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When To Close A Credit Card

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Keep the number of credit cards you have to a minimum.
Keep the number of credit cards you have to a minimum.
If you are like most Americans, you are besieged with offers to try a new credit card, often offering a lower interest rate or more rewards than the one you are currently using. How to decide, short of accumulating a fistful?

Closing out one of your current cards to accommodate another may make good economic sense, but it also can have a downside. Closing out a card you have had for a long time may cause a temporary dip in your credit rating. Some card holders opt to hold onto their old, established cards rather than swap for a lower-interest option because of that reason.

However, experts at Experian, one of the three big credit bureaus, say that excessive concern about the effect on your credit rating should not be the exclusive reason for not changing cards. It is one of the factors you should consider, but there are others.

Credit bureaus look at a range of factors when they create a score for you, said Experian’s Rod Griffin.

Credit utilization is one of the factors. That means how much of your available credit you are actually using. If you have four cards, each with a limit of $5,000, you have total credit available of $20,000. But if you have two cards that are about maxed out and no balances on two of the cards, you are only utilizing about 50 percent of your capacity. That’s what the credit bureau looks at. Cancelling one of the cards would have a small impact on your overall score. And if you continue a long-running record of timely payments, it is likely to recoup quickly.

Even so, if you are planning to apply for a home or auto loan or any other in which your credit score will be relevant, wait until that transaction is complete before dropping a card, Griffin advises. In general, it takes three to six months for your rating to be affected by the cancellation of a card.

If you are concerned that cancelling a card will immediately eliminate its credit history, don’t be, he says. The credit bureau will include that card’s history in its considerations of your rating for at least 10 years if there is no negative background.

Your next credit report will note that a card was closed at your request, which is not likely to be a red flag for a potential lender.

If you want to evaluate your credit cards and determine if they are all necessary, the questions you should ask include whether or not a particular card is financially beneficial to you. Consider the interest rate, fees, incentives and rewards and make comparisons to determine if you want to eliminate one or more of the cards. Ideally, you will retain only cards that you use on a monthly basis, paying them off in a timely manner.

Occasional pruning is a good idea, particularly if you are carrying a lot of cards that have low limits and relatively high interest. For instance, that card you signed up for in college for the sake of the free T-shirt. As your credit history matures, you have more leeway for low-interest cards that offer more incentives.

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    Reverse Mortgages Not All Positive

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    Is a reverse mortgage worth it in the long run?
    Is a reverse mortgage worth it in the long run?
    Older Americans who watch television are besieged by ads that promise a reverse mortgage is the answer to all their financial problems. Often, the ads are touted by such celebrities as actor Henry Winkler, whose old Fonzi character from Happy Days still resonates with the older crowd. Or the messages are given the aura of respectability when they come from someone like Fred Thompson, a former U.S senator.

    Don’t be too quick to accept all that the ads lead you to believe, the Consumer Financial Protection Bureau warns. They may not be telling the whole story.

    The federal agency conducted a study that showed some older homeowners are increasingly complaining that they were given false impressions about reverse mortgages.

    Such mortgages are offered to people over 62, some of whom believe they are a government-sponsored benefit that will ensure that they can stay in their home until death. Not so, says the CFPB. They are loans that must be repaid – with interest. In some instances, they result in the loss of the home. Many seniors, long retired and on a fixed income, can’t afford such a financial arrangement.

    A scary 10 percent of those who take out a reverse mortgage default on the loan, about twice the rate of defaults on conventional mortgages.

    The idea of receiving cash or a line of credit that taps the equity in the home seems attractive to many cash-strapped seniors. They may see the reverse mortgage as a way to pay off debt or to remodel their older homes. They have no loan payments on a monthly basis. But over time, the loan balance increases and it comes due when the borrower dies, moves or sells the home or if it defaults on other obligations such as insurance or taxes. That may come as an unpleasant surprise to survivors.

    Most reverse mortgages are insured by the Federal Housing Administration, but they are not a risk-free benefit, something that many of the borrowers do not understand and which the ads don’t warn them of, the CFPB study showed. Too much “fine print” confuses many of the elderly and leaves them vulnerable, the agency warned. Often, they are oblivious to the fact that the loans carry interest, that there are repayment terms and other crucial requirements that may well rear up and bite those who sign on the dotted line without understanding all the relevant factors.

    As part of its review of reverse mortgage practices, the CFPB held interviews with some 60 homeowners over age 62 during focus group meetings or in individual sessions.

    Spokespersons for the National Reverse Mortgage Lenders Association, on the contrary, say that they have a code of ethics that includes a requirement for accurate advertising. The association, which presents the companies that supply reverse mortgages, says it is committed to educating consumers about the pros and cons of their product and trains lenders to be sensitive to client needs.

    Bottom line: no matter what “the Fonz” says, it is wise to make a thorough study of how reverse mortgages work and match the information very carefully with your particular financial situation before acting. It may be the lifesaver you are looking for, but it may be risky enough that you’ll want to look at other options.

    Father’s Day Spending To Reach $12.7 Billion

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    fathers-dayDads. They’re worth every cent of the $12.7 billion that their admirers are expected to spend for Father’s Day gifts this year. Admittedly not the “spendingest” holiday of the year, that figure still is calculated to bring a smile to the faces of those who peddle electronic “gadgets,” sports goods, tools and, of course, ties, etc., etc.

    The 2015 Father’s Day Spending Survey conducted by Prosper Insights & Analytics for the National Retail Foundation found that some 75.4 percent of Americans planned to make some gesture for the annual event. The boost in retail sales is being welcomed by retailers who had a lackluster first half of the year, the survey reported. The total is similar to last year’s.

    Coming in the wake of Mother’s Day and college/high school graduations and given the masculine resistance in some quarters to any special notice, Father’s Day seems to get short shrift, but the output on gifts for the current holiday is substantial.

    Four in ten of the gift-givers will opt for wearing apparel, spending some $1.7 billion for shirts, ties, leisure wear and other duds. Almost half, some 43.3 percent, will give Dad tickets to a sporting event or a special meal out, adding $2.6 billion to the total.

    Tablets and smartphones will fill the bill for about 20 percent of the shoppers, increasing the total by $1.6 billion.

    Four in ten will throw up their hands and settle on a gift card, letting Dad make his own choice. They will add some $777 million to the pie. Home improvement or gardening supplies will meet the needs of many of the country’s fathers and contribute another $710 million. Sporting goods and leisure items ($665 million) and books/CDs ($538 million) will round out the most frequently purchased gifts.

    The largest group of Father’s Day shoppers (34 percent) will buy their items in a department store, while the rest will divide their dollars among online outlets, discount stores and small local businesses.

    A growing number of the shoppers will research and purchase their gifts via smartphones and tablets, saving their shoe leather for other things.

    Though a slight majority – 51.8 percent – will be purchasing for a father or stepfather, husbands will receive 27.6 percent of the gifts and sons 8.9 percent.

    The figures are based on a survey of 6,087 consumers who were polled from May 5 to 12. The margin for error is plus or minus 1.2 percentage points.

    Avoid Retirement Glitches

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    retirement-plansWhen it comes to retirement, there are as many “don’ts”as there are “do’s.” Avoiding common mistakes in your retirement planning could help ease you into a happy situation.

    Here are suggestions that will help you skirt the pitfalls:

    When you consider retirement, don’t be in a hurry to start collecting Social Security. If you request that the monthly benefit start at age 62, the amount will be 76 percent less than if you wait until you are 70. Some people can’t afford to do that, but if you start planning well ahead of your expected retirement, you may be able to delay the initiation of Social Security payments at least for awhile. To determine how much benefit you can expect, visit aarp.org/social security benefits.

    Don’t just quit working precipitously. Find a part-time job that you can enjoy and let it help fund your retirement years. It will help in the transition from the daily grind to more leisure and the less you have to dip into your savings, the longer they will last.

    Don’t just expect that your lifespan will end shortly after you retire. More than half of Americans underestimate how long they will live. One way to ensure financial security if you live longer than you expect is to invest in a deferred-income annuity. You pay an insurance company a lump sum and then when you need it, you can draw an income from it. You can transfer up to $125,000 from an IRA or 401(k) to purchase an annuity and the amount is not included in mandatory withdrawals after you reach age 70.

    It is likely your medical costs will increase with aging. Even when Medicare kicks in at age 65, there will be deductibles and other costs. Many of the elderly purchase a supplemental health care policy to cover the charges not covered by Medicare. To learn the expected costs for health care, visit aarp.org/hccc.

    As retirement looms, be careful about making major financial expenditures. Think twice before spending large sums for your children’s education needs or getting them started in life. Large purchases such as a second home or expensive automobiles, etc. can make a large dent in retirement income.

    Be aware that Medicare does not pay for long-term care. You might want to consider long-term care insurance if you don’t have family able to accommodate you in case you become ill.

    Be wary of scams that target the elderly. After retirement, you don’t have the flexibility in your finances to recoup from a costly scam. Seek advice if you have questions about a proposal someone makes to you. Don’t act quickly. Ask credit reporting companies to put a freeze on your reports so unscrupulous thieves can’t open lines of credit in your name. Check your financial records frequently to spot any unauthorized transactions.

    Work at simplifying your finances. Try to consolidate retirement accounts. Be careful not to multiply fees while you consolidate. Some financial firms lower fees for larger accounts.

    Be certain that you have accounted for all of your possible retirement pensions. Start with the human relations department of the company from which you retired. If the company no longer exists, check with the Pension Guaranty Corp., which insures private pensions. That agency currently is holding some $280 million in unclaimed pensions owed to almost 40,000 individuals. Search for unclaimed pensions at pbgc.gov. Or contact the federal Employee Benefits Security Administration.

    Pay attention to Medicare deadlines. A seven-month period, beginning three months before you turn 65, is allowed for you to sign on to the federal program. Late penalties and delayed coverage can result from failure to meet that deadline. Unless you have post-retirement coverage from your employer, you could find yourself with no health care coverage.

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      Adult Children Living At Home

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      adult-childrenPeople who expected to be empty-nesters when the last child became an adult are finding their children flocking back home. The younger generation is finding that living on their own costs more than they had anticipated. In 2012, surveys by the Pew Research Center showed that 36 percent of those 18 to 31 were living in their parents’ homes.

      Parents seem to be willing. A poll of 2,000 adults indicated that 85 percent of them said they would welcome adult children back home if the situation called for it.

      Given the current realities, financial experts are advising the parents not to move too quickly to downsize after the youngest child is in college.

      When it happens, the trick is to be up front and firm about what you expect the back-home child to contribute to the new arrangement. Discuss things such as rent, help with food and/or utilities, cellphone charges, etc. etc. Be clear on how long you expect the arrangement to last. Many children grow up having little understanding of their parents’ financial realities. Now’s the time to share that information.

      Don’t make the mistake of putting the child’s needs ahead of your own. That works when children are small, not so well when they are grown and have resources of their own. Their personal needs are their responsibility.

      Of course, the multi-generational thing can work in both directions. It also is becoming more common for elderly individuals to move in with middle-age children. Again, careful assessment is key to a happy situation. Look at options and determine if having a parent or parents in your home is preferable to opting for senior or nursing home care. These services run the gamut to accommodate the ability of the elderly person to care for himself or herself.

      Assisted living and health care facilities can be pricey. Look at options. If the parents own a home, it may be wise to sell it to finance living arrangements for their older years. Social Security and/or pensions should be drawn on to help with the costs. If the resources fall short of paid care expenses, you may have no choice but to open your home to elderly family members.

      Don’t move too quickly. Look realistically at how having an older person in your home could affect your family’s usual activities. And plan accordingly so the older person can be made a contributing and happy member of the household. If there are siblings, the responsibility for aging parents should be shared.