Dear Liz: I'm desperate and need your input. My brother is in his 50s and makes only $10 an hour. His paycheck is gone after two days from eating out and bar hopping. He's in collections with doctors, colleges, credit cards and more, and has been for 20 years. He's draining my mother both financially and emotionally. The rest of my family says to let him go and make him realize the consequences. I keep helping him out with gas money and trying to help him budget, but he really doesn't care. His thought is, "Take care of your needs now and worry about paying for it later." What are my options?
Answer: Your options are pretty simple. You can continue to bail him out. Or you can stop.
A longtime spendthrift is unlikely to change his behavior. That's particularly true if he still has people around him willing to give him money, but he may not change even if your entire family cuts him off.
Understanding that you don't have the power to change your brother is an important, but difficult, first step. You may want to seek help from a counselor or a 12-step group that helps people deal with problem relationships. Since bar hopping is such a big part of his life, you (and your mother) may benefit from attending Al-Anon, the 12-step group for people who have alcoholics in their lives. You can find more information at http://www.al-anon.alateen.org. Another similar group is Codependents Anonymous (information at http://www.coda.org), which aims to help people develop healthier relationships.
Pay credit card minimums, protect credit score
Dear Liz: I am expecting a settlement from an accident at work that will allow me to pay off my credit card debt completely, but in the meantime I am having a difficult time financially. If I were to pay less than the minimum amount required on my two credit cards, I assume that my credit score would take a drastic hit. How long would these negative marks remain on my credit history and affect my score? Would this prevent me from getting financing on a new house if I have since paid off all creditors?
Answer: If you have good credit scores now, it could take up to three years to restore them after you've failed to pay a bill. The negative marks themselves will remain on your credit reports for seven years, but their effect on your scores diminishes over time if you make no other credit mistakes.
Clearly, the best solution is to pay at least the minimums on your cards until your windfall comes through and you can pay off the debt entirely. Going forward, you should avoid carrying credit card debt. The only smart way to use plastic is as a convenience, not as a way to live beyond your means.
If you're not able to pay the minimums, you can talk to your issuers to see if they have a temporary hardship plan that will allow you to reduce the amount you pay. Ask about the hardship plans' effect on your credit, though, since these arrangements also may hurt your scores, depending on how they're reported to credit bureaus.
Timing your Social Security benefits
Dear Liz: Which is really better? A smaller Social Security check starting at age 62 that you are still young enough to enjoy for years? Or a much larger Social Security check beginning at 70 that you get for a much shorter period, and then just gets signed over to the nursing home or assisted living facility where you wind up? I won't be dependent on the money, so I'm inclined to vote to get less earlier. Your thoughts? None of the usual discussion addresses the "quality of life" aspect of Social Security checks.
Answer: You're right. The math typically favors delaying Social Security payments for as long as you can. Your benefit gets bigger for every year you delay until age 70. Also, your benefits are sharply reduced if you continue to work after taking early Social Security checks.
But this is yet another area where there are no one-size-fits-all solutions. Some people may opt to apply for benefits early, perhaps because their life expectancies are short, they want to let their investments continue to grow tax-deferred or they simply want (or need) the money. Others may delay for as long as possible to maximize their payouts.
You can't know for sure in advance which is the right approach, since there are so many variables involved — including how long you'll live and how long you'll enjoy good health.
As you approach retirement, you should make an appointment with a fee-only financial planner to review every aspect of your retirement plans, including this particular issue. Another good resource is the awkwardly titled "Personal Finance for Seniors for Dummies" by Eric Tyson and Robert C. Carlson, who spend a fair amount of ink on the "when to retire" conundrum.
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 http://www.asklizweston.com. Distributed by No More Red Inc.