The Top Do's and Don'ts for Tax Time

Last week, the IRS issued a press release that the delayed returns, any returns including Schedule A (itemized deductions), the educator expense deduction or the tuition & fees deduction – will begin to be processed on Feb. 14 – Happy Valentines Day! This is good news because taxpayers didn’t know when their returns might be processed and rumor had it as late as the end of February. The delay followed the Dec 17 enactment of The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which extended a number of expiring provisions. So you can file now and the sooner you file, the sooner you will get that tax refund back, especially if you e-file and select direct deposit. I’ve been doing a lot of research on taxes this year and my best tips are listed below, courtesy ofhttp://www.TaxACT.com TaxACT Free Federal Edition, a free filing solution that quick, easy, and available to everyone.


DO:



• Do Get Organized Ahead of Time – I recommend my “Sixty Minute Tax Workout” where you whittle down the tax task a bit at a time. Get organized before you sit down by gathering all your W-2s, 1099s, and other tax documents.


• Do Get Smart – Familiarize yourself with the new tax law changes by going to IRS.gov and look at Publication 17, the first few pages summarize the major changes. You can also go to taxact.com/taxinfo.


• Do Ask Questions – It’s smart to ask for help when you don’t understand something about your return. Use the Answer Center in TaxACT, type in your question and get fast answers. Or, email your question for free.


• Do E-file – For the fastest refund (in as few as 8 days with direct deposit). Unlike paper filers, e-filers get an e-mail when the IRS has processed your return.


• Do Get it Free – Use a free tax preparation solution. I recommend TaxACT Free Federal Edition. You can print, prepare and e-file simple complex return absolutely free. TaxACT will guide you step by step through your return and all the tax law changes. Includes free tax help via e-mail. Even if your return won’t be processed by the IRS until February 14th, there’s no reason to wait. You can prepare and e-file with TaxACT now, and they will let you know when the IRS has processed your return.


• Do Pay What You Can – If you cannot pay your tax balance, then file and pay as much as you can by the April 18th deadline to avoid penalties and interest. Call the IRS to discuss payment options, including installments.


DON’T:


• Don’t Forget to Import – Save time and aggravation by importing key data from a PDF copy of last year’s return. If you have multiple W-2s, a 1099 or investment data, use the quick entry features available on TaxACT Free Federal Edition at taxact.com.

• Don’t Procrastinate – Although this year’s filing date is April 18, 2011, don’t procrastinate because rushing can = errors.

• Don’t Get a Cash Advance On Your Refund – When you can get your refund in as little as 8 days by e-filing and selecting direct deposit, it’s a dumb money move to pay all kinds of interest to get your cash a few days earlier. You need that extra money, don’t throw it away!

• Don’t pay more than $15 to e-file State Taxes – If your state charges income tax, then all your federal info transfer to your state when you use an online solution such as TaxACT. The federal solution is free and the state solution costs less than $15.

• Don’t Use A SmartPhone Application – TurboTax released a smartphone application for 1040EZ returns. When it comes to taxes, it’s not about saving time as much as it is about ensuring accuracy and getting the largest refund you possibly can. Spending the extra few minutes could mean a bigger refund or less taxes owed.

• Don’t Spend your Refund on Disneyland or a new iPad – Instead, use 50% of the refund to pay down credit card debt and the other 50% to build up your emergency fund. You may not get the mouse ears this year, but you’ll be in better financial shape!

Ellie Kay

America's Family Financial Expert (R)

Five Top Money Moves for 2011

This week I'll be on over 25 television and radio stations talking about the Top Five Money Moves for 2011.



According to a recent survey, 40 to 45% of American adults make one or more resolutions each year. Among the top new year’s decisions are resolutions about weight loss, exercise, and money management or/ debt reduction. While a lot of people who make decisions during the new year do break them, research shows that making a decision to change is useful. People who explicitly make resolutions are 10 times more likely to attain their goals than people who don't explicitly make resolutions.

If one of your resolutions involve getting fiscally fit, then there are five things individuals, couples and families should do every January, year in and year out, to help their financial picture. These five money moves will help you pay down debt, save more in your emergency fund and be prepared for possible financial setbacks in 2011. They include:



1) CUT COSTS ON FIXED EXPENSES – there are some expenses that people rarely check, but they could be missing out on hundreds of dollars of savings. For one thing, it’s important to call your homeowners insurance provider and ask about getting a better rate. Oftentimes, you don’t think about this policy because the bank may cover this premium and you put that renewal to the side—wrong answer. The other biggie in fixed expenses is auto insurance. If you drive less, in safer ways, and during safer times of the day you can save money on your car insurance. With Progressive’s Snapshot Discount you can save up to 30 percent. It’s currently available in select states so go see if it’s available where you live. A lot of these money savings tips are courtesy of Progressive Insurance, where you can compare rates with a local insurance agent or online at. It’s a good idea to look at the rates listed from different insurance providers because drivers who saved when switching to Progressive reported saving an average of over $500. Shopping around can add up big time! One final, quick tip to cut costs by shopping around, is for groceries. Go to www.couponmom.com where the site will tell you what’s on sale in your neighborhood, which items have coupons, double coupons and store coupons. Using this layered savings approach in the store helped our large family save hundreds of dollars a year on food.



2) COMPLETE TAXES EARLY & FREE– The sooner you file, the sooner you’ll get your refund. When you have your tax forms, do your “Sixty Minute Money Tax Workout”. I recommend TaxACT Free Edition has everything you need to prepare, print and e-file your federal return free. I’ve partnered with TaxACT because it guides you step by step through your return and guarantees your biggest refund. It’s fast, easy and even offers free help. Remember to e-file and choose direct deposit for the fastest refund. Go to TaxACT.com. And once you have that refund, put the money to smart use.



3) CATCH UP ON SAVINGS – In money moves one and two, you freed up extra money by cutting costs and getting your refund back early. I recommend that you take a hard look at your emergency fund. If you are a single income family, you should have twelve to fifteen months of living expenses in this fund. If you are a dual income family, you need six to nine months of living expenses. With unemployment hovering between 9% and 10% in early 2011, it’s important that you save for a rainy day. Use 50% of that tax refund and money saved from cutting fixed expenses to help build up your emergency fund. Then every time you save money on expenses, write a check or transfer those funds into this important account. It will become a habit and you’ll build that account up more quickly.



4) CUT DOWN DEBT – You took 50% of the money you gained from steps one and two and put it in your emergency fund—good job! Now it’s time to use the other 50% to pay down credit card debt and get started on the “snowball effect” of getting rid of consumer debt. This snowball plan works by paying off the credit card with the highest rate first. Then you take the payment you would have made on that first card and put it toward the next card on your list. Each time you pay off a card, you keep taking what would have been that minimum payments on paid off cards and put them toward the next credit card balance. By the time you get to your last few cards, you are paying 2, 3, 4 times the minimum payment, thus getting ahead of interest charges and paying your debt down more quickly.



5) CARE AND SHARE MORE – This is a good time of the year to map out a strategy to give more and get more out of your giving so that you can itemize your deductions. Go through closets and donate clothing and furniture to IRS- approved charities, but keep track of your donations. Ask charities for receipts. You usually get more for each item than you would selling it at a yard sale. Getting certified values for your donations is where a solution like TaxACT can also help. Remember, monetary donations and certain expenses for volunteering are also deductible.

Happy 2011

Ellie Kay

ABC NEWS - Q&A From Military Members & Families

Here's a "Hero Shot" of hubby Bob and his F-4 Phantom, that he flew up until last year when a jet incident caused him to break his back. Thankfully, he is fully functional, but his injuries will not allow him to fly an ejection seat aircraft. The good news: he's gainfully employed flying "regular" airplanes and also the Global Hawk UAV (think the high tech airplane on Transformers).

We had a lot of questions when he had that accident and I speak with a lot of military members and their families who have questions about their lives and finances as well. Some of these fine people were on ABC News with me recently for a Q&A. Here's the recap for you to share with others you know who are in our armed forces. The questions that made it on ABC NEWS won a free copy of their choice of my books! But here are the answers to many more questions.


Q. Is SGLI enough insurance for families or do you need an additional supplemental insurance? From Melody O’Sullivan

ELLIE: SGLI is relatively cheap, term group life insurance that is offered to members of the military on active duty, in the ready reservists, members of the National Guard, members of the Commissioned Corps of the National Oceanic and Atmospheric Administration and the Public Health Service, cadets and midshipmen of the four service academies, and members of the Reserve Officer Training Corps. The insurance is also offered to spouses as well.
Servicemembers’ Group Life Insurance coverage is available in $50,000 increments up to the maximum of $400,000 for members of the military. The price for this insurance is very cheap, so it’s certainly a good value. But is it enough? If you are a young family with only one or two children, then it could be enough. But if you are a more senior servicemember with a lot of family members depending on you, then you might want to buy some term supplemental insurance. Remember that once you leave the military, SGLI is no longer available to you. So if you know you are going to separate in the next couple of years, then it would be a good idea to get a modest supplemental life insurance policy in place.

Q. As a “Key Spouse” how do we encourage other spouses to take advantage of all the benefits the military has to offer? From Starr Vuchetich

ELLIE: Thank you, Starr, for your volunteer work with other spouses, you are to be commended as should ALL our Key Spouses! There’s an old saying that “you can lead a horse to water, but you can’t make it drink.” Your job, as a key spouse, is a difficult one. You know the benefit of taking advantage of the services and perks available to military families, but others have to decide for themselves. The best thing you can do is to lead those spouses by example and express the benefits you are personally receiving from taking advantage of, such as free childcare for volunteering, free financial counseling, free oil changes (or whatever program your base offers), as well as the many benefits listed at sites such as www.militaryonesource.com or www.ourmilitary.mil

Q. How did you arrange childcare during deployments with very little money and how did you maintain sanity with so many small children on a tight budget?
From Jana Baez

ELLIE: I do remember what an incredible challenge it was when all my kids were so young and my husband was gone for weeks (or months) on end. But the first thing I did was plug into all the “free babysitting” I could get. Go to the Family Support Center and see if they offer free childcare for those who volunteer. I also got on site childcare provided when I attended Army Family Team Building classes, so sometimes you can get a break and learn something, too. Don’t forget the community outside of the base gates, either. There are a number of churches, community centers and MOPS (Mothers of Preschoolers) groups that try to support military families during deployments by offering free “Mother’s Day Out” programs or onsite classes where childcare is provided. Last, but not least, form a babysitting co-op, where you get tickets for every child you babysit for every hour. You can “redeem” your tickets with other co-op members and it serves as a way to escape for a while as well as a playgroup when you are watching other children.

Q. How does one begin a business without acquiring debt?
From Chana Montgomery

ELLIE: In the case of a military family, you need to start a business that is completely portable and can move with you. It’s important to select a homebased business that requires little initial investment and will still yield an income to keep you in the black. Do your research and talk to a mentor at SCORE.org where you can get free business counseling in your desired field. If you follow your passion, you’ll be far more likely to succeed. Just email assistant@elliekay.com and ask for the “Homemade Business” file, we’ll send it to you for free as it contains all the information you need to be successful in your endeavor.

Q. When you have extra income flowing in, is it better to work on paying off debts or continue paying normal payments and stash the money into savings?
From Emily Haffner

ELLIE: The answer is “both” if you pay even $5 to $10 more on your credit card minimums, you’ll improve your FICO score and begin to pay down that debt. But you also need a safety net in savings just in case your car breaks down and your husband is downrange and not home to fix it. The optimum savings goal is to have 12 months worth of living expenses. But even if you just save up to 3 months (and keep adding to it little by little) you’ll be better prepared for rainy days.

Q. I have three children and I wanted to know if I should apply the new 9-11 GI Bill to the first child (not knowing how long it will be around) or should I split it up among the children.
Stephanie Berg

ELLIE: Because the Post 911 GI bill is relatively new, and because we don't know how Congress will vote to continue this practice, it may be best to take the money while you can. It's still important to have your child go to the most affordable school possible, get scholarships and other means of payment. But go ahead and use as much of that GI Bill money as you can to pay what you can on your oldest child's college. In the meantime, the money you would have put toward his/her college (from your own 529 plan or other savings vehicle) put into another college fund for your other two children.

By funding more on the other two children's accounts, your money will continue to grow as the market continues to rebound. But in the meantime, you will also be able to take advantage of the current bill. Do not give your first child his/her saved "college money." Instead, put whatever you have saved toward the other two. You can tell your oldest that his/her college money is coming in the form of the POST 9ll GI bill. Because you don't want the youngest two to be stuck with student loan debt that the oldest child did not have to accrue.

Q. With limited funds, what should be the priorities for the best use of financial planning? Should I invest in the TSP (Thrift Savings Plan), IRA, life insurance or mutual funds? Major Anthony Smith

ELLIE: Once you’ve paid off your credit cards and funded a 12 month savings account, then you are ready to take your investments to the next level. It will depend on your family size, retirement needs and current income. I do not recommend life insurance as a good investment tool, even though agents may point you toward that route since the commissions are significant. Better to max out your TSP benefit since those funds will still be available to you if you do not make the military your career for a twenty year retirement requirement. It’s also a good idea to get a ROTH IRA or regular IRA. Go to your Airman and Family Readiness center and ask for an appointment with a financial counselor. It’s free advice and the expert there can look at your entire financial picture to help you come up with the best method of investing. Or try the military friendly company, USAA, they help to fund a lot of military events and can offer good advice on mutual funds.

Q. Being that you moved many times during your military career and have many children, how did you present it to the children when you had to PCS (Permanent Change of Station)? From Kristie Fromer

ELLIE: This is the hard part of military life, Kristie, and thank you for your willingness to go through this. One of the advantages of having so many kids is that they were sure to have built in playmates wherever they went! When we told our kids they would have to leave their friends, we allowed them the freedom to grieve and be sad over leaving. But we were also positive about where we were going. We printed out materials about the new base and all the places we could visit and where we would go camping along the way. By focusing on the positive, while allowing them the freedom to express their feelings, we had healthy, adjusted kids and a well bonded family.

Q. If your auto is less than two years old, is it a good time to refinance? We retire in 2011 and will be buying a house wherever my husband starts his second career. Is this wise to do before buying a house? From Lisa McClain

ELLIE: Refinancing a car will cause a hit to your FICO score, but it can be a good idea in order to get you a lower interest rate. I offer two words of caution: 1) refi at least six months before you get a home loan in order to give your credit time to recover and 2) refi with payments that will end at the same time your original loan would have ended (otherwise, you're just paying interest over a longer period of time.) For example, if you have 3 years left on your car loan. Then refi the loan for 3 years (instead of 4 or 5).

Thank you for your service, military members and your families. Remember three things:

• America loves you
• We support you
• And together we'll be all right!

Ellie Kay
America's Military Family Expert (TM)

On ABC NEWS - Heroes at Home Corner - Military Financial Issues

I'm going to fly in one of those jets one of these days! My work with military money matters makes me concerned with recent bad news for military members and their families.

I was on ABC News this week talking about this survey. And here's the short version of what we discussed:

The Investor Education Foundation of the Financial Industry Regulatory Authority developed a military survey in consultation with the Treasury Department and the President’s Advisory Council on Financial Literacy. Their findings were alarming in that there is a significant increase in consumer debt among military members with more than one in four reporting a credit card debt load of more than $10,000.

Q. Ellie, you work extensively with military members in addressing their financial concerns, how bad is the problem?

A. The information that came out of this new survey is pretty sobering. The study focused on the financial capability of military personnel and found that while some in the armed forces are handling their finances fine, an alarming percentage aren’t doing so well. Debt is only one of the concerns that came out of the report, but it made it to the top of the list because the average military member has more consumer debt than the average American civilian.


Q. Why is debt more of an issue for service members than for civilians?

A. There are a number of reasons that account for this higher debt burden. For one thing, the survey found that military personnel and spouses are generally heavier users of credit cards than are civilians. And we all know that the more you use them, the more likely you are to be more heavily indebted to credit card issuers. In online polling of 700 current members of the U.S. armed services and 100 spouses of current members, more than one in four respondents reported having more than $10,000 in credit card debt. Ten percent of respondents said they were carrying $20,000 or more in such debt. The percentage of those who made minimum credit card payments, took out cash advances and paid fees was highest among families of enlisted personnel and junior noncommissioned officers.


Q. I can certainly appreciate the concern over this increased debt load, but what are some of the reasons that military families have more debt besides the fact that they use their cards more? After all, they do get a regular paycheck, military housing and health care.

A. Even though active duty troops can count on a regular paycheck from Uncle Sam, many military families face the same pressures affecting other Americans during this downturn: Spouses are having difficulty finding work, and mounting debts and foreclosures are forcing them out of rental homes. For those who are stationed overseas those factors are multiplied even more because in some countries spouses are not allowed to work on the economy. Also, when your loved one is deployed in harm’s way, there’s a greater tendency to overspend on comfort items for yourself and your children, for childcare and for eating out because you’re too tired or too depressed to cook. So military families are feeling the effects of our economy…and doubly hard in some cases.

Q. Most Americans I’ve talked to are concerned about their own finances in a post recession economy, but there seems to be a greater concern when military members have money problems. What are the long term implications regarding a lack of financial stability among service members?

A. Yes, you’re right, all of us are concerned about our money and how the economy is going, but our individual money problems usually don’t impact national security. But when you have those serving in the armed forces bogged down with the same issues, it is elevated to that disturbing level of impacting national security. It’s important that military personnel not be weighed down with money issues. Their financial stability is directly linked to their military readiness, according to studies by the Defense Department and the Government Accountability Office. Service members with severe financial problems can lose their security clearances, and bad money management also can result in sanctions, impair career advancement or lead to a discharge.

Q. We’ve talked about consumer debt, but what are some of the other problems that tend to plague military families that may not necessarily impact civilian families?

A. More than one-third of the military respondents said they had trouble keeping up with monthly expenses and bills. Many service members have gotten payday or auto title loans and these kinds of loans deteriorate their assets. Members of the military use payday loans three times as often as civilians, a separate Defense Department study found. With a payday loan, you borrow against a future paycheck. On an annualized basis, I’ve seen the interest rate on such loans range from 400 percent to more than 1,000 percent. Although there are many similarities in how they handle their money compared with the civilian population, military families have unique issues such as frequent deployments. Being in the military may be a secure job, but for many the paycheck is small. It’s not hard to end up with ‘more month than money,’ especially if you are young and have little experience of managing finances. And the military does have special challenges with frequent moves that always end up costing money.

Q. What is the Department of Defense doing in light of the recent financial crisis among military members?

A. The DOD has had financial counselors as part of each branch’s family support centers, but one or two people servicing the population of an entire base isn’t enough. Consequently, they have also created a financial readiness campaign because of the number of military personnel in debt and because so many were losing their security clearances. The Investor Education Foundation is also helping, conducting financial education forums here and abroad and awarding fellowships to military spouses to help them become accredited financial counselors so that they can help their peers. A soldier who is worried about finances is not a soldier who can focus 100 percent on his or her job. I think that when we put our national security in the hands of our fighting forces, then it’s in all our interests that they be able to do their jobs without being sidetracked by financial problems.

Lest you be discouraged by this recent survey--there is hope! Next blog, I'll answer questions from our men and women in the military (and their families), so stay tuned.

And to all those who serve in our armed forces, we thank you!

Ellie Kay

America's Family Financial Expert (R)

Considering Debt Consolidation? BEWARE!

You could be in debt 3 to 5 years LONGER if you go to the wrong debt consolidation company. On ABC NEWS, I answered the following questions from viewers, so it's wise to review these before you choose a firm!

Q. I’m at the point where I have $20,000 in consumer debt and I know I need to do something about it. I’ve been looking around for a company that will help me, but I want to know what red flags I should look for so that I can find one that is legitimate.

Drowning in Debt in Durango

ELLIE: Well there are quite a few red flags to look for. Stay away from them if they:
• Guarantee they can remove unsecured debt,
• Promise debts can be paid off at pennies on the dollar,
• Require substantial monthly service fees,
• Demand a percentage of your savings as payment,
• Advise you to stop making payments to your creditors,
• Say that creditors never sue consumers for non payment
• Promise that their system won’t hurt your credit record.

Q. We went to a debt relief company for an initial meeting and we’re not sure if we should go with them. They don’t charge an upfront fee, instead they charge a percentage of the amount they will save us. But we’re still going to have to pay. Is this good?

Samantha and Tommy from Riverside, CA via facebook

Ellie: In the past, it wasn’t necessarily good, because there wasn’t a regulation about what they claim they’ll save you and many companies inflated their estimates to get even more money from consumers than if they charged an up front fee. It was still a fee, but it was wrapped up in prettier paper so that the consumer thought they were better off. But there’s good news, under the new FTC rule, if the company bases its fees on a percentage of the amount it estimates you’ll save, it must also provide both the percentage and the estimated dollar amount that represents in writing.

Q. We are talking to a debt consolidation company and it’s all so confusing. We want to save money on our overall credit card bills, which cost us about $800 a month. But the company is telling us to make payments and save up—how much are we suppose to save?

Alton and Sharon from Oxford, NY via online contact form

ELLIE: Before the FTC rule, you didn’t really have a way of knowing but now you do. These companies usually ask you to make payments to a dedicated account. When a certain amount has been saved, they’ll go to your creditors and offer to pay off a percentage of the debt. You should ask the company: “How much will I need to save?” The new rule requires debt settlement firms to provide a reasonable estimate of the amount you’ll need to save before they’ll make an offer.

Q: When my brother and his wife set up a debt consolidation, they had him set up a fund that he made payments to. It turns out that the place that held the money was also in partnership with the debt company and he wasn’t allowed access to the money. Is this the way it is suppose to be done?

Audrey submitted via Online Contact Form

Ellie: No, it’s not suppose to be that way and under the new FTC rules this kind of holding or savings account will have closer regulation. The FTC now requires that the customer have full access to the funds, they must be held at a financial institution not associated with the debt consolidation firm and the customer would have the right to withdraw the money at any time.

Q. I was thinking of calling my creditors myself but my friends say I should let the debt consolidation company call them. Who is right?

Moriah Stephens from Allentown, PA

Ellie: In this case, I think you are the one on the right track. You should try to call your creditors yourself before hiring a debt settlement firm. You can sometimes develop your own workout plan because it is in the creditor’s best interest to help consumers pay off their bill.

Q. Where can I find a legitimate non-profit debt consolidation company?

Mike from Mechanicsville, VA via Ellie Kay’s blog

Ellie: The National Consumer Credit Counseling service is a non-profit organization that has thousands of partners across the county. Go to Nfcc.org to find an office near you.

Ellie Kay

America's Family Financial Expert (R)

Good News for Those Who Need Debt Consolidation!

This week on ABC NEWS, I was able to share GOOD NEWS for those who are in need of help!

Consumers in a post recession economy are easy prey for advertisements that claim their company can reduce your debt by 50% or more in just a few months. Thousands of those who have been battered by the recession have succumbed to the ads and dialed the toll free numbers featured in these ads. They’ve also signed up for debt-relief services, often at considerable expense. Sadly, many of these consumers have ended up even deeper in debt than before they made the phone call. Today, let's look at the facts.

Q. First of all, how bad is the situation among debt relief agencies—are most of those firms out to take advantage of consumers?

ELLIE: The situation is pretty bleak, the Better Business Bureau reports more than 3500 complaints about debt-relief companies since the beginning of the recession. Granted, it’s probably out of line to make gross generalizations and say that all debt relief agencies are out to take advantage of a debt ridden consumer. There are some out there that are doing a good job with minimal fees attached. But unfortunately, there are many more that are adding to the debt woes of those they say they are trying to “help.”

Q. Would you say that the debt consolidation industry has thrived during a down economy?

ELLIE: Absolutely, it’s one of those industries that tends to do very well during financially challenging times. All of the sudden, people can’t pay their bills and they hear about others who have gone to a credit union or a debt consolidation company that has combined their debt in order to reduce monthly payments. But I believe, personally, that this industry, which tends to be opportunistic at best---is about to see a major change.

Q. A rule approved by the Federal Trade Commission last week will make it much harder for debt settlement companies to make a living. How does this FTC ruling help consumers?

ELLIE: It’s primarily wrapped up in the way that debt consolidation companies can advertise. No longer can they promise to “wipe away your debt” or “reduce it by 50%.” These dubious claims about their success rates are coming under close scrutiny. But even more importantly, the rule will prevent them from charging upfront fees for their services, which is expected to put a lot of debt-settlement companies out of business.

Q. Do you think it’s a good thing that many of these debt settlement companies could go under?

ELLIE: Yes! As a financial expert for the last 20 years, I’ve seen a lot of businesses that are out to stick it to the consumer. I’m all about helping families get out of debt and in my opinion, the majority of these companies are adding so many fees, that a lot of the people I’ve talked to are actually in debt 3 to 5 years LONGER after going to these kinds of companies. It’s been a wild, wild west for debt settlement and it’s about time the sheriff showed up and put some of those guys out of business.

Q. But the problem is greater than just dealing with the debt settlement firms, right? Aren’t there other companies that contribute to this problem and what is the FTC doing about them?

ELLIE: Excellent point, and I’m glad you brought it up. There are others that contribute to the issue and the FTC is cracking down on those companies as well. For example, there have been marketing agencies that earn big commissions for signing up as many customers for debt settlements as they can. These businesses have no interest in determining whether consumers are good candidates for debt settlement—they are just going after the bucks. In fact, many of those who signed up for debt settlement end up in Chapter 7 bankruptcy.

Q. It almost sounds as if there are no good options when it comes to debt settlement—are there any “good guys” out there in the wild, wild west? Is debt settlement ever a good idea?

ELLIE: There are legitimate companies that don’t charge an upfront fee and they offer full disclosure about what they can and cannot do for the consumer. You can go to the National Foundation for Credit Counseling, a non-profit organziation that can direct you. There are consumers out there who have large credit card balances, need debt consolidation and are not good candidates for bankruptcy. In fact, a 2005 bankruptcy reform law created a “means test” that has made it more difficult for some individuals to file for Chapter 7 bankruptcy. And a bankruptcy filing will stay on your credit report for 10 years, which could make it difficult for you to get a job, particularly one that requires a security clearance.

Q. So, how to you find a company that can truly help consolidate your debt without taking advantage of your difficult situation?

ELLIE: The key is to ask them the right questions such as:
“What’s your success rate and what percentage of people drop out of your program?”
Before the FTC rule came into play, companies could cherry pick examples of successful customers to inflate their results. But now if the company claims it can reduce your debt by a certain percentage—for example 40% to 60%--then the consumer has the right to ask for objective evidence to support those claims. If they can’t provide the information, then they probably belong to the unscrupulous crowd.

Q. What are some other questions consumers should ask?

ELLIE: Besides asking about their success rate, the next most important question is: “How much will it cost, and how long will it take to settle my debts?” The biggest misconception that people have about debt settlement is they’ll get a service in exchange for an advance payment. Most of them do not do that. In fact, the new FTC rule now bars debt settlement firms from collecting any money until they’ve settled or reduced your debt. But you should still make sure you understand how much the service is going to cost and how long you’ll have to wait before you see results.

Ellie Kay
America's Family Financial Expert (R)

Raiders of the Lost 401(k) - Loans? Withdrawals? Good or Bad?

Ellie was on ABC News and KLOVE discussing the attack facing 401(k) accounts.



The 401(k), which has long been known as the ticket to retirement for millions of Americans is under attack from within and has taken a hit in recent years. In the second quarter of this year, a record 2.2% of participants in 401(k) plans took hardship withdrawals from their savings, which is up 2% from the same figures available a year ago. What is the long term impact of raiding your 401(k)?

Q. The news about early withdrawals on 401(k) plans is worrisome and yet thousands of participants are making these decisions in increasing numbers. Why do you think people are taking the early withdrawal?

ELLIE: I think that it is worrisome when you are borrowing on tomorrow’s retirement to handle today’s financial issues. But I think that the vast majority of those who are taking this money out are doing it to pay their bills. Some have had their hours cut or maybe a spouse has lost their jobs. Others have seen their kids college fund shrink to where they cannot afford to pay tuition for this year and they’re raiding their 401(k)s to pay that hefty bill. It’s just a sign of the hard economic times in which we are living. Our parents’ generation tended to work for someone who gave them a pension check for the rest of their lives. This means that current workers may not have been raised with the mindset that they control their own pensions and need to make funding their own retirements a priority. There’s an alarming trend that involves looking at 401(k) accounts as “now” money when it’s really “later” money, that really must be saved for later.

Q. Aren’t there certain stipulations associated with a 401(k) hardship withdrawal? How easy is it to get?

ELLIE: I think that the increased percentage of those who qualify for an early withdrawal indicate the financial strain that many families are facing because this kind of withdrawal is not easy to get. Under IRS guidelines, 401(k) administrators can grant hardship withdrawals only for specific reasons, including tuition payments, the purchase of a primary residence, unreimbursed medical bills and prevention of foreclosure.

Q. The IRS has guidelines for hardship withdrawals, can companies also impose additional limits on their employees?

ELLIE: Yes, and in most cases the company rules are even tougher than the IRS. So if that number of Americans managed to actually secure a 401(k) hardship withdrawal, then it is a huge indicator of how the financial difficulty that many Americans are currently experiencing in our present economy.

Q. Of all the reasons you mentioned for taking a withdrawal, what is the number one reason that participants are raiding their 401(k)?

ELLIE: The number one reason is to pay the mortgage in the face of a foreclosure. In the second quarter, nearly 10% of households with a mortgage were at least one payment behind on their loans, this is according to the Mortgage Bankers Association report that came out last week. Families who feel they may lose their homes often believe they have no choice but to tap their retirement savings. But many of those families have not yet exhausted all their resources. If it’s a short term problem, then talk with your mortgage lenders and see if they will suspend or lower your payments over the next three to six months until you are back on your feet again. They can also go to MakingHomeAffordable.gov, which is a federal government website with the goal of helping families by providing free HUD-approved counselors who can help you modify your mortgage. These are far better options than raiding your retirement fund.

Q. What about those families who are tapping into their 401(k) to pay tuition, you say this is a very bad money move, why?

ELLIE: As a mom with three kids who have graduated from college, two kids in college and two more headed toward college, I believe I can speak to the importance of getting that college degree. That having been said, I still think that those families who pay for tuition with their retirement dollars have their priorities wrong. There are other ways to pay for college, including taking a year off and working, going to a junior college for a couple of years, getting funds through an internship or work/study program or even getting a loan. You can get a loan to fund college but you can’t get a loan to fund your retirement. I never think it’s wise to borrow on your own future to pay for your child’s short term goal.

Q. What are some of the taxes and other penalties that arise when you take a hardship withdrawal?

ELLIE: These taxes and penalties are the main reason I say that it’s not a good idea to raid your 401(k) and one of the primary reasons is that, depending on your tax bracket, you could end up giving a third or more of your money to the IRS. You’ll have to pay income taxes on the entire amount of your withdrawal, at your ordinary income rate. And if you’re under 591/2, you’ll also have to pay a 10% early withdrawal penalty. Since the average age of those who took the hardship withdrawal in the second quarter was between the ages of 35 and 55, this tells us that most workers who took the cash are paying the penalty!

Q. You also say that there is an intrinsic “opportunity cost” that arises at the time of withdrawal, what is this cost?

ELLIE: When you take a hardship withdrawal, you’re prohibited from contributing to your 401(K) PLAN FOR SIX MONTHS! That means you’ll miss out on any investment gains you could hae earned by contributing during that period. You’ll also miss out on the company match, which is a guaranteed return on your investment and depending on the match, it’s usually much more than what you can earn in the market if you made your own investment. For example, if your company matches 50% of what you put into the account, you just won’t find another investment out there where you would get a 50% return on the money you put into that investment. So there’s a double jeopardy penalty associated with early withdrawal. You’ll pay for it now and you’ll pay for it later---then at retirement, you’ll pay for it all over again because you won’t have that money in the account.

Q. What about the fact that you can deplete an asset that is off limit to creditors, how does this impact a participant?

ELLIE: While raiding an account to avoid bankruptcy or foreclosure is a well intentioned money move, it’s also foolish because if you end up in bankruptcy anyway, then you’ve passed up the benefit you have in the fact that most retirement accounts are protected under bankruptcy laws in most states. And when it comes to 401(k) accounts specifically, it’s important to know that when filing for bankruptcy protection, creditors will go after your assets to repay your debts but federal law protects your 401(k) from creditors.

Ellie Kay
America's Family Financial Expert (R)

Bail Your Kids Out of Debt? Marry a Slacker? Co-Sign A Loan? - Ellie Kay's Q&A

Ellie was on ABC NEWS, and others stations across the country again this past week. All the following people who asked questions will get a free copy of The Little Book of Big Savings!

Here's her answers to your questions:

Q. Our son is only 20 and has $4,000 in credit card debt. He’s not able to pay and wants us to bail him out. I warned him about his credit cards because I made the same mistake when I was in my 20s and he didn’t listen to me. But I feel like a bad parent if I don’t help him out. What do you recommend?

Tim from New Mexico
Submitted via Facebook

ELLIE: Sorry to hear about your son's decisions, Tim. NO, you should NOT bail him out. It sets a precedence and you'll have to do it again (or do it for other kids, friends or family members). You can come alongside him and help develop a recovery plan. Or, offer to go with him to a free financial counsling center. Go to my free tools and click onto the section about consumer debt for more help. Your love for your son is unconditional, but your money is conditional. He made his own choices, now he has to deal with the consequences. You'll support him emotionally, but you won't fund his mistakes.

Q. Our daughter has a used car that we bought her when she was 18. She’s now 22 and newly graduated with a $30,000 a year job. She has to pay rent, insurance and all her living expenses and wants to buy another car. The one she has now runs just fine, but since she got a new job she wants a new car. However, we would have to cosign on it, what do you think?

Christine Thomason, Minneapolis
Submitted via Facebook

ELLIE: Congrats, Christine! You raised a baby girl who not only graduated from college, but also found a good job right away--well done! Now, the next step is to help her learn delayed gratification. She WANTS a new car, she doesn't need one. The fact that she needs a co-signer indicates the bank does not consider her a credit worthy risk--neither should you. Instead, encourage her to set aside $350 to $500 per month (whatever her car payment would be) for a year. Then, she can sell her existing car, buy another nice USED car and pay cash. If she saves this way for another year, she can sell the 2nd car for a nicer used car (using her saved cash) and still pay cash. This way, she's driving her "dream car" for free with NO car payments!

Q. We have two kids that are 14 and 16 and are on competitive basketball teams. They take a bus two to three times a week to tournaments and other competitions. We have to pay for their meals on the road and they are burning through our cash constantly. They’ll spend $15 or more (each) for a fast food meal and we’re going broke. Is there a way to motivate them to cut back on how much they spend?

Thomas Evers, New York
Submitted via email

ELLIE: Thomas you've found yourself in the place where you are getting played by your kids. I know what it's like, I've found myself asking: "How did I get here?" when it comes to my teens running over me with their personal agendas. It's time to regain your lost ground and be the dad. Tell your kids that you are putting them on a food budget and they will now have $10 (each) to spend on fast food. If they were eating in a nice, sit down restaurant, it would be different. But they're not. Tell them if $10 is not enough, they can bring a sack lunch on road trips or pay the extra expense with their own money. Either way, they're not going to starve and you won't go broke.

Q. Our oldest daughter is suppose to get married in December. She is 24 with a good job and her fiancée is 30, has a degree in electrical engineering but doesn’t really have a job. He drives a truck off and on. It’s spooky, because when I got married, it was a similar situation and we ended up divorcing because I was the main breadwinner and he couldn’t hold a job. I don’t want her to make the same mistake. Do you think a couple has a “right” to know about each other’s finances and attitude toward money and work before they get married?

Donna Michaels from Oklahoma City,
Submitted via blog

ELLIE: History has a way of repeating itself. There are so many red flags in this situation, that you are right to be concerned as a mom. First of all, your daughter needs to go to premarital counseling with her fiancee and stress with the counselor that they want an emphasis on financial issues. If her fiancee will not go, then I think she should postpone the wedding. A couple of facts are clear: he is well educated and underemployed. The reason might be something legitimate like "the economy" and counseling will make that clear. But the other reason could be that he's unmotivated when it comes to providing a living--in other words, he could be a slacker. So if your daughter wants to be the main breadwinner and face a life of living with a man who is underemployed, then keep the December wedding date. Otherwise, get the wisdom of a third party involved to determine the real reasons for his unemployment.

Please submit your questions and if I answer them in a blog, I'll send you a free copy of The Little Book of Big Savings!

Ellie Kay

America's Family Financial Expert (R)

Red, White and Scammed - Part II- Answering Your Questions

Here's a blast from the past--when our children were little & white tights were in!

This is part two of a series that is an effort to help military families. I've been on ABC News and KLOVE these past two weeks, answering your questions.

Here's a transcript for those of you who asked--Be sure to pass this link along to your military friends!


Q. Ellie, you came to our Army base to speak last November and I think that your message really helped me get through my husband’s deployment. Thank you for the work you are doing with military families. I did have a question about ordering items online. You showed us how to pay 40% less by using some websites, but how do I know if the website is legitimate?

Steph from Rothenburg, Germany
Submitted via online contact form

ELLIE: Steph, thanks for writing and thank you for what you do as a military family member, I admire you so much and know it’s a hard job! To avoid getting scammed online, make sure that you never respond to an email inquiry, but you find the site yourself on your own search. Then, go to BBB.org to make sure they aren’t listed and also check out the FTC.gov, plus the Internet Crime Complaint Center at IC3.gov, to investigate complaints against the company.

Q. I’m 19 and have been a soldier for 18 months. There are quite a few of my friends who regularly go to the payday loan business that is right outside our base. I keep telling them that they are losing a lot of money by getting a pay advance, but they say the interest rates are low and it’s no big deal. What do you think?

"Private Benjamin" from Ft Bragg
Submitted via Facebook

ELLIE: Private Benjamin, thx for your service and you’re the smart one. Tell your friends that some of these payday loan companies are charging as much as 500% interest. Even though the Defense Authorization Act of 2007 put a cap of 36% on interest loans to military members, many of these companies skirt the law by added exorbitant fees and calling the loans “revolving lines of credit” instead of payday loans in order to bypass the law.

Q. My husband’s hazardous duty pay was backlogged by red tape and didn’t arrive early enough for us to pay our bills. How am I supposed to pay things like our car loans while he is in the Middle East if I shouldn’t go a payday loan center?

Justine Long, Fort Drum, NY
Submitted via Facebook

ELLIE: In situations like yours, there are resources as near as your Army Community Services center where they can offer free financial advice. In extenuating circumstances, such as yours, you might even qualify for special programs offered by the Army’s charity, Army Emergency Relief or the AER. By going to these legitimate resources, you can avoid getting ripped off.

Q. Our community here in Alamogordo, NM is very supportive of the military and so is Las Cruces, which is a little further down the road. Many businesses carry banners that say, “we support our military.” Even so, a friend of ours bought a car from one of these places and it turns out that the dealership didn’t own the title and then went out of business. Now our friend has an $12,000 loan to pay and no car to show for it! How can we avoid being “taken” and who can we trust?

Heidi Rothenburg, Holloman Air Force Base
Submitted via blog

ELLIE: Heidi, I’m so sorry to hear of that situation, especially from a business that advertises its support of the military. Unfortunately, auto vendors are a huge source of complaints. In most cases, the salesperson will offer you “easy credit” but you pay jacked up prices, hidden fees and interest rates of 15% to 20%. Military financial counselors have files full of horror stories. Bad dealers have taken cars in trade, promising to pay them off and then they go out of business, leaving service members with two payments. Go to BBB certified dealers and if the deal sounds too good to be true, just walk away, because it usually is. Or go to your base's ACS, Airman & Family Readiness Center or Fleet and Family Support Center for local financial counseling.

Q. My daughter just got commissioned with the Marine Corps and I’m concerned about the possibility of someone taking advantage of her financially. Are military members bigger targets for fraud than civilians?

Sue Simpson, Stillwater, OK

ELLIE: Military members have guaranteed paychecks and won’t ever get laid off. This makes them good credit risks. But it also makes them targets. Some people see the military as cash cows and they want to get their cut. One of the greatest evidence of this fact is that outside of any large military installation, you’ll see businesses that offer payday loans, pawn shops, and check cashers. These are the kinds of businesses that prey on unsuspecting military.

Stephanie, Phoenix, AZ
Submitted via email

Thank you to those who serve!

Ellie Kay

America's Family Financial Expert (R)

College Debt - Ellie Answers Your Questions!

One of Yahoo's most popular videos was yours truly on ABC NEWS NOW earlier this month answering your questions about college grads as well as debt!

Here's the scoop:

Q. Our daughter just graduated from UCLA and we’re very proud of her. But even though she has a prestigious degree, she still hasn’t been able to locate work. Should we allow her to move in with us until she finds employment?

Bill and Carol from Quartz Hills, CA via facebook

Ellie: This is a tough one! As a mom of kids in this age group, I know it’s a fine line between enabling and empowering and it’s definitely one of those individual decisions. What may be right for a particular child may not be right for another one. I think you ought to support her emotionally and psychologically, letting her know you believe in her. You can also offer to help with resumes or job research. But I would make the offer to have her move in with you as a last resort only. Furthermore, if she does move in with you, it’s important to sit down ahead of time, come up with a responsibility/income agreement and have both parties subscribe to the guidelines.

Q. My husband and I have a son who graduated last year and could not find work, so he moved in with us until he could find employment. He found a modest job, and is not making very much money. He decided that continuing to live with us would be a better financial option than paying rent on a limited income. I love my son, and he’s only 23 right now, but I’m afraid of a “Failure to Launch” syndrome and I need to know what you would advise me to do.

Allana from Lancaster, PA via online contact form

ELLIE: OK, the Failure to Launch syndrome, it’s every parent’s nightmare. We finally have an empty nest, then boomerang children come back to inhabit a place where they no longer naturally fit. I think, Allana, that it is imperative that you and your husband develop an comprehensive exit strategy for junior. Make sure this plan requires that he pays room and board with you, that he develop a clear budget and make himself accountable to you (while he’s living at home) and then be clear about D-day. The day he will depart. Be loving but firm. Remember that the decisions you are implementing with him today will be the precedence you set for tomorrow. You and you alone, enable the boomerang effect, yet you also have the power to put a stop to that boomerang before it’s ever launched. Then you won’t have a “Failure to Launch.”

Q: I am a 26 year old single girl with a bachelor's degree but not yet a Master's. I am working with children in a library setting currently and am considering various Master's programs. (Library Science included). I would have to take out loans for the program though, and I am not sure that taking on that debt would be a wise thing, even though it would lead to a professional job. What is your advice for women around my age who eventually want to marry and have a family and do not want the burden of school debt? I have read some of your books and very much appreciate your insights and time.

Jen Crouse submitted via Online Contact Form

Ellie: It's admirable that you desire to go back to college for a master's while you are still in your twenties and your work with children sounds very gratifying. Ellie usually recommends no more than 10K in student loan debt for any program (bachelors or masters). Instead, you could look into some of the following:

Step 1
Apply for a scholarship. There are merit based graduate school scholarships out there so go to www.salliemae.com which lists almost 2 million scholarships. Talk to the admissions office at the college or university at which you'd like to apply. They can give you advice on applying for their own scholarships (if they have them) or point you to the appropriate federal and/or state scholarship programs.

Step 2
Look into a fellowship or assistantship. Many colleges and universities offer programs that enable you to get a master's degree while doing research or assisting professors in the department in which you wish to study. This is a viable option that also enhances your hands-on experience in your chosen field.

Step 3
Talk to your employer. Many employers are willing to foot the bill for a master's degree, especially an MBA (Master of Business Administration). Talk to someone in your company's Human Resources department to get more information. Or another option is to talk to a military recruiter to join the guard or reserves. The Army, Air Force and Navy will pay up to $65,000 in student loan debts if you qualify for the program.


Q. My husband and I want to help with our son’s college expenses (he graduates in two years) and we don’t want him to be straddled with huge student loans. Several of our friends and other family members have said, “Just take out a second mortgage or use the equity in your home to pay for college.” What do you think about that?

McKenzie Thomas from Stanford, CA

Ellie: I believe that you should never borrow on your own future to pay for your child’s future. In any discussion of college costs, it’s important to keep priorities straight. Your kid’s education shouldn’t cost you your retirement. This means it’s not a wise idea to take out a home equity loan, an equity line of credit or refinance your mortgage in order to pay for school. This would reduce the amount of equity in your home, increase the risk of possible foreclosure and incur costs in interest charges that may cost more if the term on the new mortgage is greater than the remaining term on the existing mortgage.

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Q. My son-in-law just graduated with his Masters Degree in Education. They have had a hard time while he’s been in school and don’t have the best credit scores. They’ve asked us to co-sign on a new automobile loan and we are reluctant. What do you think about co-signing for loans?

Amanda from Wichita, KS via Ellie Kay’s blog

Ellie: Since you son-in-law needs a co-signer, it means their credit is so risky that no lender will give him money on his own credit history. The question is: why should you? Even though it may come across as “helping a family member out” it’s still a business transaction and when you set the precedence of co-signing on a loan—be prepared to do it again and again. If not for the same person, then for another friend who may say, “well, you did it for Daniel, why not me?” You have to assume you will be the one repaying the loan & you won’t have the associated asset, so it can’t possibly be a good business move.

Ellie Kay

America's Family Financial Expert (R)

www.elliekay.com

College Grads Avoid Debt Trap

Son, Daniel graduates from college in this happy snap and it's that time of year when proud parents of the class of 2010 gather to watch their children graduate from college. I was recently talking about this topic on ABC NEWS, Good Money where you can watch the clip.

After the hats are tossed, tears are wiped away and the celebratory cake is gone—the graduates will begin their new lives in the real world. But this year’s graduating class faces a wretched job market where there may be as many as five candidates for every job. Consequently, one of the most daunting tasks becomes the challenge of not falling behind on student loans. While challenging times can build moral fiber, you don’t want to build character by getting involved in the debt trap.

Q. First of all, what are some of the consequences that graduates face by getting behind on student loans?

Ellie: As a mom of kids in college as well as a recent graduate, I know personally, how difficult the job market is and what a challenge these graduates face. First of all there will be interest charged for late payments as well as fees that will inflate the amount they owe---and chances are good that they owe too much as it is! If you default, the government could garnish your wages and withhold your tax refund. Not to mention a huge hit on your FICO score, when you’re just starting out and trying to build a good score that will help get lower interest rates on a car or a house. This isn’t a good way to start your post-graduate life!

Q. But you say there is good news and that these dire consequences are avoidable, as least as far as federal student loans are concerned. The key is to understand your options and take action before you fall behind on payments. The first tip you list is to understand your grace period, when do students have to start paying back these loans and how do grace periods vary?

ELLIE: Borrowers typically have a few months after graduation before they are required to start repaying their federal student loans. For most federal student loans, the grace period is only six months. Most loans have up to ten years to repay. It’s important that you contact your loan provider and find out when the statements begin—especially if you haven’t received notification yet.

Q. What if the graduate has trouble finding work or they find an entry level job that typically doesn’t offer much in the way of compensation? Is there recourse for the amount they are required to pay for their loans?

ELLIE: That’s an excellent point and it brings us to our second tip, they need to find out whether they qualify for the income-based repayment program. Under this program, your loan payment could be reduced, based on the amount of discretionary income you have available. In most cases your loan payments won’t exceed 10% of your total income. After 25 years, anything you still owe on the loan will be forgiven.

Q. Is this income based repayment program an automatic enrollment or does the graduate need to apply for it?

ELLIE: You definitely need to apply for it by contacting the company that is servicing your student loan. If you’ve moved a time or two and your loan papers have not been forwarded to you and you are not sure who services your student loan, then you can go to the database of the National Student Loan Data System.


Q. Is there some paperwork you need to compile before you apply for the income based repayment program?

ELLIE: Yes, it’s important to have this paperwork on hand in order to streamline the process because you do want to get this filed as soon as possible—especially if you’re in danger of being late on loans and you have a genuine financial hardship due to your current income levels. You’ll need to authorize the IRS to provide last year’s tax return to the Department of Education. If you feel that your tax return doesn’t reflect your current situation, there’s a form you can use to show how your situation has changed. Get info on these forms and criteria, as well as links to major student loan servicers at the Project on Student Debt.

Q. We’ve looked at income based repayment, but what about those who need a quick, temporary fix? Maybe they have to take an unpaid internment at first or they may have a job that will become available in six months. Are there options such as deferment or forbearance available to this class of graduates?

ELLIE: If you are unemployed, still in school or experiencing economic hardship, you can apply to have payments on your federal student loans deferred for up to three years. If you have subsidized Stafford loans, which are provided to students who demonstrate financial need, the government will pay the interest on the loans during deferment. Interest on unsubsidized Stafford loans will accrue during deferment. If you don’t qualify for deferment, then you still might be eligible for forbearance, which allows you to put off payments for up to three years. It’s harder to qualify for deferment than it is for forbearance because in forbearance you will still have to pay interest that accrues.

Q. Does it take a long time for the paperwork to go through for these kinds of programs we’ve discussed: income based repayment, deferment and forbearance? Couldn’t a graduate find themselves in default by the time the paperwork is processed?

ELLIE: It’s important that you continue to make full payments until you’re notified otherwise. It takes longer for income based repayments and doesn’t take as long for deferment and forbearance because the latter two are temporary relief from loan payments. Whereas income based repayments could be longer term, depending upon how long you are in that job, making that salary. It’s important to look at forbearance and deferment as short term fixes and not long term—that’s why it’s really important to file for these right away, while you’re looking for a job. But if it looks like your payment problems will last longer than a few months, you definitely need to look at income-based repayment.

Q. Some graduates have huge student loans, in some cases, they have more than $30,000 in principal and interest. It is especially difficult for these grads to face this mountain of student loan debt. Can they extend the payment term in order to get through the first few years?

ELLIE: If you are a borrower who owes more than 30K , most lenders will allow you to extend the term beyond the standard 10 years, thus reducing monthly payments. The amount of interest you pay will increase, though, particularly if you extend payment over the maximum term of 25 years. And who wants to spend the next 30 years paying off a student loan? So I would only recommend this option as a last resort. Try to pay it within the standard 10 year term so that you can avoid thousands of more dollars in interest.

Q. Finally, we’ve discussed federal student loans, but a lot of viewers may hold private student loans that they have to repay. What are their options?

ELLIE: Well, the outlook is not as sunny for those who have private loans. They have fewer options. Private education lenders don’t participate in the income-based repayment program and they’re not required to allow you to defer payments, even if you’re out of work. If you’re having trouble with your private loans, read your loan agreement. It may require that the lender grant you forbearance under certain conditions. Even if your contract doesn’t include an economic hardship provision, your lender may be willing to provide relief. Some lenders have become more flexible in this post-great recession environment. You could ask for interest only payments or even to change the terms of the loan. For more information, go to Student Loan Borrower Assistance

Ellie Kay
America's Family Financial Expert (R)
http://www.elliekay.com/

ABC NEWS - I'm Answering YOUR Questions

Here are some of your questions that I answered recently on ABC NEWS "Good Money" regarding the blog I wrote called "The Road to Financial Heckie Fire."


Q. I’m in my mid thirties and I haven’t had the problem of friends and family asking me to co-sign on a loan before. But in the last year, I’ve had three requests for this. What’s your advice on co-signing a loan?
Jill, from Bradenton, FL via facebook

Ellie: If you have a friend or relative who needs a co-signer, then that means their credit is so risky that no lender will give him money on his own credit history. The question is: why should you? The answer is that you should not! Even though it may come across as “helping a family member out” it’s still a business transaction and when you set the precedence of co-signing on a loan—be prepared to do it again and again. If not for the same person, then for another friend who may say, “well, you did it for Jennifer, why not me?” You have to assume you will be the one repaying the loan & you won’t have the associated asset, so it can’t possibly be a good business move.

Q. We are boomers in our early sixties and we were thinking of getting a reverse mortgage. Is this a good move for people our age?
Allison from Granbury, TX via online contact form

Ellie: Recently, you’ll see older actors on commercials offering these kinds of mortgages to seniors who are house rich and cash poor. They are portrayed as a viable means of getting a steady stream of income that is easy to obtain. But the fees and other costs associated with reverse mortgages can sometimes be considerably higher than on other loans. This is a bad money move unless you have no other income than social security and because of the high cost fees, it should be a last resort not a first resort. The better option would be a home equity loan. You could sell your home and move into a smaller, less expensive house. Or, you could sell the home to your kids and have a multigenerational family under one roof—this is a recent trend I’ve seen emerging. Your kids can use the inheritance to pay down the mortgage.


Q. I have $10,000 in Stafford Student Loans, an $8800 car loan at 9.99% and two consumer loans at $3500 and $3700, both at 12%. All my loans are current and I have $1000 to put toward one of these loans—which one should I choose?
Viviene via Ellie Kay’s blog

Ellie: It’s great that you are current with your payments and even better that you have an extra $1000 to put toward your debts. I recommend that you put the $1000 toward the $3700 loan at 12% in order to retire the loan. Then once you’ve paid off that debt, double up the payments on the $3500 loan. You will feel motivated by the fact that you’re paying off debts and you will also experience the “snowball effect” where you gain momentum in paying these debts and as you pay off one bill, you can put those monies toward the next bill. Before you know it, you’ll have all your debt retired!

Q. Last year, my teenage daughter couldn’t find a summer job and ended up kind of wasting those months. She tried hard, but there just isn’t much work where we live. Do you have some ideas that maybe we haven’t thought of in terms of summers for this age group?
Stephanie Corlew from Branson, Missouri

Ellie: Summer camps are a great place for kids like your daughter to plug into a summer job. My daughter, Bethany, found a job through the American Camping Association by going to www.acacamps.org/jobs (or just google “American Camping Association” and “jobs.”) She’s making enough for her college spending money and gaining the opportunity to impact the lives of young campers as well.
Another way to broaden a resume for this age group is to go to the local, state or federal political representative from your district and offer to intern in the office. My son, Jonathan, did this last summer as a high school sophomore and this summer as a junior as well. He only volunteered a few hours a week at Congressman Buck McKeon’s office (California) and it made such an impression on his resume that it helped him get into an exclusive summer leadership seminar at USAFA (United States Air Force Academy). His summer internship contributed to the community and it also has contributed to his future as he applies for college scholarships.

Q. My grandchildren are teenagers and are coming to live with me for the summer. I wanted to know if you know of some jobs they can do where they could make some extra money, but still have time for fun, too.
Connie Green from Tehachapi, CA

Ellie: Connie, if you email assistant@elliekay.com, we can send you a file that includes 30 different jobs your grandchildren can do locally and make good money as well. Just ask for the “Kids Jobs” file. There’s also a list of safety items you should check out before they work for someone they do not know. For example, there’s job’s like Rent-A-Kid where there may be people in your church or neighborhood who need odd jobs done. There are also jobs like window washing, Garage Cleaning Service, Babysitting Services for summer groups that meet, Mail Checkers (for those who travel out of town), and even Pet Minders.

Q. Ever since I was a teenager, it’s been a dream of mine to go visit Israel
Is going on a tour with a large group the least expensive way to go to big tourist destinations? How can I save money on this trip?
Pamela from Acton, CA


Ellie: Tour groups with your church or community may not be the cheapest route to go since someone usually gets a free trip or two by booking a large group. In some cases, you actually pay more money to go to Israel with a reknown author or professor than you would if you go on your own. To help save money, go to the website GoIsrael.com and do as much planning as possible. Stay in a hostel, guest house, or a kibbutz, which comes with a free breakfast. Buy a pass for all national parks in order to save as much as 35% on the most popular attractions.

Q: Our company downsized and I laid off work. I’m thinking of launching my own homebased business, but there’s so much out there, I’m not sure what I should do. How do you know it’s a good business to get into and what should I keep in mind as I make my decision?
Nicole, Albany, NY

Ellie: One area of our economy that is thriving is direct sales companies (DSC) as people explore new ways to make money. As you are searching for the best fit for you in your homebased business start with following your passion. Do you love to cook? Then Pampered Chef may be a good option. Do you enjoy wearing the latest styles in jewelry, then try Premier Designs. If you follow your passion you are far more likely to succeed. But all DSCs are not created equal. Before you decide, find out what kind of inventory you have to stock. I know far too many people who went into debt to buy their inventory and then quit the business within a year—but kept the debt! Also find out the percentage you make on sales as well as the hostess plan that the company offers. Does the company take care of filing sales tax for you or do you have that job, too? For more information, email assistant@elliekay.com and ask for the “Homemade Business” file. Have fun pursuing your passion!

Please ask me YOUR questions!

Ellie Kay

America's Family Financial Expert (R)

http://www.elliekay.com/

The Road to Financial Heckie-Fire

Here's one of my favorite picks taken a few years ago with the "Pastor to Presidents," Billy Graham. He's an amazing man of integrity and in the business of keeping people out of hell.

They say that the road to hell is paved with good intentions. When it comes to your finances, some of these well meaning money moves can actually become major slip-ups that only compound existing financial difficulties. While parts of the economy are looking better, unemployment remains at a rate of 9.7% and this means that many families are dealing with weeks of unpaid leave. Still others are trying to recover what they lost in their investments, home equity and in the stock market. Recently on ABC NEWS NOW, I shared with the host, Tanya Rivero, some advice on how to stay out of the bad place. Here are some things to avoid:

Q. Ellie, one of the primary money sources that some families are using to avoid bankruptcy is to raid their 401 (k), which, you say is a major misstep. Why is this so problematic?

ELLIE: Our parents’ generation tended to work for someone who gave them a pension check for the rest of their lives. This means that current workers may not have been raised with the mindset that they control their own pensions and need to make funding their own retirements a priority. There’s an alarming trend that involves looking at 401(k) accounts as “now” money when it’s really “later” money, that really must be saved for later. While raiding an IRA to avoid bankruptcy is a well intentioned money move, it’s also foolish because if you end up in bankruptcy anyway, then you’ve passed up the benefit you have in the fact that retirement accounts are protected under bankruptcy laws in most states.

Q. For twelve million Americans, their homes are worth less than they owe, which leads us to the next major money misstep that has become more common in the past two years and that is walking out on a mortgage. What are some other options available to families that feel this is their only option?

ELLIE: I would say that half of the people who walked away from mortgages didn’t have to take that path and probably didn’t consider all their options. Providing you still have some income to pay on a house where you owe more than it is worth, the first step homeowners should take is to decide whether their mortgage issue is a short term or longer term problem. For example, if you just got laid off and have no savings or small savings, but the job market in your town is such that you can probably get some part time or full time work to keep money coming in, then you have a short term problem. On the other hand, a long-term problem means you’ve been unemployed, you’ve wiped out your savings and you don’t see a way back into the job market.
The sooner you recognize the fact that it’s a long term problem, the sooner you can put your best food forward to sell your home in a short sale and move into a smaller, less expensive place. That way, you can preserve your capital for a better time.
If it’s a short term problem, then talk with your mortgage lenders and see if they will suspend or lower your payments over the next three to six months until you are employed again. You can go to MakingHomeAffordable.gov, which is a federal government website with the goal of helping families by providing free HUD-approved counselors who can help you modify your mortgage.

Q. In every newspaper and on television, we see advertisements for credit counseling agencies that will eliminate your debt. But you say that debt wipeout scams are a major problem. How can we tell the scam from the real deal?

ELLIE: It can really be confusing because they sometimes advertise as debt consolidation companies, but you need to be extremely cautious because I would say the majority of those advertisements are misleading at best and a scam at worst. If it sounds too good to be true, it usually is. Instead, go to the NFCC.org with is the National Foundation for Credit Counseling. This is a non-profit and free service that you can trust.


Q. An alarming number of Americans, some 19 million of them, have also resorted to payday loans in order to make ends meet. How do these loans work and are they ever a good idea?

ELLIE: These are high interest loans that have an average interest rate of between 390% and 520%. They are marketed as short-term cash advances to help meet emergency expenses between paychecks. But the problem, besides, the interest rate, is that it becomes a repeated pattern and consumers become trapped in this kind of borrowing. Avoid these at all costs, and if you have young adult children, especially those in the military, educate them on the dangers of payday loans since these companies tend to flourish near military bases.

Q. Credit card usage has dipped more than 13% in February and yet almost 15% of American families still owe more than 40% of their income in consumer debt, according to the Federal Reserve. Ellie, you say that another major misstep is ignoring the card balance.

ELLIE: Yes, Tanya, while it’s commendable that credit card usage has declined, it’s still an issue when the credit card is used as a means to spend more than you can afford. This is a strategic error that can lead to financial hell as consumers ignore the balance. The new government mandated box on your credit card bill will show you how long it will take to pay off your balance if you pay only the minimum and how much interest you pay to carry a balance. Pay attention to these numbers, instead of ignoring them, and ask yourself if you can afford that item before you put it on your credit card. Behavior modification doesn’t happen overnight, but eventually, you can begin the climb toward getting out of debt.

Q. One final area that we’ll look at today has to do with trying to fool Uncle Sam. Ellie, you say that this money misstep can cost taxpayers big bucks if they are caught and that there is a difference between mistakes and intent—what is the difference?

ELLIE: It’s really pretty simple. Everyone will make a mistake here and there can be accidental errors on the tax returns of the most honest kind of people. But some folks are looking to save money by “accidentally” misrepresenting large amounts of money. We see them in the news—whether you’re a celebrity or a politician, you still have to pay your taxes. By signing the box on your tax form that you believe everything to be accurate and true on your form, you open yourself up to significant liability. If you’re audited and they can prove that the misrepresentation is intentional, then not only are there penalties involved, but you could also be charged with federal fraud. So pay those taxes, even if you have an extension and call the IRS to set up payments if you cannot pay all you owe.

Ellie Kay
America's Family Financial Expert (R)
http://www.elliekay.com/