The 529 Plan: A State-Sponsored College Savings Plan

A 529 Plan is the the single best way to save for a college education.

One of my lucky readers just got $5,000 from a family member — not for her, but for her young daughter’s college education. Her question: what to do with it? My answer: Put it in a 529 Plan.

A 529 Plan is a state-sponsored college savings program. In my opinion, these are hands-down the single best way to save for a college education.

Here’s how a 529 plan works. You basically put money into the plan and it’s invested in mutual funds. The mutual funds are managed by professional investment advisers who are selected by the state. A 529 plan is offered by every state in the country, and you can pick any one; it doesn’t have to be a 529 plan from the state in which you live. For example, in our case, we live in NJ, but we picked the New York plan for our 3 children because we think it’s a very good one.

Some highlights to know:

• The money you put into a 529 plan grows tax-free
• All the money comes out tax-free as long as it’s later used for higher education (i.e. tuition, room/board, lab fees, books, supplies, etc).
• Money in a 529 plan is portable — meaning your daughter can take it with her and use it any any college in the country (it doesn’t have to be a college in her state, or in the state in which the 529 plan was set up)
• Money in a 529 plan is transferable. Let’s say your daughter decides not to go to college (fingers crossed; that won’t happen!). But assume she doesn’t for whatever reason. If you have another child, you can transfer the money in the 529 plan to him, so that he can use it for college. Even if you or your husband decide to go back to school, you could use the money to pay for your expenses.

With a 529 plan, the money is controlled by you (the donor), and is counted (for financial aid purposes and tax purposes) as an asset in your name; your daughter is listed as the beneficiary. This can help in three ways:

1. First of all, because you control the money, she can’t just have it when she’s 18 or 21 (the legal “age of majority” in most states). With some funds, like trusts, when a young person turns 18 or 21, they can essentially tell mom & dad “I want a new car” or “I want to travel and find myself” and then proceed to blow their college savings on those things… and there’s nothing the parent can do, because legally the money belongs to the child. That’s not the case with 529 plans.
2. Also, since the asset is in your name, that can help with student financial aid down the line when your daughter does go to college. All schools look at your families finances, and determine something called your EFC, or Expected Family Contribution. In the simplest terms, that’s the amount of money they expect you/your family to put toward paying for college. (Then the school offers other aid, like scholarships, grants, work study, loans, etc.). Well, in determining your EFC, many colleges will count 20% of an asset owned by a child/student in the calculation for the EFC. However, only 12% of an asset owned by the parent counts toward the EFC. Again, each school is different. But this is a general guideline.
3. Thirdly, many states offer a tax break to you, as the donor, for making a 529 contribution. Same deal applies for grandparents and others who contribute.Tax benefits vary, of course, based on factors such as amount contributed, income, age, and marital status.

For more info on 529 plans, visit this website: http://www.savingforcollege.com/

And remember, if you have a child: it’s never too early to start saving for college!

Financial Bootcamp: Learn How to Defend Yourself against Creditors, Bill Collectors, and Avoid Scams

Defend yourself against creditors, bill collectors and from being scammed.

It’s hard enough to struggle to pay your credit card bills, rent/ mortgage and utility bills.  It is even harder to maintain a decent credit rating and keep your name and reputation in tact amid the credit crunch.  The last thing you need is to:

• Have unscrupulous bill collectors harass you at your job, call you at all hours of the day and night on your home or cell phone.
• Receive a summons to appear in court to answer a lawsuit over a debt you thought was already settled years ago.
• Have zombie debt collectors attempt to wreak havoc on your credit score by reporting you to the credit bureaus over a debt that was settled or has long expired due to the statue of limitations set by your home state.
• Find out that you can’t get a job due to an error on your credit report.
• Discover that you can’t get credit or a lease due to inaccurate information on your credit report.
• Learn that you’ve been scammed and have become the victim of identity theft.

This teleseminar will address all of these and related topics to help you defend yourself, your reputation, members of your family, yes, even your family, from abusive bill collectors, judgments, scams and more!

Here’s a quick summary of some of the topics we will cover:

1. How to negotiate with creditors.
2. How to get a better credit card interest rate and save money even if you have been previously late making a payment.
3. Understanding the Fair Credit Reporting Act and your rights under it.
4. What creditors can and cannot do to hurt your credit rating.
5. How to boost your credit score by correcting the most common basic errors that appear on many credit reports.
6. How to quickly enhance your credit rating with rapid re-scoring.
7. What to say to bill collectors to stop them dead in their tracks.
8. Credit Report Scams to avoid at all cost.
9. Your personal finance questions posed during the final 30 minute q&a of the workshop.
10. Tips to reduce your debt and cut your spending.

Sign up now for this 90 minutes teleseminar for just $19.95. This Financial Bootcamp is happening on December 9th, 2009 at 8:00 pm – 9:30 pm EST.

The first 10 people that sign-up for this teleseminar will also receive a free copy of Lynnette’s MP3 How to Slash Your Taxes or Settle an Old Tax Bill.

You will receive dial-in instructions within 24 hours after your payment is processed.

How to Best Dispute a Medical Debt

Try to negotiate a settlement with the collection agency. Offer to begin a monthly payment plan that you can truly afford.

One of my newsletter subscribers had a question about how to best dispute a medical debt. She found out that a collection account for $1,879 appears on her Equifax credit report, based on a $2,000 surgery she had back in 2004. This individual (who is also unemployed) said she’d paid monthly on the bill at various points over the years, but then all of a sudden she stopped being sent monthly statements. So her question was:  Should I dispute this bill with Equifax, or should I go directly to the collection agency?

Here’s my reply.

Don’t start with a dispute to the credit bureaus over this matter — since you said this is a bill that you know you do, in fact, owe.

Start with the collection agency. Try to negotiate a settlement with them. Offer to begin a monthly payment plan that you can truly afford. Alternatively, if you can afford a lump sump payment to knock out the bill, even better — because you’ll also be better positioned to improve your credit rating.

If you have some cash on hand to make a lump payment on your medical bill, you can make a settlement offer of pennies on the dollar. For example, if your outstanding medical debt is still $1,879, you can say something like: “I have $900 that I am prepared to send you as payment in full for this debt. But in exchange for me making this lump sum payment, I would need you to DELETE all negative references to my credit reports.” This way you’ll be paying less than 50% of the bill, plus clearing up your credit report.

If the collection agency agrees, get everything IN WRITING (you write the letter spelling out the agreement) before you send that money. This strategy is called using a “Payment for Deletion” to clear up your credit. It often works, because collection agencies usually get collection accounts in one of two ways:

1) the account was “assigned” or transferred to them from a creditor, and they get paid on a commission basis, based on the dollar amount that they can collect from the debtor; or

2) they bought your debt for pennies on the dollar (they likely secured your $1,879 medical debt for just a few hundred dollars, if that). So any money they get above the amount they spent acquiring the debt represents a profit for them.

One last point: you said you were originally told your surgery was $2,000 …. that was 5 years ago, and you indicated you were paying it on at various times over the years. So if the amount they claim you owe is $1,879 (only $121 less than your original debt), it sounds like they probably tacked on considerable interest charges, penalties, and other fees. Try to negotiate on this basis also. State your case (i.e. you were never sent bills, tell them that you are unemployed, but only if you really still are, etc.) and then request that all late fees and finance charges be eliminated from the bill. That will help you knock down the debt. Also, if you end up not being able to reach any resolution, and you do in fact, dispute the AMOUNT of debt that you owe, then that’s when you would go to the credit bureau and dispute this item on your credit report. If you can’t clear this matter up, be aware that any negative references on your credit report stays there for seven years from the time you last went delinquent (i.e. if you last payment was made in Nov. 2008, this item would stay on your credit report until Nov. 2015).

Hope this info helps. Good luck!

Another Financial Scam: This One Involves Walmart

Another financial scam is making the rounds. This one involves Walmart. And it’s happening just in time for the holidays. Here’s the con: Some no-good thieves are calling people on the phone and saying: “You’ve won a $200 Walmart gift card!” To collect your gift card, they say, you just have to pay $1 for shipping and handling, and the gift card will be sent to you. Needless to say, this is totally bogus. Anytime a stranger calls you on the phone claiming you’ve “won” something, and then asks for your credit card – or any personal information – red flags should start going off in your head and you should literally be able to hear sirens and alarm bell whistles. The old “give me your credit card number” scheme is classic con artistry at its best — or should I say worst? This is just another form of identity theft.

Thanks to Dan, from South Carolina, a subscriber to my free newsletter (http://www.TheMoneyCoach.net) for alerting me about this scam occurring a lot down in Columbia, SC. He says the scam has been so prevalent there that it was recently reported on WIS-TV in Columbia. I know times are tight and a lot of people are broke. So the idea of “winning” a gift card from Walmart (one of my favorite places to shop!) is definitely appealing. But let’s remember the old adage: If something sounds too good to be true, it probably is.

I predict that this scam will increase in popularity as we progress into the holiday season. It can (and will) likely involve any popular retailer that has gift cards – Target, Macy’s, Sears, The Gap, Home Depot, etc. One final word: I couldn’t find a reference to the story from WIS-TV. (I’ve asked Dan to forward me a link or more info). But I did find a lot of complaints about this scam on 800Notes.com. Here’s a link for more details. http://800notes.com/Phone.aspx/1-877-469-7415

Optimize Your Health Insurance Plan

Q: It’s open enrollment season for health insurance. What should I compare policies on to make sure I get the best one for the price?

A: Generally, you want to look at price, coverage, and ease of use. Clearly, affordability should weigh heavily in your decision, but don’t let that be the sole criteria. If you have a preferred doctor, make sure he or she accepts the plan you’re considering. Also, look at the prescription drug costs in the plan, the deductible you have to pay before benefits kick in, and the overall amount you can be expected to shell out in any given year…

Read the rest of this post on Health.com

Optimize Your Health Insurance Plan – Healthy Living – Health.com.

Would You Willingly Pay The Govt to Reduce The National Debt? Some Gladly Do

Interesting Reuters story about people who willingly – even gladly – fork over their hard-earned money to help slash America’s multi-trillion-dollar national debt. It seems there’s a federal office in West Virginia that accepts public donations to lower U.S. debt. Before you laugh, consider this: that office raked in $3 million in 2008 in voluntary contributions. My first thought was: Well, I guess these people didn’t have debt of their own! Which would, of course, be a rare thing in a society where:

* the average household has $10,000 in credit card debt

* the typical car loan is more than $27,000

* the typical mortgage debt exceeds $200,000 (based on national stats)

* the average college grad leaves school with more than $20,000 in student loans

Read on, though, and you’ll discover who these individual donors are … and why they contribute in this way. You might be surprised by who’s giving. http://tinyurl.com/yll4ktk

Beware of This Jury Duty Scam

Ahhhh, the con men of the world never cease to amaze me. Especially when they get flagrant in their tactics. This time, they’re pretending to be court officials. They’re calling people on the phone, and berating individuals for allegedly failing to report for jury duty. Problem is: the people being called haven’t really missed a jury duty notice. The scammers on the phone just want to scare people into thinking they’re in trouble with the law. And of course, the caller on the phone has a quick solution: Just pay your court fine immediately and this problem will go away. Oh, and did I mention that they need your credit card number to pay that fine? If you get a call like this, hang up on these greedy (albeit bold) villains. This is just another identity theft scam. Read more about this financial hoax in this article from the FBI. http://tinyurl.com/z2aq9

The U.S. Economy Is Batting a Perfect 10 For 10

 

As I crunched some numbers today, it occurred to me that the U.S. economy is batting a perfect 10 for 10 (in a manner of speaking).

Here are some statistics about America’s economy – and its people – that may surprise you. Depending on your perspective, a few of these numbers will make you want to laugh, cry, or perhaps beg for mercy.

10 – The unemployment rate, in percentage terms, in the United States

(Source: U.S. Labor Department)

10 – The number of states in America that face looming budget disasters

(Source: Pew Center on the States)

10 – The amount, in billions, that Facebook is valued at by investors

(Source: The Wall Street Journal)

10 – The amount spent per month, in billions, on the wars in Iraq and Afghanistan since 2001

(Source: The National Priorities Project)

10 – The percent of disposable income that the average American spends on food

(Source:  U.S. Agriculture Department)

10 – The number of Americans, in millions, that are shopaholics

(Source: American Journal of Psychiatry)

10 – The average amount of credit card debt, in thousands, per U.S. household

(Source: Bankrate.com)

10 – The percentage of uncollectable credit card debt that banks charged off in the second quarter of 2009

(Source: Federal Reserve)

10 – The number of Americans, in millions, who are victimized by identity theft each year

(Source: Javelin Strategy & Research)

10 – The number of U.S. households, in the millions, that are unbanked or “under-banked” and use checking-cashing firms or payday lenders instead of traditional banks

(Source: FDIC)

Copyright Lynnette Khalfani-Cox, The Money Coach. All Rights Reserved. http://www.TheMoneyCoach.net

What Happens to Credit Card Debt After Someone Passes Away

A subscriber to my free newsletter a www.TheMoneyCoach.net wanted financial advice for a friend. Here is the person’s questions, and my answer:

Question: You’ve answered an email from me before since I’ve been reading Zero Debt and I hope you can answer another question now.  Today, my question is for a friend. Her father has had lung cancer for a number of years. He’s not doing very well now.

What she needs to know is what will happen to her father’s credit card debt after he passes away.  The credit cards are all just in his name.  Also, her mother is still living.  She has spent a lot of time with her father, taking care of him, and I know she would love to be able to handle all of his financial obligations but she just doesn’t have the means.

Answer: Here’s a good article that answers your question re: your friend’s situation.

http://www.brighthub.com/money/personal-finance/articles/35296.aspx

The bottom line is that: no family members or relatives are responsible for someone’s credit card debt after that person dies, as long as those surviving family members are not joint owners or co-signers of the debt.

Even his wife would not be legally obligated to pay off his credit cards if she is not listed as a co-owner on the account.

I hope this info helps.

How to Shave Off 8 Years from Your Mortgage

A Facebook fan asked me the following question:

Question: While I suspect that you cannot endorse or disparage a particular product, I was wondering of you can offer your thoughts on programs, offered for a fee, that claim to show you how to pay off your mortgage in 8 – 11 years. Generally speaking are these programs legitimate?

Answer: You are correct that I don’t want to bash any particular financial product or service without knowing the specifics of what they’re offering.

However, I can tell you this: If you have a home and you want to pay off the mortgage quicker than 30 years, you can indeed shave off about 8 years from that mortgage just by making one extra payment each year. You really don’t need to pay a fee for this to some third party. You can simply write an extra check to your lender and write a letter to them indicating that you want this additional check to be applied toward your principal balance. It’s a good idea to also send along one of your monthly statements, and to write “Pay toward principal balance” on the check itself. Then keep making your other normally scheduled payments. In addition to outside firms or third parties, your own mortgage company might also offer to set up extra payment arrangements for a fee. But again, you can readily do this on your own without incurring additional costs.

Hope this info helps.