Stop living outside of your means

Dear Liz: We leased a BMW X-3 in March 2005. The monthly lease payment, with FICO scores of around 690, is $565 plus $100 for insurance. (Of the lease payment, $65 is because of the negative balance we rolled over from a previous car.) We need to decide next March whether to lease another Beemer, buy another one or go back to an Acura or something like that. Any suggestions?

Answer: Sure. Stop driving cars you can’t afford.

A car you can afford is one for which you can pay cash – or, if that’s not possible, a car you can finance with a loan that lasts no longer than four years, preferably with a 20% down payment.

If you can’t afford a luxury car with such a loan, then you can’t afford a luxury car. You also can’t afford a luxury car if you haven’t paid off your last car, or if you’re carrying credit card debt, going without an adequate emergency fund or not saving adequately for retirement.

The good news is that you’ve still got a few months to improve your below-average FICO scores, which should be a priority.

You’ll get better rates and terms on your car loan if you can get your scores to the 720 level or above. You can do that by paying your bills on time and paying down revolving debt, such as credit cards and home equity lines of credit.

Bankruptcy often due to health costs

Dear Liz: I’m puzzled by your recent comments regarding bankruptcy and medical bills. I’ve always thought you regarded bankruptcy as a viable option for consumers, but you didn’t seem to have much sympathy with the person who was forced to file for bankruptcy because of a chronic medical condition that made it impossible for him or her to get insurance coverage.

Answer: Clearly, my answer was too brief because other readers came to the same erroneous conclusion.

Let’s review. People who have no or inadequate health insurance are at higher risk for bankruptcy because all it takes is one accident or illness to accrue truly staggering bills.

But many people can’t get coverage, either because they can’t afford it or because insurers refuse to write them policies (often because of a preexisting health condition.)

Even those who have coverage aren’t really safe from devastating bills. Those who lose their jobs often find they can’t afford to continue their coverage.

As health insurance costs climb, more employers are dropping or reducing coverage, which puts still more people at risk of catastrophic bills. By some estimates, 1 in 5 Americans is uninsured or underinsured.

If you eliminate the elderly, who are almost universally covered by Medicare, the proportion of at-risk Americans is even higher.

Those who disparage bankruptcy as a solution to overwhelming bills often fail to understand that many people wind up in U.S. Bankruptcy Court because of medical bills they couldn’t avoid.

Unfortunately, unless and until the U.S. health insurance system changes, that’s likely to continue.

FICO score unhurt

by name change

Dear Liz: I am thinking of legally changing my first name. I have a FICO score of 809. Will the name change affect it?

Answer: As long as you notify your creditors of the change, you shouldn’t have any problems. Your creditors will notify the credit bureaus, and your new name should be added to your existing credit file. Your original name may still show as an alternate name on your files, said Experian spokeswoman Maxine Sweet, but your new name would become the one the bureaus primarily use.

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Liz Pulliam Weston is the author of the books “Your Credit Score” and “Deal With Your Debt,” both published by Prentice Hall. Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the “Contact Liz” form at www.lizweston.com. Distributed by No More Red Inc.