Dear Liz: I'm facing the end of child support and need to finance my son's college education, plus I have some home maintenance costs looming. Should I get a home equity loan or line of credit (assuming I can qualify) to pay off these pressures, or should I raid my retirement fund? I am 60, make about $80,000 a year and have no debt besides the mortgage and a car loan, but I have only about $100,000 in retirement accounts. (I had to wipe out my savings once before in a two-year spell of unemployment.)
Answer: There's no polite way to put this: You're too old and too inadequately prepared for retirement to be paying for your child's college education.
It isn't a good idea to raid retirement funds prematurely in any case, but certainly not when you have so little saved. Borrowing to pay for school would make sense only if you were adequately prepared for retirement and had plenty of time before then to pay off the loan.
Even if you plan to work into your 70s, life may interfere. Nearly 40% of retirees interviewed by the Employee Benefit Research Institute say they had to quit work before they wanted to, typically because of layoffs, poor health or the need to take care of a family member.
You must focus on building up your retirement fund as much as possible while you still can. That means your child will need to figure out how to pay for college on his own. Many students save money by attending a community college for two years while living at home, then switch to a four-year public institution to finish their degrees. Your son may qualify for scholarships or grants; if not, federal student loans can help him pay the bills without sinking too far into debt.
You really shouldn't be borrowing for home maintenance costs either. Ideally, you would have set aside money from your current income that's earmarked for these costs. If the repairs are pressing, however, you can pay for them with a low-cost home equity line of credit and then repay the loan as quickly as possible.
How damaging is a short sale?
Dear Liz: I don't know why credit scoring is shrouded in mystery. I've read that a short sale is as bad as a foreclosure, and elsewhere that it's better, and still elsewhere that it's much better. Which is true?
Answer: The leading credit scoring formula, the FICO, typically treats a short sale about the same as a foreclosure, said Craig Watts, spokesman for the company that created the score, which is also known as FICO.
Where a short sale is better is when it comes to getting your next mortgage. If you suffer a foreclosure, lenders typically put you in a kind of "penalty box" that makes it tougher to get another mortgage for up to seven years. That period is typically shortened to two or three years with a short sale.
Unproved debt should not go on credit report
Dear Liz: My wife has always paid her bills, but we got a call the other night that said she owed a $496 cellphone bill from 2002. The debt, even if she actually owes it, would be beyond the statute of limitations in our state. We have all her records from the cellphone company from that year and we sent a letter to the debt collector asking for proof that she owes the debt. If they cannot legally collect it, can they still file on my wife's credit report?
Answer: Statutes of limitation restrict how long creditors have to sue you over a debt. They don't affect how long legitimate debts can be reported on your credit reports. Statutes of limitation in most states range from three to 10 years, while a bad debt can typically be reported for seven years and 180 days from the date the account first went delinquent.
Also, creditors legally can continue collection efforts after the statute of limitations has expired. They're just not supposed to use the courts to help them.
If the collector can't provide proof your wife owes this debt, it's not supposed to report it on her credit reports. If it does, she can dispute the entry with the credit bureaus.
Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What's at Stake." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or via the "Contact Liz" form at http://www.asklizweston.com. Distributed by No More Red Inc.