Student loans $55,000
Credit cards $10,000

I have tried to consolidate the student loans and credit cards and I get turned down. I really would like to consolidate and get a tax deduction. My husband and I have retirement plans from work. other than that very little savings after all bills are paid. What would you recommend for those in my same situation?

A: You’re in a tough spot. If your credit isn’t good enough to get a home equity loan, then your options are to go bankrupt (try to avoid it!), to take a second or even third job to start making a dent in your debt, or to pull in your belt and attempt to save your way out of debt.

I suggest you take on an additional job, perhaps on the weekends, or at night, and try to find ways to slice a few extra dollars each month off of your budget. Pay down the credit card debt first. Once you’ve done that, you may find that your credit has improved enough to actually refinance your loan to cover some, if not all, of your student loans.

PS: My book, 100 Questions You Should Ask About Your Personal Finances might have some useful for budgeting tips.

Q: I have about $ 20,000 in credit card debt and a 30-year mortgage (5 years old). Would it be wiser to concentrate on paying down the high interest cards or refinancing to consolidate my debts into a lower rate, maybe 15-20 year mortgage? I also have a high debt/income ratio.

A: With a very high debt to income ratio, you’re going to have a really tough time refinancing your home — unless you have significant equity built up in the last five years.

I’d talk to a lender about what kind of equity you have and what kind of interest rate you could get if you refinanced your home and used some of your equity to pay off your credit card debt.

If this isn’t a possibility, then you’ll have to tighten your belt and focus all of your energies on paying down your credit card bill.

Q: My question involves what actions I need to take to improve my credit rating, or FICO score. In the last couple of years, due to various personal problems, I have been very lax about making my payments on time. At the beginning of this period, I had four bank credit cards, two Visa and two MasterCard. Because of poor payment performance, all four accounts have been closed by the banks. After the accounts were closed, I continued making payments until all four accounts were paid in full. The accounts were never sold to a collection agent.

I am trying to get over my personal problems and get my life back in order. This includes re-establishing good credit. For the purpose of trying to improve my credit rating or credit score, is it better for me to try to re-open the credit card accounts at my previous lenders, or just move on and try to establish credit with other lenders?

A: Make sure all of your cards are cancelled in writing. Start paying on time. Then, slowly open up one charge account and pay that one ontime for 6 months to a year. It takes at least a year to really start to rebuild your credit enough to have an effect on your FICO score. For more details, check out my book, 100 Questions You Should Ask About Your Personal Finances, or see free stories on my website, thinkglink.com.

Published: Oct 17, 2003