Debt from the deceased can be complex

This was originally published on Monday, May 9 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: My father is terminally ill and I am in the process of getting his affairs in order. He has an updated will and I have confirmed that my mother is named as his beneficiary for his life insurance and retirement plan. My main concern is his debt. He took out a large loan several years to help with his medical treatments. He is not behind on his payments but I am curious to what happens to the debt once he passes. Could you help me understand how debt is paid off once the lean holder is deceased?

A: I am so sorry to hear about your father’s illness. As a child it is hard having to switch roles and become the caretaker for our parents. Unfortunately, when someone dies, their debt does not disappear. The rules to creditors recouping their money is complex and often vary from state to state. Of course, it also depends on the type of loan and if there are others who share the responsibility.

Family members typically are not obligated to pay off the debt of a deceased family member directly from their assets. The Fair Debt Collection Practices Act (FDCPA) protects family members from unfair, deceptive, or abusive practices used to collect a debt.

Who is responsible? Take a look at who signed for the debt. If it is a joint debt, then two or more people are responsible for the full debt. The names of those responsible will appear on the promissory note, loan or credit agreement.

Usually there is a clause in the contract that if something should happen to one of the responsible parties and they are unable to pay their portion then the surviving debtor(s) are responsible to pay off the full amount.

If only one person owns the debt, then that person is responsible for that debt. If the estate, the total net worth of an individual that includes land, possessions, cash, and other assets, of the deceased doesn’t have enough money to cover the debt, the debt may go unpaid. If the estate has money, then the assets from the estate will be used to pay off the debt.

Type of debt

Depending on what type of debt the deceased leaves behind will also determine if the debt will be repaid.

  • Credit card. If the credit card is joint with someone else or has a cosigner(s) then the cosigner(s) are responsible for paying off the debt. Otherwise depending on the amount left the credit card company may pursue collecting what is due.
  • Mortgage. If you are inheriting a house with a mortgage you will inherit the debt as well. If you cannot make the payments, you may have to sell the home. If you are having trouble paying the mortgage, it could affect your credit score if your name is on the note secured by the mortgage.
  • Medical. Medical expenses are usually on top of the priority list to of debts to pay.
  • Taxes. If your loved one passed and left unpaid property or income taxes, the estate will be responsible to pay them. They too can put a lien on assets till the debt is paid off. The deceased will be responsible to pay any income tax on income earned during the year of their death.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo .com and read past columns at the Money Matters blog at www.moneymattersguam .wordpress.com.

Healthier spending habits begin with honesty

This was originally published on Monday, March 14 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Some people choose to ignore when they are in financial trouble until they can no longer ignore it. There are some signs to look out for when considering if you are starting to get into financial troubles.

Here are several questions to consider:

Are you using your credit card for everyday basics? Does going to the grocery store make you anxious because you may not have enough money? Do you go to the gas station without enough money in your checking account? If you find yourself constantly short of money for the basic necessities, you are living paycheck to paycheck. This is a stressful place to be and is not good for you financially, mentally or physically. Unfortunately, many people find themselves here. Review your spending habits. Is there any place you can cut back? You may realize that you might have to re-evaluate your living situation. This may mean finding a new job, taking on a second job or even relocating.

Do you pay only the minimum or less than the minimum amount on your credit cards? Although it may keep the creditors from contacting you to pay your bills, it really does hurt you in the long run. This habit will never pay down your debt. Instead it prolongs the time you have to pay which in turn adds interest to your balance inflating the amount you must pay back.

Do you use your credit card for cash advances? Read your credit card statement. You will be surprised how much more interest is charged for cash advances than for using your card for a purchase transaction.

Are your credit card balances near the maximum limit? Do you max out your credit card, make a payment then use it again? This is a cycle that can become hard to exit.

Do you hide your purchases from your spouse or significant other? This is usually associated with the guilt of purchasing an item knowing that you are struggling to make ends meet.

Be honest about your spending and credit habits. Occasionally, we may get by doing this a few times. If you catch yourself in several of these instances, you should consider making some changes. If you see the warning signs, take a serious look at your budget and spending patterns. Search for the reasons you are where you are. It could be because you are between jobs or it could be that you need help managing money. Don’t feel that all is lost and just give up. There are steps you can take to start repairing your finances.

The most important thing is, don’t wait until there is a huge problem. Start trying to change how you are managing your money. Let the people around you know that you are making the change. They can be your biggest support system. If you really feel you need some help, talk to a professional financial counselor. A finance counselor can help you plot a course that will get you back on the right track.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Reader faces multitude of financial challenges

This was originally published on Monday,March 7 2016, in the Pacific Daily News.  Click here to subscribe to the PDN.

Q: During the last six months, I have had to deal with some expensive life events such as getting my car repaired and health issues. I am starting to fall behind on my mortgage, credit card payments, and some of my regularly occurring bills. I am really starting to stress out about my financial troubles. What are some steps that I can do get myself ready for the rough road ahead?

A: There are many steps in addressing your situation, so I’ll cover them over the next few weeks. I am sorry to hear about your recent hardships. Life can sometimes throw us a curveball when we least expect it. On the upside you have taken one of the hardest steps, which is realizing you are heading into trouble and taking the necessary steps to prepare yourself. Evaluate how dire your situation is. Is it possible to work your way out of the situation within the next six months? Is your financial situation going to lead to some serious counter measures such as selling your home or bankruptcy? Let’s begin with a few questions to ask yourself that will help you evaluate your financial troubles:

Do you have any idea how much is in your bank account? Using your debit card freely without knowing how much is in your account can cause overdraft and returned check fees. Over time, these fees will compound and waste hundreds of dollars a year on unnecessary fees. You should review your account on a weekly basis. Know what your available balance is and determine how your money is spent.

Do you avoid opening your bills and bank statements? I am not referring to just letters but emails and phone calls as well. Avoiding communication with your creditors may mean you are swimming in debt. This could further jeopardize your financial situation. You need to explain your hardships to your creditors early. Most companies will want to work with you to help you pay off your debt or even offer some temporary relief.

Do you defend yourself making poor financial decisions? Whether it is tapping into your 401(k) or opening another line of credit to pay off another debt, do you find yourself reasoning that it is “just this one time?” Once you start heading down that slippery slope, it becomes very difficult to break the habit. Don’t become unaffected by poor financial decisions. Financial institutions are notorious for giving out pre-approved credit. Don’t avail of these unless it is absolutely necessary.

Do you ask friend/family members for money? You can put a huge burden on those you care about. You can’t learn to be financially secure if you constantly lean on those close to you to help you out of sticky situations. Sometimes to succeed you have to fail and learn from your mistakes.

Do you justify adding more debt? Do you find yourself using your credit card thinking you’re so far in debt that charging another $200 isn’t going to make a difference? The truth of the matter is that the smallest amount added to your debt can make a huge difference because the interest you pay on the debt adds up. Your total debt increases and so does the time it takes to pay it off.

Are you paying off one debt with another? Do you transfer money from one credit card to another? Or are you paying your car, home, or other loans with a credit card? This pattern makes it impossible to pay off your debt because you will increase the amount of money you owe. Many financial institutions will charge you fees for these practices. These fees can really add up, especially if it is a common practice.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Take control to meet your financial goals

This was originally published on Monday, January 19, 2015, in the Pacific Daily News. Click here to subscribe to the PDN.

When setting financial goals, many of us want to reduce our debt, increase our savings or just break even. That is easier said than done. There are some things, such as the economy, fuel prices or rising utility rates, that are beyond our control. But there are some little things we can control that may help save money.

• Earning interest. How much interest a bank offers is something beyond our control, but you can choose to put your savings in a higher interest rate savings account. Shop around. Some FDIC-insured banks will pay higher interest than others.

• Hidden Fees. Look at your bank statements. Are there hidden fees you were not aware of? If you are not sure what they are, contact your bank.

• Credit cards. Try to use credit cards for emergency uses only, especially those with high interest rates. If you do use your credit card, keep the balance low so that you can pay it off in one or two payments. Keeping your credit card at a high balance accrues interest and affects your credit score.

• Credit Score. Check your credit score for free at annualcreditreport.com. Check for mistakes on your report and correct them as soon as possible. A poor credit report can lead to high interest rates or difficulty in getting a loan.

• Overdraft protection. Some banks offer a protection plan that lets you over withdraw your account; some up to $500. You usually have to pay a monthly fee for this service. Although it sounds like a good idea, it can create a cycle that will be hard to break. The overdraft protection is really a loan. The next time you deposit money into your account, that money will be used to pay off the loan leaving you short on money that you will need later on. Instead, establish an emergency fund for those unforeseen woes.

• Mortgage. Have you reassessed your mortgage rate? Mortgage rates are still a lot lower than they were 10 years ago. If you can refinance your mortgage at a lower rate or shorten your mortgage term you may be able to save a great deal of money. You also can pay a little more every month to help you pay off the mortgage sooner and pay less interest.

• Insurance. Most people do not reevaluate their insurance or pay for coverage that they really don’t need. Maybe you had a major life change and have not updated your policy. Take some time to read your policy and understand exactly what you are paying.

• Retirement fund. Are you maximizing your retirement fund? One of the biggest concerns is being able to retire with enough money to survive. Even when times are hard, adding a little to your fund will help in the long run.

• College. With the rising costs of education, college students should take advantage of financial aid. Many students are getting online degrees or going abroad to lower tuition costs. Avoid creating a large debt that you will be paying for years after you graduate.

• Planning for the worse. Do you have a will, advance directive or a power of attorney that will state what your wishes are in case you become incapacitated or pass away? Having these important documents will eliminate a lot of confusion and stress on your loved ones.

• Now is the time. Don’t wait till you make more money or get a new job. Getting your financial affairs in order as soon as you can pays off in the long run. A little goes a long way.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Survive Black Friday with your budget intact

This was originally published on Monday, November 17, 2014, in the Pacific Daily News. Click here to subscribe to the PDN.

You probably noticed the buzz of the holiday season is quickening. The stores started to deck the halls and the Christmas wish lists are starting to grow. The day after Thanksgiving is the largest and busiest shopping day of the year — Black Friday.

Black Friday is not for everyone; some people would rather stay at home and sleep in after their Thanksgiving feast. But if you don’t mind the early start, the crowds, the long lines and the great deals, then get ready to shop. Here are a few tips to help you prepare you for Black Friday:

• Create a list/budget: Decide who is on your nice or naughty list and how much you can afford. Set a limit and create a realistic holiday budget. Prioritize your expenses and decide how much you want to spend on each. Make a list of those you are buying gifts for, include how much you want to spend and what you want to give them.

The hardest part is sticking to your list and budget. Stay within the budget you set and say no to items that will cause you to go off budget.

• Compare: You know how much you want to spend so the next step is to compare prices between stores. Look through the newspapers, sales fliers and online shopping sites. Some stores will guarantee the lowest prices and may match the price of the item if you bring in the competitor’s sales ad. This may take some researching and time but it will save you money, time and gas if you make one less trip or stop.

• Understand the sales times: Some stores may have Black Friday hours of opening early and closing late. But sometimes the sale prices don’t go in effect until a certain time. Read the advertisement carefully.

• Decide how you will pay: Cash is always welcomed at stores. It is easier to keep track of how much you spend but it can be dangerous carrying around large amounts of cash.

If you are going to use a credit card, use only what you can pay for that month. By paying it off as soon as you get the statement you will avoid interest charges. Some credit cards have a cash back policy if you purchase certain items. Stores may offer extra savings if you open or use their store credit card. These discounts are great offers but treat them as you would other credit cards and charge only what you can pay off. The interest rates on store credit cards can be extremely high.

• Bring along a friend: Not only is it more fun but you can also take advantage of certain sales, such as buy one get one half off. You can also help each other by dividing and conquering each other’s lists. It is always helpful for a friend to hold a spot in line for you while you run off to look for an item. Of course your friend can be a voice of reason when you are tempted to go off budget.

• Be aware of extra costs: There are always little costs that sneak up on you and most of the time we do not realize how much it throws us off budget. Some stores offer warranties especially on electronic items. Check if your credit cards have extended warranties on certain items if you purchase them with the card.

You are going to be out and about for an expanded amount of time and you will get hungry. Instead of buying a snack here and there, bring snacks with you. Stores may offer a discount on items if you purchase two or more. If you do not need two, you will not be saving money unless the second item is free.

• Keep the receipts: You may need to return an item and the only way to do so is if you have the receipt. Receipts will help you review your budget’s status and to compare charges on your credit/debit card. You may want to ask for a gift receipt for the person you are gifting. It will make it much easier for them to make exchanges or returns.

Remember to keep calm, wear comfortable clothing, and that if you aren’t one to be out in loud, stressful crowds, there is always Cyber Monday.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.

Help! My high balance is hurting my credit score

This was originally published on Monday, October 20, 2014, in the Pacific Daily News.  Click here to subscribe to the PDN.

Question: My credit score is just above average. The reason for this is because of my high balance on my only credit card. I know I need to pay down the balance, but I have also heard there are other ways to improve my score such as closing my account or asking for a lower limit. Are there other ways to improve my score?

Answer: First, let me commend you on understanding what’s hurting your credit score. Many people don’t look at their credit score until they’re in dire straits. It seems that there’s a lot of advice floating around out there on the best ways to improve your credit score when it comes to credit cards. Some may help and others can be very detrimental. My best advice is good old-fashioned personal restraint from using it and paying off the balance. Here are some tips that I’ve heard and why they’re not feasible.

•  Closing a credit card. On your credit score, one of the most heavily weighed factors is your balance to credit limit ratio, or how much you owe. This category accounts for 30 percent of your score. Once you pay off a credit card and close it, the credit card issuer can decide if the history of the card remains on your credit score. If they decide to take the credit card off your report, you will lose the history that goes along with it. That would not help your score because credit history accounts for 15 percent of your credit score.

Since this is the only card you have, it might hurt you more than someone who has numerous credit cards. If the credit card issuer leaves the closed account on your report, the history will only stay for 10 years. An account that is open, even with little activity, can stay on your report as long as it stays open.

•  Requesting a lower credit limit. As I mentioned previously, one of the heaviest-weighed factors on your credit score is based on how much you owe. If you cannot pay down your debt but you lower your credit limit, you will increase your balance-to-credit-limit ratio. This would severely hurt your score.

• Opening new credit cards. Because your ratio of the amount you owe to the amount of available credit is so heavily weighed, you’d think that opening more cards to increase your limit would work. Yes, opening more cards will raise your credit limit, but opening more accounts all at once will hurt your score. Each time a credit card issuer opens an account for you, they will look at your credit score. These inquiries will actually lower your score. If you want to increase your credit limit by opening new cards, do so by spacing them out over a few years.

• Not using your card once you pay it off. Once again the ratio of indebtedness to credit limit plays a factor in this decision as well. You should use your card regularly, but in amounts that you can pay off the balance in full on the month it’s due. If there’s no activity within a certain period of time, your card issuer may close it.

• Checking your credit score regularly. When you check your credit score regularly, it won’t hurt your credit score. Inquiries from banks, loaning agencies and credit card issuers will. Credit lenders report to the credit bureaus every 30 days. It’s very smart to stay on top of your credit score.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.

Classic tips for managing holiday finances

This was originally published on Monday, December 2, 2013, in the Pacific Daily News.  Click here to subscribe to the PDN.

Throughout the year I have written several articles about holiday financial tips. This is a perfect time to review a few of my past tips and discuss some new ones.

• Creating a budget is the most useful tool to avoid taking on debt. Decide how much you want to spend. Include gifts, travel, parties, decorations and any other expenses. If you have specific gifts in mind, compare prices and which deal is worth the savings, and your time.

• Go high-tech if you are comfortable with technology. There are several apps that can help with holiday shopping. Most will keep track of your spending and how much of your budget you are using. If your list is always with you on your phone, you are less likely to stray away from it. Consider creating a spreadsheet. You tend to spend less if you can see how much you are spending.

• Avoid impulse purchases. One rule is to walk around a bit before purchasing and think if you really want or need this. In most situations, by the time you’re ready to check out you may have decided that you really don’t need it. If you still can’t decide, walk away and sleep on it. If you still feel that the item is something you must have, then go back and purchase it. Don’t feel overwhelmed by sales clerks pressuring you into buying. If you stay on budget, you will be thankful later.

• Use cash, not credit. You can track how much you spend more efficiently by using money. Late or partial credit card payments can cost you more money through fees and interest.

• Shipping costs add up, whether you are shipping it off or purchasing it online. Some companies consider Guam an international destination. Try asking if a friend or family member back in the states can receive the gift and send it postal mail. Shipping by courier can cost more than the gift itself.

• Holiday utilities can be extra costly, especially if children are home using power-consuming devices, which are usually turned off during the day. Extra cooking and baking for holiday festivities add up along with holiday lighting. Consider buying LED (light-emitting diode) lights to save energy and money. They also burn much cooler than traditional lights reducing heat in your home.

• Food safety can save on your holiday expenses. Party foods are usually left out for long periods of time that can cause food to spoil. Throwing away good food and an unplanned trip to the emergency room can be a budget-breaker and ruin your holidays. Leftovers can extend your food budget. Freeze or go online and find creative ways to use leftovers. For more food safety tips, go tohttp://www.foodsafety.gov/keep/events/holidays/.

• Be creative; not all gifts have to come from the store. Look online for ways to create inexpensive personalized gifts.

• Holiday employment is a great way to earn a little extra cash during the holidays.

• The gift of helping may not be exactly a way to save money, but it sure can help you enjoy the spirit of the holidays. Volunteer to help with the less fortunate with family and friends.

Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com.