Costco Connection - July 2010

FINANCIALconnection
Also:
■ Bankruptcy
and credit cards,
student loans
Of loss and gain

Ask Suze Orman

E-mail your personal-
finance questions to:
suze@costco.com.
Please include
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Q&A with Suze Orman
The Costco Connection
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Suze will answer
selected questions in
this bimonthly column.
She regrets that
unpublished questions
cannot be answered
individually.

Suze Orman’s TV
show airs Saturday
nights on CNBC. Suze
can be contacted at
www.suzeorman.com.

By Suze Orman

I am 61 and still working. My wife of 30 years,
who took care of our finances, just passed
away. I have $250,000 in the bank with an
annual yield of 4 percent. Where do you think
I should put this money to be very secured
and yield a better percentage?

Eliott M. Oak Park, CA

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ELIOTT, I AM so sorry to hear of your loss. You be good to yourself; it takes time to adjust.

I have always advised that you do nothing with your money for six months to one year after suffering the loss of a loved one. You may think you are in your body, but I guarantee you, you are not. So it is better to do nothing than to do something you do not understand.

MARC ROYCE

It is true that the interest rate that you are earning in the bank is very low. But with low interest also comes low risk. That said, you’re right up at the maximum FDIC insurance limit of $250,000 per person, per bank. (Your coverage can be even higher, depending on the types of accounts you have at one bank, but $250,000 is the most coverage for a single account.) So I want you to consider moving some of your money to another federally insured bank or credit union. And shop around for the highest rates, as long as it is a federally insured bank or credit union—even at low rates, every little bit helps.

As your heart starts to settle in you will find there are many things that you can do with this money to get a higher interest rate, including bonds and dividend-paying stocks. But the first place you might want to look is right in your own backyard. If you have any high-interest debt that you would like to pay off, it is always wise to do so. Want me to guarantee you an 18 percent return on your money? Pay off a credit card that is charging you 18 percent. So look at your bills and see if you owe any money. Do you have a car loan? Credit-card debt? Even mortgage debt, if you are going to keep your home.

I am 76 and retired last year. With two mortgages and credit-card debt, I filed for bankruptcy. I went to the bank and tried to get a secured credit card, and was refused. How can I rebuild my credit?

Elizabeth L. Manchester, MO

FIRST, PAY ALL your bills on time. That’s going to have the biggest impact on rebuilding your credit. At www.creditcards.com you can use their “Bad Credit” search tool to find card issuers that offer cards to people with damaged credit.

Be very, very careful, Elizabeth. Read the fine
print; cards for people with poor credit scores will
carry fees and all sorts of penalty rates. I want you to
shop carefully for the best deal. And only apply for
a card that says it will report your payments to at
least one of the three main credit bureaus (Equifax,
Experian and TransUnion). Then you promise
yourself that every bill will be paid on time. Slowly
but surely your credit record will start to reflect
those good payment habits.

I might have to go bankrupt in the near future.
I have two children. I hope this won’t affect
their student loans.

Brian A. Honolulu, HI

THEIR ABILITY to take out student loans in the future won’t be hurt, but your ability to help them will be. I always recommend that the first borrowing should be by the child through a federal Stafford loan. Staffords are loans made to students, so your bankruptcy will not affect your children’s eligibility. But the maximum annual Stafford loan under current law is $5,500 for freshmen, $6,500 for sophomores and $7,500 for juniors and seniors.

Typically, for families that need to borrow more than those limits, I advise the parents to look into a federal PLUS loan. This loan, taken out by the parents, can cover the remaining costs of attending school not covered by any loans and aid the student qualifies for. Parents who have declared bankruptcy within the past five years are not eligible for a PLUS loan, however, so that might come into play for your family.

Even if you don’t declare bankruptcy, you are not to borrow a penny for your children’s education. You need to get your own finances in order first. That’s not selfish; it’s being a responsible dad who is getting his financial act together so he won’t be a burden to his kids later on.

Now here’s some good news: If a parent is turned down for a PLUS loan, the student is allowed to borrow more through the Stafford program. The limits for this year are $9,500 for freshmen, $10,500 for sophomores and $12,500 for juniors and seniors.

Tell your kids to focus on what is in their control right now: Great grades and a superb transcript will increase their ability to qualify for financial aid. Then, when the time comes, they can explore their federal loan options. C