Not all debt relief offers are created equal. Bankruptcy a Good Option?
Dear Lisa: There seems to be an abundance of companies out there offering Debt reduction, debt settlement and debt consolidation programs now. Are there any differences in these programs? Some of these companies offer a program that combines high credit card balances and loans and reduces them significantly, and the debtor would make a single payment to that company. What are the pros and cons of this type of program? What effects would this have on the debtor’s creditworthiness?
Answers: When a company promises to reduce the total amount you owe it is called a debt settlement. Typically, you stop paying your debts and instead make payments to the debt settlement company, which is trying to negotiate a deal with your creditors.
Debt settlement can have a significant negative impact on your credit score and you can be sued by creditors who are unwilling to pay off. The process can take several years and you may have to pay tax on any canceled debts as this is considered taxable income for you. Once you add in the company’s fees, the amount you save on paying off debts may be less than you expect.
If you are considering a debt settlement, first contact a bankruptcy attorney (the National Association of Consumer Insolvency Lawyers offers referrals) because bankruptcies are often a faster, cheaper, and safer way to clear overwhelming debt. The most common type of bankruptcy, Chapter 7 liquidation, usually lasts three or four months, stops debt collection efforts, legally clears many types of debt, and allows you to begin credit recovery right away.
When a company promises to lend you money to pay off your loans and credit cards in full, it’s called Debt consolidation. Debt consolidation can make sense if you are getting a lower interest rate than you currently pay, the payments are affordable, and the loan will get you debt free faster. However, you need to be wary of debt consolidation companies that charge high up-front fees or high interest rates. If you have poor credit, it is probably better to turn to a nonprofit credit counselor rather than paying high interest rates on a debt consolidation loan.
Two husbands. What use?
Dear Lisa: I am 66 years old and recently widowed after five years of marriage. I was married before and divorced after over 20 years. I have been contributing to social security professionally for 20 years. How do I know how to apply for social security benefits? Should I just apply for my services? Should i wait until i’m over 70? Should I apply for spousal allowance and if so, for which husband?
Answers: Let’s take the last question first. You are just Entitlement to spouse or divorced spouse benefits if the worker on whose file you would claim is still alive. The spouse’s allowance can be up to half of what the employee would receive at full retirement age. If, on the other hand, the employee has died, you can be entitled to survivor benefits, which can amount to up to 100% of the employee’s benefit.
So you may be entitled to three different types of benefits: your own old-age pension, a divorced spouse benefit based on your ex’s history (because you’ve been married for at least 10 years), and a survivor’s benefit based on your late husband’s history (because you were married to Married for at least nine months at the time of his death). Usually you lose the ability Apply for divorced spouse benefits if you remarry, unless the second marriage ends in divorce, annulment, or death, as you did.
Which one to avail and when to avail will depend on the details of your situation. You can call Social Security at (800) 772-1213 for estimates of what you would get for each record. Consider using a paid service like Social Security Solutions or Maximize my social security to help you find the best strategy for obtaining benefits.
More on Medicare Choices
Dear Lisa: I enjoyed your columns on Choice between traditional Medicare and Medicare Advantage. I have a terminology question: what is the difference between a Medigap Policy and a complementary one? I have traditional Medicare and an add-on plan that covers the deductibles and co-payments that Medicare doesn’t cover. According to your article, a Medigap policy seems to do the same thing. Please clarify and carry on like this.
Answers: Medigap and supplemental insurance are two terms for the same product: an insurance policy sold by private insurers to fill the “gaps” in Medicare coverage. In general, if you have traditional Medicare (also known as Original Medicare), it is advisable to get supplemental insurance from Medigap as well.
However, you cannot get a Medigap policy if you have Medicare Advantage. Medicare Advantage is also offered by private insurers, but is intended to be an all-in-one alternative to traditional Medicare, not a complement to it.
Liz Weston, a certified financial planner, is a personal finance columnist for NerdWallet. Questions can be directed to them at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or via the “Contact Us” form at asklizweston.com.