Are debt woes hurting your health?

People who say they are stressed out about debt are more likely to have health problems, according to a new Associated Press-AOL Health Poll. The findings:

*27 percent had ulcers or digestive tract problems.

• 44 percent had migraines or other headaches.

• 29 percent suffered severe anxiety.

• 23 percent had severe depression.

• 51 percent had muscle tension, such as lower back pain.

Here's another reason to to live beneath your means, keep an emergency fund and pay off your credit card bills every month.

Chapter 13 spells relief for some

Bankruptcy filings are growing again thanks to the downturn in the economy and greater awareness that the reforms of 2005 didn't actually eliminate bankruptcy. Filings fell off a cliff after the law changed to make bankruptcy more complicated. However, it's still available for many people who need it. My column Sunday delves into one filing option--Chapter 13. That's a repayment plan that can last up to five years and allow you to catch up if you've gotten behind on house or car payments and want to stave off forecosure or repossession. In some circumstances, it can be the best way to handle a bad situation. Here's one place to read more about bankruptcy. 

Here's a great opportunity to learn about money

Could you use some help managing your money? If the answer is yes and you live in Tampa or have transportation to get there, you might want to look into classes being offered next month by Tampa Bay Saves. Dates and topics are: June 10,  Developing a Financial Plan; June 17- Evaluating Credit Offers & Credit Scores; and June 24- Using Financial Institutions & Achieving Financial Goals. The classes will be held from 5:45pm – 8:00pm. Cost is $7. Location is the Family Support & Resource Center, 7520 W. Waters Ave., Tampa. Childcare and refreshments are provided. For more information, call the Hillsborough County Extension Service at 813-744-5519 x 137. Here's the registration form.

Helpful resources for your family's financial future

Many Americans are woefully uninformed about money and it costs them dearly. The subprime mortgage debacle wasn't solely caused by greed; ignorance played a big role. But, as I discuss in today's column, some groups are trying to upgrade our knowledge of finances to help us live better lives. One, is the United Way of Tampa Bay, which recently launched the Web site My Family's Future. It has a great set of personal finance calculators, including this one that shows how to pay off credit card debt. And it has the beginnings of a search engine to connect people with organizations and companies that offer various kinds of financial help (currently limited to Pinellas and Hillsborough counties).

Here are some other non-commercial sites that offer personal finance information: My Florida Money, America Saves,  American Savings Education Council, U.S. Financial Literacy and Education Commission, Federal Trade Commission, Federal Deposit Insurance Corp. Do you have a favorite site to add to the list? 

Banks freezing home equity credit lines

You know that home equity credit line you thought would substitute for an emergency fund if you ever had an emergency? Think again. Banks are "freezing" credit lines left and right, as I report in my story today. A freeze means you can't charge any more than you already have. Credit lines generally are frozen with no prior notice, to prevent you from running up debt at the 11th hour. That means if your credit line hasn't been frozen yet and you know for sure you'll need the money, you'd better borrow it now. That could be especially important if you've got a home improvement project in process. Of course it's always best to avoid borrowing if it's not necessary.

Banks are giving the general decline in real estate values as the reason for the freezes. If your home value goes down, you have less equity and they have less security for any money you borrow.

 

How's your fiscal fitness?

I put together a little quiz offering an opportunity to rate yourself on 10 key points of financial well-being. If you're up to the challenge, click here.

How should I pay for my new roof?

Q. I have recently discovered that I need a new roof on my small home. Estimates are coming in around $6,000 and I don’t have a liquid $6,000.  I have an IRA and a 403B rollover, each with approximately $6,000, but I don’t think I can take any money out of these accounts without a penalty. Is there a better option between a home equity loan, a home equity line of credit, or simply spreading the $6,000 across my two credit cards?  I’m not fully clear on the definition of home equity, but I think that I have a sufficient amount of equity as my home is valued at $160,000 and I only owe about $40,000 on it.  Any advice?

A. Don't cash in your retirement accounts. You would owe income taxes on the money plus a 10% penalty if you are younger than 59 1/2.

Home equity is simply the value of your home minus the amount of your mortgage. You have equity available and a home repair or improvement is the most legitimate use of home equity. The general rule is that a home equity loan is best when you have a single expense you'll be paying for in a lump sum--your roof repair is a perfect example. A home equity credit line is best when you'll be borrowing at various times. A credit line is often more convenient but it has a couple of drawbacks. One is that the interest rate is adjustable and could go up. The other is that it makes it very tempting to spend more than you originally intended until you have maxed out your credit line.

A credit card is the best option only if you've been offered a low rate that's locked in for a while. A "teaser" rate good for just a few months is worthless unless you think you can pay off the loan very quickly.

Money question of the week: How have student loans affected your financial life?

How have student loans affected your financial life? If you had to do it over again would you still borrow the money?

In this week's column, I wrote about a new law that will help people with big student loan debts in relation to the size of their incomes. The income-based repayment program caps the size of the monthly payment and subsidizes interest payments in some instances. This calculator will allow you to figure out how you might benefit from the program. In addition, many loans can be forgiven after 25 years of payments. Those working in certain jobs (including teaching, government, social work) can have their loans forgiven after 10 years.

If you would like your comments to be considered for pubilcation in The Times, please include your first and last names and city.

Here's a new source of help if you're worried about losing your home

The National Foundation for Credit Counseling has launched a new Homeowner Crisis Resource Center offering a helping hand for homeowners who are having difficulty making their mortgage payments. There's a "mortgage reality check" quiz to help you determine how serious your problems are and numerous resources, including referral information for housing counselors and alternatives to foreclosure.

My advice is to be proactive. Don't wait until you get a foreclosure notice before doing something about your situation. If you know you can't afford your mortgage - or won't be able to when your adjustable rate loan resets - talk to a housing counselor now about your options.

[St. Petersburg Times art by Steve Madden]

Are you ready for a rate cut?

The Federal Reserve Board is expected to cut the target rate for Federal Funds Tuesday for the first time since 2003, when the rate fell to 1%. (Here's a chart showing the rate history.) The rate has been 5.25% for a little more than a year. Everybody seems to expect at least a quarter of a point cut, with some hoping for half a point.

Here's what a rate cut is likely to mean for investors and savers:

*Expect a pullback in those juicy CD and money market yields. Rate cuts are always bad news for short-term income investors.

*Interest rates will decline on home equity credit lines, which are directly tied to short-term rates. That's good news if you already have a credit line or if you're in the market for one.

*Adjustable rate mortgages aren't quite so straightforward. Depending on the terms of your mortgage, you may be locked in at your current rate. If your mortgage is approaching reset, your new rate may be better than it would have been. However, it's still likely to be higher than the teaser rate that got you into the loan in the first place.

*Fixed mortgage rates are not directly tied to short-term rates. They're affected by what happens in the broader bond market. Those rates could go lower if the economy continues to slow. However, right now rates are low, so this is a good time to lock in a rate if you're thinking of refinancing.

What should you do if you are facing foreclosure?

If you can't afford your mortgage, don't wait until you are several months behind on your payments before trying to do something about it. Your first step should be to call your lender and ask to speak with someone in the "workout" or "loss mitigation" department about modifying your loan terms. Even if you previously were given the cold shoulder, I recommend trying again, because pressure is increasing on lenders to work out terms with homeowners. Step two is to speak with a housing counselor. (Or try here or here.)

If you have an adjustable rate mortgage, you may be eligible for the new FHASecure refinancing program.  Here are some other good tips from Bankrate.com. Whatever you do, don't fall for a "foreclosure rescue" scam.

(Photo credit: Getty Images)

Deliver yourself from debt, find benefits in the bedroom

Today's column is one of the more interesting I've done in awhile, exploring the money-sex connection. A big part of that connection is that anxiety about anything affects our functioning. Spending more than you make and/or worrying about how you are going to pay your bills takes a toll. And of course, in a society like ours, many people's sense of self worth is tied into money, whether it's how much they make or what they spend it on. Some people's overspending is the result of trying to look good to others by buying things you cannot afford. Ultimately it's about keeping things in balance.

Payday lending takes a huge toll

The typical payday loan borrower pays back $793 for a $325 loan, according to a new study from the Center for Responsible Lending. It says predatory payday lending now costs $4.2-billion a year in excessive fees, $156-million of that in Florida. The problem isn't so much the initial loan as it is the fact that so many borrowers can't pay the money back when the loan comes due, usually in two weeks, which means another loan and more fees. In Florida, where there is a legal limit of one loan at a time, 89 percent of borrowers have five or more transactions a year and 57 percent have 12 or more transactions a year. The average: 8 loans a year per borrower. The average APR is 10.8% on the $1.6-billion of payday loans each year in the state.

The payday loan industry responds that its fees are cheaper that bounced check fees and late fees on credit cards.

The fact is that banks, payday lenders and all types of finance companies take advantage of people with financial problems. In many cases, what's presented as the solution (extending more credit) only leads to bigger debt and more problems. While the ultimate solution is for people to learn to manage their finances better, it is important for states to limit the damage lenders can do.

(Photo credit: Getty Images)

Can a widow be held responsible for her husband's debts?

Q. Would the widow of a deceased man be responsible for his unpaid debts even though they have been separated for the past 3 years? These are newer credit card debts on cards issued after their separation which she had no part of. They had been filing separate tax returns for those 3 years. And, if the credit card companies attempt to go after her for these debts, what should she do? He left no estate.

A.  His estate is liable, but if he died penniless, the widow doesn't have to pay the bills. The key point is that she had nothing to do with the credit cards--She wasn't a co-applicant or an authorized user and she doesn't possess items bought with the cards. If she gets a letter or phone call, she should immediately ask the debt collector to validate the debt--provide proof that she owes the money. (A credit card application she signed is an example of proof.) If the debt shows up on her credit report, she should dispute it through the credit reporting agency. If the debt is not removed from her report or if she is sued, it may be necessary to hire a lawyer to straighten things out.

Need an umbrella?

If you're looking for help weathering the financial storms of life, Consumer Credit Counseling Services of Central Florida & the Florida Gulf Coast hopes you'll consider its umbrella. It offers budget and housing counseling and debt management programs. The new logo is part of an image upgrade that also includes a redesigned Web site.

(Photo Credit: Consumer Credit Counseling)

Can I discharge my student loan in bankruptcy?

Q. I have a $75,000 student loan that I have consolidated. Can I go bankrupt on it? I won't be able to make the payments, not even interest only, and I already have used up my deferment time.

A. Probably not. It is very difficult to prove severe hardship, which is the only condition under which student loans can be wiped out in bankruptcy. In many cases, judges require that you have made efforts to repay the loan. However, getting rid of other debts might make it easier to repay your student loan. Your best bet is to talk to a bankruptcy lawyer. You also might be interested this good article on Nolo.com and this one.

Serious financial troubles, but no money for a lawyer

Q. I am a elderly woman on a fixed income with no savings or assets. I've gotten myself into serious finanical trouble. I need advice and help but have no money to hire a lawyer. Can you give me some direction in order to get some help?

A. A good starting point would be to talk to a counselor at a consumer credit counseling agency. Find one affiliated with the National Foundation for Credit Counseling.

If you need legal help, you might make an appointment with the legal aid organization serving your community. Gulfcoast Legal Services serves Pinellas, Manatee and Sarasota counties, Bay Area Legal Services serves Hillsborough County and here are links to services in other areas. You also could call the local bar association serving your area and ask for a referral to a lawyer who has no charge for an initial consultation. Any of these approaches should get you started.

Since you have no assets, you probably are "judgment proof," which means there is nothing for creditors to seize or any way they can force you to pay. You can read more about it in this article about alternatives to bankruptcy. A lawyer who knows more about your circumstances can advise you on this.

What's the easy way out of debt?

Q. How can I pay off debt without filing for bankruptcy and without taking a large amount of money away from the little I make now?

A. There is no easy way out of big debt. You probably would benefit from a consultation with a credit counselor and possibly from signing up for a debt repayment program. The agency may be able to get interest rates reduced on some of your debt, which means more of your payments would go toward principal. A counselor also can give you some advice on setting up a budget and finding money for debt repayment. If there is nothing you can cut out of your budget, think about taking a second job to make the numbers work.

Here is a story I wrote about alternatives to bankruptcy that you might find helpful. But if there is no way that you could pay off your debt within five years, bankruptcy might be the right choice. Good luck.

(Photo credit: Getty Images)

How's your debt-to-income ratio?

When you're hoping to get a mortgage or a car loan, one of the key considerations is how much debt you're already carrying in relationship to your income. But there's more than one way to look at the numbers, which can be a bit confusing. Here are a few approaches:

*Housing cost to income. Monthly mortgage payment (including insurance and taxes) divided by gross monthly income should be 28% or less.

*Housing plus debt to income. Monthly mortgage payment plus monthly debt payments (credit cards, car loans, student loans) plus child support or alimony payments divided by monthly income should be 36% or less. (FHA lenders may go up to 41%.)

*Nonhousing debt to income. If you don't own a house, monthly debt payments divided by income should be below 20%. (Well below if you hope to buy a house in the future.)

Now here's the tough part: Just because lenders will allow you to carry that much debt doesn't make it a good idea. If more than a third of your income is going to mortgage and debt payments, that probably doesn't leave enough money for all the other expenses in your life, much less any savings. The greater your other expenses, the less debt you can afford to carry.

Help, my student loan is in default!

Q. I’m 40 years old and have a student loan in default for more than 20 years. I went to business school, but I never received my student loan. When my then-2-month old daughter was hospitalized, I dropped out. The school and the bank no longer exist. Can you help me get this off my credit report?

A. Unfortunately for you, old student loans just don't go away. The loan may have been used to pay tuition and fees if you dropped out past the time when those were refundable. The time to challenge whether you owed the money was 20 years ago. Now you have to figure out how to repay the money if you want your credit improved.

Here is what you can do: Start by tracking down who currently holds your loan. You can go to the National Student Loan Data System or call the U.S. Department of Education's Federal Student Aid Information Center at 1-800-4-FED-AID.They may refer you to the Debt Collection Service at 1-800-621-3115.

Once you know who has your loan, you can find out your options for repayment. Your loan won't be discharged in bankruptcy and as you already may have discovered, your income tax refunds can be confiscated. If you are still in default when you retire, the government can even take part of your Social Security check.

Is pulling the equity out of your house a good idea?

There's no question that home equity is a valuable asset for many of us. The question becomes when to use it. I share some of my views on the subject in today's column, but that's definitely not the last word. I tapped the equity in my previous home on three occasions. The first was a traditional home equity loan to build a swimming pool, back in the days of sky-high interest rates. We paid it off. The second was a loan we used to pay off the balance of our first mortgage when it got very low, allowing us to control our own escrow money and alternate years itemizing deductions. (Essentially our second mortgage became our first mortgage.) We paid that off too and briefly owned our home free and clear. Then we tapped a home equity credit line to help us through the transition of selling one house and buying another.

I think all three were good uses of equity. But other common uses, such as loan consolidation can be very dangerous if you use them because you are living beyond your means and are in precarious financial condition. If you can't make your payments, you lose your home. And if you simply run the balances on your credit card back up again. you end up in worse shape than you were before.

How have you used the equity in your home?

I co-signed a loan for my daughter and she won't pay

Q. I co-signed for a student loan for my daughter with the understanding that she would help pay off some of the amount owed. It has been four years and she still hasn't paid anything. Do I have any recourse since this is becoming a financial disability for my wife and me? A. This is a textbook example of why co-signing loans is a bad idea. Since you co-signed, you are on the hook for the loan regardless of what your daughter does. If you don't pay, both your credit and hers will be damaged.

I suggest that you ask a third party to mediate this issue with your daughter. That person might be a counselor, one of your other children or another relative. The "understanding" that she help pay "some" of the loan, should be reduced to a formal payment schedule that both of you find acceptable. There also are professional mediators who do this type of work for a fee.

If mediation doesn't work, your recourse is to sue her, which I'm guessing would be very detrimental to your relationship. If she doesn't have much in the way of assets, collecting would be difficult, not to mention potentially stressful and acrimonious.