Color of Money Live

Jul 25, 2013

Join Washington Post nationally syndicated personal finance columnist Michelle Singletary Thursday, July 25 at noon ET for a mid-week money discussion.

Michelle will answer your money questions and offer her two-cents on today's hottest financial topics.

If you can't make the live discussion, submit your questions early.

-- Detroit casts a shadow on munis

-- Generous gift to son 'drives daughters crazy'

-- Today's e-newsletter: Prince George

Thanks for joining me today. Let's get started.

A friend I know through facebook is in the process of loosing his house. He started a fundraiser campaign on Go Fund Me. In his case, it might be too little, too late as he owes more than $50,000. Can people just collect money from friends and strangers for any purposes? I can't help but think that any funds raised would be subject to taxes and the people giving the money wouldn't be able to deduct it as a donation on their taxes. How do things like this work?

Yes people can ask for anything they like.

And yes people can give any amount of money they like.

No you can't take a tax deduction for money you give to someone.

As for the tax burden, that falls on the giver.

Hi Michelle. We're the couple from last week's column and we appeciate your advice, but I wanted to provide more information. We''ve spent around $200,000 on each daughter's education and have given our son $100,000. He's now called a halt, saying save it for the grandchildren. We come from modest backgrounds but have made huge amounts of money buying rental property in the 70's, 80 's and 90's and selling much of it for many times what we paid before the housing bubble burst a few years ago. We could have used better tax advice but now have a good financial planner who says we should give each child $25,000 a year. We prefer to help nieces and nephews with college expenses and support many worthy causes. What a blessing to be able to do this.

 

Generous gift to son 'drives daughters crazy'

Thank you so much for the update.

And I meant what I said when I said you've so generous as parents. Clearly your son sees that. And I love that he's grateful enough to say he's gotten enough. 

So curious minds want to know have you had a talk with your daugthers about how they don't like that you have given so much to their brother? Do you see what I and others saw-- daughters who aren't as grateful as their brother?

 

When people declare bankruptcy, they loose their home, car, and savings to pay off their debts. When it happens to a city like Detroit, do they also loose everything? Is their town hall and other property up for sale? Are the city owned cars and trucks also for sale? I have a hard time seeing how a city can meet its obligations to serve the citizens of the area without the schools, fire stations, parks, and other assets that would be lost if they faced the same bankruptcy rules as a regular person.

 

Detriot casts a shadow on munis

Not sure if you are kidding but no the city won't be selling the police cars, parks, schools or fire stations.

The financial managers for Detriot will be trying to work out agreements to shed debt or renegoitate contracts, etc.

And for the record not every individual who files for bankruptcy protection loses everything. Depending on the filing, they can keep their homes and cars if they agree to to a payment schedule under Chapter 13.

I remember being fairly young (under 10) and my dad telling me: "As long as you're in school, you can live in this house rent free." He repeated it on occasion. I thought it made sense. It's important for parents to support the education of their children. That said, the miserable summer after I got my masters, I lived at home rent free while working 3 low-wage part time jobs and looking for a professional position. It's a bit easier to start with the hard stand and be flexible than go gently and then have to get tough.

 

Asking your child to help out with expenses

I like your dad's rule.

I also advise parents to give starting-out adults a financial break if they've finished school and have debt. Let them continue to live rent free if they have a plan to pay off the debt. Or if they need to come home after a job loss or some other emergency.

The important thing is for parents to help their children but not so much that the children don't learn how to be financially independent.

Any other thoughts on this issue?

I just see too many parents enabling grown folks keeping them from learning to be true adults.

I've received conflicting advice about the percentage of the credit line on a credit card that it's best to use. Is it true that you always want to stay under 30% for the sake of your credit score?

The best position is to have no revolving debt on your credit card. Use it and pay it off every month. If you can't pay the bill off the next month, you probably can't afford whatever you are buying.

But if you don't listen to that advice, then generally keeping it under 20 to 30 percent of your available credit is the next best thing.

 

When is it okay? Is it ever okay? I have friend who is waiting to file bankruptcy and I have been trying to advise her not take that leap but I don't know much and all she can see is clearing her debt burden. I know bankruptcy isn't a good thing, but is there ever a situation where you would advise it?

Without all the details I can't give a hard and fast rule for when it's okay to file for bankruptcy. Some people file because they are just want the calls from creditors to stop. If they had helped they could work their way through their problem and pay down their debts. But often they don't want to take the years it takes to get rid of the debt.

I think they should try and try hard. It's the right thing to do because you used the money.

However there are times when the debt is so overwhelming and there is little chance it will ever get paid that I think bankruptcy is appropriate or at least a Chapter 13, which puts people on a payment plan.

Bankruptcy is a tough thing to go through and it is a huge downer to your credit scores, but in certain situations I belive it is something to think about.

Have your friend seek help at www.debtadvice.org. On the site he or she can find a local non-profit credit counseling agency to look at the situation. All hope may not be lost to climb out of the situaiton without filing for bankruptcy.

Michelle, Even if you pay off your credit card every month, when they run the credit report, the bureaus will know how much is currently charged to the card. That number will be used to determine credit utlization. That is why people are advised to go on an all cash spending plan prior to any major credit check such as before obtaining a mortgage or refinance.

You are right that during the month you charged something it shows up in the formula for your credit utlization.

So if you apply for a loan in that month, when that report is pulled it may affect your standing.

 

(submitting early due to meeting) I want to ask about having a joint account. From everything I've read, you seem biased towards marriage and while my boyfriend and I are not married, we've lived together and split bills for 4 years. We simply don't need to involve Uncle Sam and Aunt Virginia, so I hope that discussion can be put aside. Currently I keep a running tab of expenses and one of us writes a check to the other periodically. In the interest of saving time and energy, I'm thinking we might get a joint credit card and/or bank account to use for house expenses. This would detract from perks we each have on our independent credit cards. But I wonder if there are any down sides? Neither of us is worried about the other liquidating an account (and we have all our other legal papers in order). How would this affect individual credit scores? Are there tax concerns? thanks.

Interesting way you put my "bias" about marriage. In context, yes I'm not a fan of people living together and yes that's my personal point of view and based on my values. But you are free to live the life you want. However, when you ask me my opinion, I give it from my "bias" point of view.

So in your case, concerning the specific question you asked, I would not recommend you get a credit card with your boyfriend. It does tie your credit behaviors together on that card. I see no tax issues here.

But as loving as you may be now, I've seen the fallout when couples break up and have tied themselves up financially. It can get ugly. There are no legal papers that keep you from getting a bad credit score if your honey doesn't pay the credit card bill on time.

I suggest you keep your credit and money, including bank account,  separate.

My father used to say the same thing to me, as long as we were in school we could live at home and wouldn't need to pay rent. When I graduated with my double bachelors (that I insisted on paying for on my own [hello student debt] because they had paid for my community college) I knew it was time to start paying rent. My father had just been laid off a few months before my graduation from a job he had been at for 30+years (they sold to their competitor who laid him off). With the help of my mother I was able to talk my dad into taking $300 a month for rent (he wanted less) because I knew it would help them a little and because as far as I was concerned they did more than their fair share in helping me out. I'd personally love to pay more but I don't want to defer my school payments. When I pay that off or find a better paying job I do plan on contributing more. I live in Southern California and I can't afford to move out on my own so I see this as a win/win. I get a nice place to livem my kitty gets a house to play in and I can help my parents financially since my dad is now basically retired.

I would adopt you.

Your parents raised a great, loving, thoughtful kid.

Tell them I said so.

Nice to see an adult acting like one.

Michelle, Any advice for renting from a private owner. What information to provide them - SS, paystub, references etc. How can you check on a private owner to ensure it is legit?

I hope the owner would tell you  want he or she needs to do a background check on you. You may need to provide all that information for a credit check.

You should also be sure to get a rental agreement. If the person doesn't insist, you should. Spell out everything. If you are going to live with the private owner in his or her house, get a rental agreement again spelling out everything.

If the owner has had previous renters, you might want to talk to them to see how responsive they were to issues such as needed repairs.

I think times have changed re: young adults staying at home. I think that the family can agree to regard this as an adult household and charge the young people some rent if possible and most certainly a healthy chunk of household chores. Say it's a long term plan, with flexibility to move out - but the idea is to plan for an extended time at home. But the child MUST contribute SUBSTANTIALLY either in kind or with cash or both. (BTW, I don't have kids!)

I agree. And I don't mind that times have changed or gone back to what it used to be with young adults living at home until they got married.

The imporant thing is to have regular family meetings and be clear about expectations especially as it relates to paying rent or doing work around the house.

We need new windows for our 40+ year old home. We need other things as well, but windows and a new front door (with sidelights) are priority right now. We have decided to go to the Habitat ReStore for the door, and buy our windows 3-4 at a time - paying cash all the way. Is this the smartest way to do this? It will take longer than finance and pay over 5 -10 years at $350-500 a month that we have been quoted, but I'd much rather pay cash. Just yesterday, my husband and I sat through yet another sales pitch on windows and were told about their "financing" plans. BLECH!!!!!!! Not a single company that has come to tell us about the cost of replacement windows has come in under $18,000 for the entire house, including that bow window that every company charges $5,000 for all by itself. It is so frustrating being a "homeowner" at times Michelle.

Being a homeowner = frustration a lot of the times.

I'm also going through that phase right now where things have to be replaced, updated, etc. Plus I have the wear and tear of three kids -- and a new dog. (I was so crazy to believe my children when they said they would do all the work with the dog. CRAZY. Now got a dog sometimes getting at things he shouldn't. He's a sweet puppy but still.)

Sorry, I got off track. Anyway to answer your question. Yes. CASH. Love it.

Stick to your great plan to pay as you go. So if something happens, you don't have that debt.

My financial planner suggests that I take a substantial amount out of my 401(k) and roll it into the plans he has me on. Since I am 60 years old, it will not cost me anything to roll it over to another plan. What do you think of this idea?

I would be very careful of this advice. Are you happy with the returns you got or getting with the choices you have  in your 401 (k)? Do you have enough, good investment choices in your plan?

If so why would you need to move the money?

Can the person help advise you with the money in the plan,which may carry lower fees?  Personally, I have to plans of rolling over my money from my 401 (k) when I retire. I like the offerings. I'm satisfied with the fees charge. I have plenty of good investment choices.

What fees are involved with rolling over in your case? Will the planner be charging management fees?

You may know all this but if you don't keep asking questions.

 

I'm a single parent preparing for my child to go to UMD, College Park this fall. We still need to take out a loan to cover the college expenses, should I apply for a Parent Plus loan or should I have her apply for a private loan in her name. I'm returning to college this fall and I prefer not take out any loans in my name.

The chat is nearly over, but I need some more information.

-- Where do you live?

-- Can your child commute or is she or he already planning on comutting?

-- Do you have any room in your budget to do the Md. tuition plan where you pay a monthly rather than taking out loans.

-- How much do you need to take out?

-- Can you put off going to college so you don't have to take out loans or your child take out loans?

-- Can you even afford a Parent Plus loan which you have to start paying or defer meaning the interest cost are higher?

 

A friend of mine's parents let her stay at home after grad school so that she could save up for a down payment on a condo. However, they charged her rent on her room - they said it waws to make hre feel like she was an adult and a part of the household and to get her used to budgeting at least something for rent. What she didn't know was that they put that money into a savings account and gave it back to her when she finally was able to move out and gave her a session with a financial advisor. She was floored and very thankful. She spent a little on moving expenses, but the rest she's invested and hasn't touched at the advice of the financial planner. It wouldn't work for everyone, but since her parents could afford it, she thought it was a great lesson.

Another way to teach.

It was a good lesson.

Michelle, I bought your book on the 21 Day Fast, and it is awesome. I love your chats too. Now, not to be a priss about it, but I have now seen TWO people use the word loose for lose. One word is the opposite of tight, one words means to no longer have something. I see this all the time, and it bugs me to no end. Okay, back to the regular chat. Thanks for all that you do!!!

Easy mistake.

And thanks.

My husband and I are purchasing our first home ($270,000). I have about $115,000 in cash. We are thinking of putting 20% down. But I have about $49,000 outstanding student loans. For various reaons, I do not want to pay off my federal loans early, but am wonder if I should pay off the $30,000 of private loans and reduce the amount we put down on the house. The 20% down makes the payments manageable on our reduced salaries (we moved from DC to the Midwest and took jobs with significantly reduced salaries) and would enable us to avoid PMI. We do not want to deplete our savings to pay off both the $30,000 in loans and a 20% down payment. What would you do?

I would pay off ALL the student loans. Then I would take the time to build back up the down payment for the house if I wanted to put down 20 percent to avoid mortgage insurance.

I would get that student loan monkey off my back and you have the money to do it.

I would want to walk into my home with no debt except the mortgage.

 

My girlfriend of two years and roommate for one, recently broke up. Untangling our finances has been, to put it mildly, more complicated then either of us imagined. We've remained civil and cordial throughout the process but it doesn't make the discussions any easier. Neither of us were ready to acknowledge the relationship's demise when signing the lease on our new place. (Thankfully we only signed for 6 months.) What I learned the hard way is I don't want to live with someone until I know I will marry her. I'm glad I learned the lesson and temporary discomfort will be a chronic reminder of what not to do in the future.

Thanks for your testimony.

Hope people live and learn from it.

So sorry but time is up. Thanks so much for again joining me on my chat. If I didn't get to your question, I may still answer it. Look for my weekly columns and my new online feature on Monday (Michelle's Mailbag) where I get to questions I didn't have time to answer or expand on others I did.

Come back next week. Same time and place.

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Thursday and Sunday. Her award-winning column is also carried in more than 120 newspapers. In her spare time, Singletary is the director of a ministry she founded at her church, in which women and men volunteer to mentor others who are having financial challenges.

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