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Apr 5, 2008    |       4 comments

Protect Your Family From Credit Card Debt

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This guest post comes from Jonathan from Master Your Card. He discusses everything about credit cards over there. If you like what you read here, check out his blog or you can subscribe to his feed here.

It’s one of those things that none of us like to talk about, but unfortunately for many families not talking about it can lead to undue stress and complications should the unexpected happen. The subject we are talking about is death – and sooner or later it will affect every one of us. Unfortunately, for many families, they find out during this time of immense grief that the sudden death of a loved one or family member has brought about another unforeseen burden – credit card companies wanting to know who is going to be responsible for the deceased’s debt.

It’s almost unimaginable to think of – you are dealing with the death of a spouse or other family member and the phone rings with someone from the deceased’s credit card company wanting to know how you plan on settling the bill. The sad fact is that many companies try to take advantage of people during periods of grief to make decisions without understanding what they are doing. Know the facts to help you protect your family from credit card debt after a loved one passes away.

First and foremost understand that you are [generally] not responsible for a family member’s debt unless you:

  • Co-signed for the credit card
  • It was your spouse and you live in a community property state.

These are the only two ways, despite what the credit card company will tell you, that you are responsible for the debt of the person who has passed away.

A co-signer is not the same as an authorized user. Authorized users are not responsible for the debt of the deceased. They should immediately report the death to the credit card company and cease using the card, but their obligation stops there. Despite what the credit card company may tell you, you are not obliged to repay the debt if you were an authorized user.

Co-signers on the other hand are responsible for the full amount of the credit card debt. They become 100% liable for the debt at the time of passing of the deceased. Essentially you agreed to be responsible for the debt in case the original borrower could not pay it back – and this situation, unfortunately, qualifies as one in which they can’t pay it back.

If the deceased was your spouse and you live in a community property state you should also be aware that under state laws you will be responsible for the debt of your spouse (whether you were a co-signer, authorized user or not) at the time of their passing. Community property states [as of March 2008] are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

You should also be aware that if you held any joint accounts or real estate with the deceased that a portion of those accounts become part of the estate of the deceased and will or no will, the creditors will get their money first. The only financial asset that is protected from creditors at time of death is life insurance policies.

Don’t leave your family in a financial nightmare should you pass away unexpectedly. Take some time to go over your debts and financial assets with your spouse or significant other. Know the laws of your state and consult with a family lawyer to make sure that your credit card debt won’t haunt your family long after you are gone.

Thanks Jonathan for the guest post!

Apr 5, 2008    |       9 comments

Three B.A.D. Ways to Reduce Debt

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This guest post is from Ryan at Debt Reduction Forumla. He’s currently is reducing his debt from $75,000 to zero and letting you look over his shoulder. If you like what you see here, stop by his blog or you can subscribe to his feed here.

This is the first guest post I’ve written for Tricia. So I spent a few days thinking about a title that would get your attention.

That’s when I came up with “B.A.D. Ways to Reduce Debt.”

Of course, B.A.D. stands for Blogging Away Debt.

To write this post, I went back through a number of Tricia’s blog posts to see what strategies she has personally used to reduce her debt during the last two years. Here are the three debt reduction strategies I came up with, along with how I’m using those same strategies.

Strategy #1: Create accountability.

When Tricia began her debt reduction journey, she started this blog to create accountability. I took a similar approach when I started writing Debt Reduction Formula. I did it, in part, for accountability.

But a blog is a lot of work, especially if you want to attract regular readers. What’s a busy person to do?

At first, I simply created a spreadsheet that listed all of my debts, their interest rates, and minimum payments. This created personal accountability because I had to acknowledge my debt problem and see whether it was getting better or worse each month.

I continue to update that spreadsheet every month to see how much progress I’m making.

Even personal accountability like this goes a long way toward keeping yourself motivated. (And, trust me, you WILL need something to keep you motivated as you pay down your debt.)

Strategy #2: Minimize finance charges.

Another debt reduction strategy Tricia has used is minimizing her finance charges by looking for the lowest interest rates possible.

In one post, Tricia shares that she called around to credit card companies to get rate reductions, paid off as much debt as she could to improve her credit score, acted on balance transfer offers when she received them, and even took advantage of a Prosper loan at one point.

We’ve all heard about minimum payments. But, if you’re like me, you may not have thought in terms of minimum finance charges. (I think I finally stumbled upon this concept a couple months ago.)

Let’s say you have monthly minimum payments of $800. If you look at how much interest you’re paying, you may discover that $600 of the total monthly minimum is going to interest!

By reducing finance charges, you free up more money to pay down principal, which accelerates your debt reduction.

Like Tricia, I’ve gotten reduced interest rates on a few credit cards. And I, too, recently got a Prosper loan to consolidate two loan balances. By doing this, I literally slashed my interest rate in half. (I’m now paying 11% instead of 22%.)

Strategy #3: Throw extra money at debt.

Perhaps this seems like a no-brainer.

But think about the “economic stimulus check” most folks will get this May/June. No doubt, some people will use it to pay off debt. But many people will spend it on a new widget or doodad.

A close friend and I were talking, and we speculated the number one purchase this economic stimulus money will be used for is… a new flat-screen TV.

Not debt reduction.

Tricia writes that 100% of their 2005 tax return was used to reduce debt in 2006. And while it’s easy to admire that kind of commitment, it’s hard to put it into practice.

Currently, I’m also using extra money to pay down debt. Where does it come from?

Since I’m self-employed, I have periods of time when I’m cash-rich and other when I’m cash-poor. So whenever I get paid a project fee, I take whatever portion I can to pay down debt.

I’m actively pursuing different ways to grow my business so I’ll have more cash to throw at my debt. Not to mention, I recently received an unexpected inheritance, which I’m using to reduce debt as well.

So tell me: what B.A.D. ways to reduce debt have you personally used? Leave a comment below.

Thanks Ryan for the guest post!

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