Color of Money Live: Should I take the Equifax cash settlement or opt for credit monitoring?

Aug 01, 2019

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Thanks for joining me today. Looking forward to your questions. And, as always, would love your Thursday Testimonies. 

Let's get started. 

Thanks to you, Michelle, for urging people to check their status with respect to the Equifax data breach - and to request the credit monitoring that is being offered. I used the look-up tool, and it identified me as possibly being impacted, so I filed my claim. I requested the 3-company monitoring followed by the extension for Equifax only. I regularly download and check my credit reports (one report every 4 months), and I have placed freezes on my credit, but in these times, it never hurts to have additional protection! Now I just have to wait for the settlement to be finalized so I can receive notification on next steps. Thanks again!

Thank you. And you are right. We have to do what we can to protect ourselves. Our data is out there and will be out there forever!

Read my related column: Don’t count on a big cash payout from Equifax. But still get the free credit monitoring. It’s far more valuable.

I have approximately $72,000 in credit card debt (Eek! I know! A result of bad choices, unemployment, car repairs, etc.). I am working with a Debt Management Plan to pay off the balance in 4 years. This is an aggressive plan and is causing tension on my bank account to pay the bare minimum bills. I can do it, I just don’t have any room for extras. What is your advice? Should I take a credit card or two off the plan for now so that I have some sort of emergency money left over; or should I suck it up, work hard and pay the darn things off ASAP? I’m working overtime at my job to help with the extras, but I don’t have any kind of an emergency fund and $52 in the bank after bills, gas and food. I’m conflicted, but really, REALLY want to be debt free. Thanks for your help! Love the column!

Good for your for tackling your debts. Question is the debt management plan with a nonprofit agency? I really, really hope so because I loathe plans set up by debt settlement companies that charge you to help get out of debt. 

For now, I would not look to a credit card for an emergency. Take that temptation off the plate. And in doing so, yes you will have some paying pain but it's just a reminder of bad choices and that will hopefully help you not make any more. 

I'm sorry you have to go through this but you must. Keep coming back and I'll keep providing encouragement. Because you can do this!

Read my related column: Consumer agency’s $25 million settlement with Freedom Debt Relief shows the risks of such programs

Given that we're late in the economic cycle and i have student loans at an average interest rate of 4.25%, what should the percentage breakdown of my excess income be used for: investing in a low-cost index like VTI, making excess student loan payments, investing in a savings account yielding 2.2% and/or hoarding cash?

If I were you I would do the following

-- First, save enough for at least one month's of living expenses. This will be your emergency fund earmarked for a major disruption in your income such as a job loss. Once you reach one month of what it takes to run your household stop saving in this pot. 

-- Try to save between $500 to $1,000 in a life happens fund for the things in life that happen such as a car repair. Once you have this amount stop saving in this pot. (But you will restart saving in it if you have to use the money.)

-- Take any extra funds and aggressively get rid of the student loan debt -- all of it -- before investing for retirement or anything else. I have one caveat. If you work for a company that provides a match for your workplace plan, put in enough to get the match. Then take the rest of any extra money you have and pay off the student loans. 

Yes, you're young and with time on your hands you can save more toward retirement. But I want you to get that student debt -- monkey- off your back and fast! Free yourself from it and then take all that money that was going toward the debt and catch up on your retirement savings or other saving goals. 

Since I already get free credit monitoring due to the OPM breach & with one of my credit cards, and have credit freezes in place, I opted for the payout. I saw the $125 and knew there was no way they were going to payout all of that, but am ok with that.

I'm in the same boat -- two other monitoring services. But the free ones I have are not for all three of the credit bureaus. Plus the services free period will end next year or the year after. So I opted for the 4 years of the three-bureau monitoring though the Equifax settlement. Plus there is an additional 6 years even if it's just with Equifax. 

The money will be so little now that the monitoring for up to 10 years is worth more. 

Sorry for the naive question, but if I freeze my credit, how do I then unfreeze my credit if I want to legitimately open up an account or loan somewhere? Do I have to prove myself again to the credit bureau or am I given a username and password with Equifax, for example, that I can quickly turn on and off? Thanks.

I'm going to be doing a column on this soon but when you freeze your files you will be given instructions on how to unfreeze. But yes, you can unfreeze temporarily to apply for credit. No, once you set up an account for the freeze at all three of the credit bureaus, you won't have to prove you are you again. I can freeze and unfreeze one of my credit files once I sign into the account with just a click of a link. And I get to say how long I want it to be unfrozen.  

What do you think of the argument that cumulatively, more people taking the payout costs Equifax more, thus incentivizing them to better guard against future breaches? I've been trying to figure out whether to go for the money or monitoring myself, since I also have another source of monitoring i use.

Well, the pot for the $125 payouts, which won't be that much now, is just $31 million. So that's hardly a hammer to make them behave. Once that money is gone, it's gone. There's another pot also with $31 million for people who spent time clearing up fraud on an account. But that too will likely run out and people won't get full claims. 

So, it will cost Equifax more if more people take the credit monitoring. I'm telling people to take the credit monitoring. 

My husband and I each have a small whole life insurance policy that we got when we were first married essentially to cover our mortage(we have no other debt) if something happened to one of us. When our family expanded, we got a much larger term policy. But now, we're not sure we need the whole insurance policy. It seems like a lot of money for not that much of a benefit. But, I'm having trouble finding any good research on the benefits and drawbacks. Do you have any advice? Is there any penalty to getting rid of that policy and keeping the term policy?

There continues to be a lot of debate about whole life insurance. Personally, I've found what you found--that it can be very expensive and confusing.  My husband and I opted for term life insurance and took any extra money we might have used to fund a whole life policy and invested in index funds with super low fees. Be aware that if you get rid of the policy during a certain period you have to pay a surrender charge. Typically the period is about 7 years. If you are beyond that, I would consider just going with term. 

In following up to your response, yes, it's through a non-profit, but they do charge a $60 monthly fee. Did I mess up and pick the wrong one? Also, just to be clear, I wasn't planning on having a credit card for back-up, but rather having extra money in my account at the end of the month. Right now, I'm paying $1900/month to this plan. If I drop even one payment (back to a normal minimum card payment), I may have an extra $150 back to my checking account each month. I get your point though about remembering the bad choices and sticking to my payment plan. Thanks for the encouragement! I definitely need it right now. The stress of all of this is sometimes so hard. I wonder if bankruptcy would have been better sometimes.

Whew! You did not mess up. The $60 a month is reasonable. I was talking about debt settlement services that charge people thousands of dollars. 

Anyway, thanks for the clarification. In your case, don't pull out the credit card from the plan. Instead, really look at your budget and see if you can find that $150. If not because you've already cut to the bone, still stick with the plan. 

I was young once. I had the perfect job--that disabled me at 32. Yes, I saved. Yes, I worked for Uncle Sam--and the saving grace is that I have disability income and health insurance as a result. I've been disabled longer than I was ever able bodied and disability is expensive. There are the extra medical bills plus the inability to do many chores--so have to pay for handyperson services. My advice to my child who is 2 years into the job market is to save in the company 401k and do whatever else possible to save. Frugality is a necessity.

Thank you for sharing your story. And we really aren't disagreeing. Debt limits your options too. 

Hi Michelle - I make nearly twice what my partner does, but we have shared our expenses 50/50 which has been hard for him to save. Do you recommend me taking on more of the expenses given the salary gap? Or combining finances somehow?

If you are married, I believe you combine income and debt and work as a team to pay it all off or save. Marriage for me means you are operating as one so all debt and income belong to the both of you. 

If you are committed to being in a long-term relationship, I suggest keeping your finances separate. But you could sit down and offer to help your partner with saving more. However, do it with no regret if the relationship fails and he or she walks off with the money you helped the person save. 

Hi Michelle, Do you suggest any resources to guide two older adults getting married (me for the first time so I'm totally new at this!) and merging finances, houses, etc.? I'm trying to create a list of things we need to discuss and decide as we move through this process. Thanks!

Please, please, please seek premarital counseling that spends a great deal of time discussing your financial situation. 

Because you asked me and with me comes my experience, opinion and values, I recommend merging your finances. However, there should be a lot of discussion before you get married of what sharing means. Think about the following:

-- Who will be the treasurer? In other words, who will be paying the bills? 

-- When should you meet for your regular financial dates? You should set aside time to talk about the money even if you are not the treasurer. And keep this appointment like your marriage depends on it!

-- If there are children from a previous relationship, who will get what when you write up your wills? 

-- If there is debt, what's the plan to pay it off as a team?

-- If you are each bringing assets to the table, what do you feel about sharing it all? (Don't believe in pre-nups either). 

You of course may decide to keep things separate and that's fine. Do you. But everything should be disclosed -- all bank accounts, debts, savings, etc. 

Separate doesn't mean secret. 

A week ago there was a discussion about how to tell a millennial coworker she should be saving more for retirement. As a millennial parent living in the DC area--I would just like to say the only answer here should be stay out of it. Cost of living and childcare, let alone the lack of raises/bonuses/advancement given to younger workers since I've entered the work force in 2008 are all reasons why there may just not be any money left for when you're older. We know we're missing out, but if you keep bringing it up, chances are the coworker will likely just find a higher-paying job somewhere else where they don't remind her how much she isn't making currently.

I get your point. We don't want to nag young folks who may be dealing with a lot of financial stress. But not encouraging them to save for retirement isn't the answer either. I run a financial ministry at my church and one of the things I hear the most from older participants is this: "I wish somebody had told me this stuff earlier." 

So we should press without pressuring. We should ask, without being a pest. People often don't know what to do or that they should so something so staying out of their "business" is not the answer.

Here's my related column: How far should you go to push a millennial co-worker to start saving for retirement?

Does your answer about whole life insurance change if you can get it with an LTC rider? This seems like a better deal to me. You have LTC coverage if you need it, without getting a separate plan. If you never need LTC, then the insurance pays out as normal. Currently my husband and I have term policies but we have the option to convert a portion to whole with LTC coverage. He thinks its too expensive but I think its a great hedge given LTC can be extremely expensive.

I f you think or want a LTC policy I would do it without the added expense of a whole life. I side with your husband. 

Our policy is to have as few credit card accounts as possible (two, to be exact, because it seems prudent to have backup, on general principles). Therefore, despite being downright inundated in the mail with application forms for a Capitol One credit card, we've never had one. I'm feeling really relieved just now that news of its being hacked has come out.

Even if you didn't have any credit cards, I wouldn't feel relieved. Many data breaches are happening with information not connected to having credit. 

I bought a new TV. The old one lasted for 10 years in my house. Who knows how long it was in the house of its first owner? Sony CRT set that I got for $25 off craig's list. I spent quite a bit on a big 4K, full array, smart, whatever TV. I went to the store that delivered it, set it up and doubles the warranty to two full years. Was it hard? Yes. But I had saved up the money out of my regular budget and will pay off the credit card (1.5% back) before the cycle closes. It looks fantastic, but it is going to be months before I get over the shock.

I love that you are sharing that you spend some money. A lot of questions/comments in this forum are about debt or saving, etc. 

I have a HARD time spending but am trying to give myself permission to spend because I am a good saver and I have covered the various financial bases.

So good for you. Enjoy the TV. 

My idea of an emergency fund is much larger than yours. I calculate my emergency fund as being laid off; totaling the car as I leave; only to come home and find out I need to replace the HVAC. I've found over the years that emergency come in bunches. Thanks for sharing your knowledge.

Actually, I'm with you. But such a pot and how much that would go into it means a great deal of money. I suggested just the one month for the young person to get him or her started. Eventually, I would suggest saving six months to a year of living expenses. But for many people that's too daunting. 

Baby steps. 

AAA recently announced that they are adding credit monitoring. It is ProtectMyID provided by Experian. You have to sign up to get it, but it is included in the current membership fee. Unless Experian itself is likely to be hacked, this seems like a good idea.

Sure, it can be. Check to see if it's all three credit bureaus. If not, still take the Equifax deal. Plus, there's no guarantee they won't charge for it in the future. 

Hi Michelle! I paid off my car loan last Monday, and plan to take the car payment money to make extra mortgage payments. (Have a life happens and an emergency fund funded, both took over 8 years to accomplish). Slow and steady works. Thank you for all you do! I'd have never had these ideas without you and your help! :)

Congrats!!!!! 

So happy for you. Can't wait to get rid of my mortgage. 

My kids' troop went to canada last year and the place they went to buy the food only took one kind of credit card and ONLY my husband had that in his wallet. So they were saved rather than having everyone have to get cash from an ATM. When we have our credit cards stolen it is good to have another one on hand while waiting for the one in the mail, too. Happens more than you think.

Thanks for sharing. 

I'm all anxious now having read your column--very helpful nudge though. So i have to "file a claim" and then ask for the monitoring for three years? and ALSO freeze my credit? can you provide links in your next column for those of us who are struggling to navigate? THANK YOU!

I'm on it. Going to work on a column next week with links, etc. And yes, we need monitoring, credit freezes, alerts, OH MY!

Absolutely--broken record messaging needed here. Fairfax Co public schools require a 'personal finance' class for graduation, but it was a joke. Our daughter would ask us about saving for retirement and we explained 401Ks, etc, and say, "wish my teacher told us that." Demonstrating how you can lower your taxable income through deductions was never covered. Totally made sense to her, especially when she started working and seeing how much of her pay went to taxes. We also walked her through what all of the fed and state deductions were for. HR departments don't want to dispense basic knowledge about these benefits, so teaching your kids is important.

Yes!

We have a group in my neighborhood called 'buy nothing' that is getting to be bigger everywhere, I think. The concept is we all have junk laying around and we could all be able to give it to a neighbor rather than dumping it in the garbage. That's how I got our big screen TV and so much other stuff...yes, we give away stuff too. But no obligation to anyone for anything. It's also so much fun to find what someone else is looking for and making them happy for that thing that you never use but thought you might someday. Well, YOU might not, but someone else will.

Simply love this idea. When we were moving our kids from bunk beds to single beds we gave all their furniture to a family of five. Didn't ask for a penny. Happy to help them out. 

I remember reading an example given to young people about saving early (be advised, I may have the numbers a bit wrong but not terribly so): Twin gals, got similar jobs with similar salaries; one saved maximum tax allowed from Day 1 for 10 years then stopped, the other waited 10 years before she started saving the maximum tax allowed and continued to contribute until she retired. They retired at the same time, they had the same amount of money in their accounts. Save early!

You got it right. 

For the person in the debt management plan, keep up the good work! We were $55K in debt and paid $1200/month to pay it off in about 4 1/2 years. My husband was disabled with limited income and I worked a second, part-time job to help make ends meet, but you can do it. It was hard but I'm thankful we did the hard work as I am now debt free aside from my mortgage. My husband passed away unexpectedly about 3 months before it was all paid off in mid-2018. At least I no longer have a pile of debt to deal with along with the difficulties that come with the loss of a spouse.

I'm so sorry for your loss. And I'm so glad you didn't have to deal with the debt afterwards. Thank you so much for sharing your testimony!

or so they claim. From your research, do you have any information about why this might be? I don't use my credit often - don't casually apply for new credit cards to get points bonuses, have been in the same apartment for a long while, haven't applied for new insurance coverage recently, etc. - so is it because there weren't recent pulls on my credit to get hacked? I'm not even sure if that was one of the risk factors. I guess it depends on which part of the Equifax system they got access to - transactions or the actual data base of everyone they have created a file on.

Count yourself lucky! Still other hacks may have gotten you. Our data is just compromised. Period. 

Our Dad passed away in Jun. We stopped his credit at the 3 credit reporting bureaus. This took time and paperwork. When the Equifax breach settlement became known, we opted for the cash which will go toward the estate.

Will probably be a tiny amount. But in your case no point in monitoring your father's credit. 

So sorry for your loss and thanks for sharing. 

I'm the person who wrote the original question about millennials and retirement...I wanted to give some additional information because it's been so polarizing! The younger person came to me with financial questions and started calling me her mentor. I'm not in her chain of command, and we rarely work directly together. After talking with her about it a couple of times - along with many other general topics at her initiation - I gave up. She has the information and it's up to her. I don't have any desire to beat my head against a wall! I'm with you Michelle, though, that I wish somebody had talked to me and encouraged me. I've done that with her, and it's up to her to take it from here.

I'm so glad you returned to clarify. I was on your side even if the young woman hadn't sought you out. 

And you are right, we can tell and teach people but can't make grown folks act. Still, we can't give up trying. 

Thank you for the original question because if nothing else it's been a great debate!

What a wonderful chat today. Thank you all for joining me and for your questions and comments. I say this often but please know if I don't get to your question or comment, I read everything. And as happened from last week, I often turn a question into a column (the millennial and retirement). I keep my promise that your efforts are not in vain. 

See you next week. 

In This Chat
Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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