Dear Liz: Do you have any resources available for young widows with children? My husband died 10 months ago and I am struggling to make sense of my financial situation, which is complicated because of debt. I would be so grateful for help.
Answer: Widows and widowers are often advised not to make any big decisions in the first year of their bereavement. Unfortunately, bill collectors aren't willing to wait that long.
You need to determine your liability for your late husband's debts. Don't rely on what collection agents tell you. They may insist you have a legal or moral obligation to pay a bill when you don't. An experienced probate or bankruptcy attorney can help you sort through the debts to see which ones need to be paid from your husband's estate, which you may be responsible for and which can go unpaid. Student loan obligations, for example, typically end at death unless you or someone else co-signed the loans.
You also need to make sure you get all the money and property to which you're entitled. You and your children may qualify for Social Security survivor benefits. (You can find out more at http://www.ssa.gov.) You also may inherit retirement funds and life insurance policies that are protected from creditors. Life insurance policies that name you as a beneficiary, for instance, pass outside your husband's estate and don't have to be shared with creditors — again, regardless of what collection agencies may tell you.
Once you've sorted out his estate, you can begin rebuilding your financial life for yourself and your children. A fee-only planner can help you get started. You can get referrals from the Garrett Planning Network at http://www.garrettplanningnetwork.com, which represents planners who charge by the hour, or the National Assn. of Personal Financial Advisors at http://www.napfa.org, which represents planners who charge retainer fees or a percentage of assets they manage for you.
Repairing your credit scores
Dear Liz: I filed for bankruptcy this year. There was no way to avoid it. What do I do to start reestablishing credit and raising my credit score? How long does it take for life to get back to normal so that I can go to a regular car dealership to buy a vehicle instead of using some seedy automobile dealership with 22% rates?
Answer: It can take five years after a bankruptcy for your FICO credit scores to return to the 680 range, which is about where auto loan interest rates start to get more reasonable. People with FICOs in the 660 to 690 range got interest rates averaging about 7.5%, according to the MyFico.com site, compared with 11% and up for those with lower scores. It can take seven or more years to boost your scores above 720, which is where the truly low rates (4% and below) can be had.
To rehabilitate your scores as quickly as possible, first review your credit reports at http://www.annualcreditreport.com to make sure all the debts that were included in bankruptcy are listed that way. If you have any open credit card accounts, use them lightly but regularly and pay them off in full every month. "Lightly" means using less than 30% of your credit limits. If you don't have a card, consider applying for a secured card, which gives you a credit limit equal to an amount you deposit with the issuing bank, typically $200 to $1,000. You can find secured card offers at several websites, including LowCards.com, CreditCards.com, CardRatings.com and NerdWallet.com.
After a year or so, consider adding an installment loan such as a personal loan or an auto loan to your credit mix. A credit union may give you a more reasonable rate than a traditional bank. Paying off that loan should help boost your scores.
Don't close accounts or apply for a bunch of new accounts. Pay all your bills on time and don't let disputes or medical bills wind up in collections.
There aren't any quick fixes, so don't waste your money on credit repair firms or other pitches that promise instant results. What will repair your score is using credit responsibly over time.
Liz Weston is the author of "The 10 Commandments of Money: Survive and Thrive in the New Economy." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604 or via asklizweston.com. Distributed by No More Red Inc.