Free Financial Advice

Financial Questions from Our Visitors - Page 2

The examples below are from some of the visitors to Free Financial Advice. The questions below mostly represent word for word the questions asked by the visitors (sometimes including bad punctuation and spelling), but occasionally the questions will be edited on this page. And even though these people have shared their personal finances with Free Financial Advice, we have stripped out any names or other personal information to protect their identity. If you see one of your questions on this page and it makes you uncomfortable, please contact us and we will remove it immediately. Also, please note that any advice or suggestions made from this site are only suggestions and should not be deemed as professional, legal advice. Please see our disclaimer for more information. I apologize for continually mentioning our disclaimer, but this is a very litigious world that we live in.

Question:

I don't quite know if the question I have still falls under the "free advice" you are accustomed to giving out. I have worked for a company straight out of college that offered "profit sharing" sharing in place of a normal 401K through a broker (AG Edwards). Perhaps my naivete got the better of me that I never pursued monthly statement of this so-called profit share, nor a signed document that validated its legitimacy. I have since resigned my position in the company and have heard that my resignation forfeited any right to this profit share. Is this true? I have never signed anything nor was I ever presented a contract to this effect and was given the impression that this money could be rolled over much the same was as a 401K.

Response:

Unfortunately, profit sharing plans are not regulated with the same strict standards as a 401K plan and many of these plans are often open to interpretation or written very specifically to benefit or protect the company rather than the employee. Also, sometimes profit sharing plans do not vest until a long period of time (5 years or longer). My best advice for you is to search all of the documents that you have that refer to, mention, or define the profit sharing plan. I would read these materials and try to discover what the plan was designed to do in your case (voluntary resignation). If you can't find any information about the plan, you should be able to contact an HR rep at the company and ask them to provide you with a copy of the original plan you participated in. If you find out that you are indeed entitled to receive some of the profit sharing, then you should notify your ex-employer, in writing, that they are in breach of their profit sharing plan. If this doesn't resolve the matter, I would seek legal advice to help you recover the money that you have earned.

If you can't find anything in writing to prove that you are owed money it is very difficult to make any kind of a case.

Question:

I have managed to become over extended on my credit cards. As a result, I became past due on most of my accounts. I called each creditor and most lowered my interest and/or payments. I've been making fixed payments to one creditor with the knowledge that my account is now closed. Today, I called and asked several questions and found out I am in R9 and my account has been written off. I've had a friend tell me that paying on an R9 account is actually worse than paying nothing b/c it keeps the account active, therefore, being constantly reported to the credit agency. Is this true? I am really trying to straighten out my credit so I need to do the best thing.

Response:

I did a little research on this (since my knowledge on this subject is a little rusty). Here's what I found:

You should try to pay off the debt, even though it is charged-off. Charged off debt is still collectible debt. And by paying off charged off debt, it shows a good sign to future creditors that you have made an effort to pay your debts.

The charged off account will fall off from your credit report 7 years from the date it was first charged-off, regardless of whether or not you pay the debt. That means that by making payments on the account, it will not hurt your credit any further.

I've put some excerpts from one of the places I researched below. Also, I'm glad to see that you're doing something to improve your credit. Good luck,

(excerpts below are from www.creditmatters.com)

How Long Will Charge-Offs Stay On My Credit Report?

I heard that a charge-off is removed automatically after 7 years; is this true? And is the countdown date of the charge-off from the first time it was charged-off or does the date renew every time the item gets sold to another collection agency?

Good news all the way around! You heard correctly: a charge-off cycles off of a credit report after 7 years. And, that 7 years is calculated from the date of the original delinquency that led to the charge-off (that's even earlier than the charge-off itself!). No matter how many times the account is sold to a new company or collector, it still cycles off a credit report 7 years from that original missed payment.

Moreover, such information is automatically removed from your credit file when the reporting period ends. You don't have to do anything or contact anyone—it simply "ages off" the report. You might want to check your credit report a few months after the charge-off was to be removed just to be sure it really has been (sometimes with older accounts the original date of delinquency has not been reported to the bureau). If you find that it is still there, you can dispute the charge-off as outdated information through the credit bureau.

Does A Charged-Off Account Remain Collectible Even If It Has Fallen Off Of A Credit Report?

Once an account has been charged off and is off your credit report, can you still be sued, have wages garnished, or have liens put on your property?

Even though the term "charge-off" means that the creditor or lender has written off the debt as a loss, this does not necessarily mean that the debt is forgiven. Depending on the type of debt and on your particular state laws, the lawsuits, garnishments, and liens you refer to are all actions that may be allowed in some collection processes on some types of accounts. These types of actions, if completed successfully by the collector, would show up on your credit report in the "Public Records" section. Even though you may have had good-credit intentions, the use of these types of public actions may be viewed by future creditors as a sign that you cannot or even will not pay your debts as promised.

Because of this, it might be worthwhile for you to contact the creditor on this account and discuss the possibility of setting up a new payment plan. Even though this account has fallen off of your report for now, new notations that you have paid off this debt could be placed on your report. And current and future credit grantors would likely take a positive view of making such an effort to pay off an old debt. By working to pay this old account off, you might not only be improving your credit, but also avoiding any future collection actions that might occur.

Question:

I have a credit card account with a low APR (9.9%). The account is current. When I checked my statement today, I found out the interest rate had been raised considerably. I called the creditor and found out it had been raised due to my credit report. I informed them that I had been having trouble with my accounts but am making steps to clear things up. They informed me they are allowed to raise my interest if the information from equifax is correct. Is there anything I can do?

Response:

By law I believe your credit card company has the right to raise your APR. You may want to call them and explain (try not to threaten) that by raising your interest rate it will make you less likely to be able to pay them back and that you may have to focus on paying down your other accounts first. Also, if you have never missed a payment to this particular credit card company, tell them that you have never missed a payment and that you demand better customer service from them. If none of that works and they won't make an exception for you, then your only alternative is to look for another lower interest rate card or use a balance transfer from one of your other cards. And if your other credit card companies act the same way, these choices will be difficult and you may have to pay the higher APRs until you can find a way to get lower interest rates. The only other ways I can think of for you to get lower rates would be to get a loan based on real assets (a house, car, etc) or to have a family member with great credit co-sign or apply for a new card in your name (not a desired option, but in some cases it could help).

Question:

I have a question I hope you can help me with. In October 2000, my husband and I had to file bankrupcy, it was final in January 2001. Now, someone is trying to get us to refinance. We have a first mortgage of 10.293% and a second at 13.% and a third at ?% interest. The total of the three mortgages monthly is almost $1600.00. They want to combine them all for a little over $900 a month at 8.5 or 8.75% for 2 years fixed and then (after establishing more credit rating after the bankruptcy) refinance. The problem is I'm afraid of what the interest rates would be then. Would this be a smart move? Please advice as to why or why not?

Response:

You are always taking an interest rate risk when you rely on an interest rate at some point in the future (in your case, 2 years from now). Here are some things to consider:

If you refinance at this 8 - 8.5% rate, what is the rate that it reverts to after 2 years (I'm assuming it's a fixed rate for 2 years at which time it converts to a variable rate.) Will it likely be higher than your combined interest rate right now (12-14%)? If not, then you don't have much to lose, and at worse case you can refinance in 6 - 9 years when the bankruptcy leaves your credit report.

Are there any large fees or hidden costs in this refinancing? Read the fine print closely and, even though it's okay to pay refinancing fees, make sure they aren't obsessive.

Is there a prepayment penalty on the 8 - 8.5% loan? If so, how big is it?

When you refinance in two years you have two risks: the risk that you will not be able to refinance at a rate lower than what you have today; and the risk that interest rates will have moved significantly higher. No one knows for sure where interest rates will be in two years, but my personal thoughts are that they will remain relatively low. Besides, you can't control interest rates, but you can control your credit.

If you decide to take this refinancing make sure that you do everything you can to increase your credit over the next few years. Although there is no way to remove the bankruptcy from your report until 6-9 years (depending on what type of bankruptcy you filed), there are other ways to improve your credit. You should check with a credit repair company or do your own research to find out how.

Question:

I have a question regarding how best to consolidate/eliminate my/our credit card debt with as little damage as possible to our credit... we are needing to purchase a larger home, and will possible need to purchase a newer vehicle soon. Currently our credit card debt is almost equal to our combined yearly income... we just refinanced to combine our 1st and 2nd... I have been off for nearly 10 months on disability, and will be terminated by early October because I am unable to return to my previous position without restrictions... I have transferred balances to get a better rate, and have asked to get a better rate, I have been denied for consolidation "loans" thru the bank and also a major credit card (we have 2 separate very high balance accounts with them)... our credit is "good", no major hot spots, except for too many and too high balances... I've tried closing all accounts that we do not need/want/use to clean it up... Help! I've wanted to do something to stop this insanity, but don't know how best to do this as quickly as possible and with as little damage as possible... Thanks for your help...

Response:

Sorry to hear of your hardship. I'm not sure that it is possible to both eliminate debt and keep good credit. You need to weigh your options and decide which path to take. Here are some of the options and questions to ask yourself:

Will you be able to pay off your credit card debt (or at least keep making the minimum payments)? If not, then you definitely need to do something about it. Are you planning to find a new job after October? If not, and your income declines, it may become impossible for you to keep up with your debt payments.

If you decide to reduce or eliminate your debt, how far do you want to go? Filing for bankruptcy will hurt your credit for 10 years but will remove more of the debt burden. Negotiating with your debtors will hurt your credit (not as much as bankruptcy) and will not reduce your obligations as much as bankruptcy.

If you decide that bankruptcy is the solution, I recommend consulting with an adviser that specializes in bankruptcy. You can find information about its consequences and how to proceed with it online or at most local city hall buildings.

If you decide to explore other opportunities to help reduce your debt, I have some links on my site to companies that provide this service: http://www.free-financial-advice.net/consolidate-debt.html

Also, after your credit is tarnished, there are ways to rapidly rebuild your credit (takes a few years instead of 10). I suggest learning more about these ways if your credit becomes damaged.

Question:

I have a question about 401K vs Debt.

I have about 35k in unsecured debt right now and I have a 401k with about 20k in it. I recently lost my job. I was thinking of cashing in my 401k and using the money to pay off some of the debt. I'm not making a dent in it and I'm afraid that once the severance runs out I won't find a good paying job and will have to declare bankruptcy.

Good idea or not??

Response:

You stand to make a tough decision. Here are some key points to consider in making your decision:

The money invested in your 401K is very important to your being able to retire.

If you cash out your 401K, you will have to pay taxes on the $20,000 plus a 10% penalty. You will only get to keep probably half of it.

If you file bankruptcy, your 401K will be protected but your credit will be hurt for 10 years.

Instead of filing bankruptcy, another option is to work with your lenders and credit card companies to renegotiate and even reduce your debt. This will hurt your credit but not nearly as badly as bankruptcy. My site has links to several companies that supply these services: http://www.free-financial-advice.net/consolidate-debt.html

Bad credit can be fixed rather quickly (a few years) if you learn how to repair your credit.

Question:

I HAVE $402 CAR PAYMENT FOR ABOUT 4 1/2 MORE YEARS AT 4.9% INTEREST RATE. I OWE APPROXIMATELY $6000 MORE ON THE CAR THAN IT IS WORTH. I WANT TO LOWER MY PAYMENTS. I AM THINKING OF BUYING A $3500-$4000 CAR, SELLING THE NEW CAR AND PAYING THE DIFFERENCE AS AN UNSECURED LOAN. IS THIS WISE? MY CREDIT CARD OFFERS A BALANCE TRANSFER RATE OF 9.9% UNTIL THE BALANCE IS PAID IN FULL. SHOULD I TRANSFER THE $6000 TO THE CARD? I WOULD WANT TO PAY IT OFF IN TWO YEARS; WOULD MY PAYMENT WOULD BE LOWER THAN $402/MONTH AND FOR LESS TIME? WHAT IS YOU ADVICE? ALSO, MY VEHICLE INSURANCE WOULD BE LOWER PER MONTH.

Response:

I definitely think it would make sense to buy a less expensive car. Here's a scenario of what I think you're proposing, and the effect it will have on your payments and future debt:

Current scenario:

You pay $402 per month for the next 4 1/2 years.

At the end of the term, you will own a car worth about $10-12k (estimated)

You'll make $21,708 in total payments (4 1/2 years x $402)

With a new, $4000 car:

A 3 year loan on a used car (at 9%) would be about $127 per month.

To pay off $6,000 on your credit card (at 9.9%), you'd have to make 24 payments of about $280

Your payments could be lower if you can find a better rate to finance the car, or if you have the ability to transfer your CC balance to a lower rate. Also, in some cases, if you buy the car from the dealer, they will offer you a decent interest rate on both the car ($4000) and they will sometimes even refinance the amount you still owe on the trade in ($6,000).

Although the net payments will be about the same with the new car, you will have completely paid off the $6,000 in 2 years and the car in 3 years.

Your insurance rates will drop

The only other thing to take into account here is the resale value of both cars. In 4 1/2 years, your $4,000 car will probably be worth $2,000 (a $2,000 decline). However, your current car, which is probably worth about $15,000 today (that's my guess, given the interest rate and the $6,000 amount you mentioned), will probably be worth only $10,000-12,000 (a decline of $3,000 to $5,000).

In this case, you've made $11,100 in payments ($6600 to your credit card and $4500 on the car)

The difference between the two:

You save at least $10,000 in total payments by buying a less expensive car

In 4 1/2 years, your current car will probably be worth about $8,000 more than the $4,000 car

There are lots of estimates and assumptions in these numbers, if you can find more favorable interest rates and spend less than $4,000 on a car, the scenario becomes more advantageous for you.