Ways to Cope Financially During and After a Big Change
For Major Life Events
Here are suggestions for staying focused and avoiding costly decisions during changing times.
Getting married. Newlyweds should say "I do" to a plan to manage money together responsibly. Before getting married, a couple should understand each other's attitudes toward saving and spending money. And to avoid big surprises, they also should know about any major outstanding debts held by their partner. A husband and wife also should set short-term and long-term financial goals.
Buying your first home. For most people, buying a home will be the biggest expense of their life, starting with the initial purchase (including a "down payment" and fees paid to the lender and others) followed by years of monthly mortgage payments, real estate taxes, insurance and maintenance costs. But homeownership often can be a tremendous (perhaps your best) investment and a source of tax breaks as well as stability.
A new child. A new member of the family brings extra financial responsibilities. You can have one fewer thing to interrupt your sleep at night if you get the family finances in shape. Start by getting spending under control. Also build your savings accounts for short-term expenses (especially if a spouse will be leaving a job) and long-term needs (including college tuition costs). In addition, review and update your insurance coverage (life, health, disability) and wills (to designate who will raise the child and handle finances in case of your death).
The death of a family member. Contact the deceased person's attorney and other financial advisors. Before committing to any funeral costs, consult with other family members and the lawyer about any prior instructions or arrangements.
Locate important documents, such as insurance policies and the most recent will (an original, not a copy). Obtain multiple copies of the death certificate, which will be needed to apply for death benefits (such as through life insurance policies or Social Security) and to access bank and brokerage accounts.
If the family's medical insurance is through the deceased person's employer, consider options for continuing coverage.
Also, if your family has deposits of more than $100,000 at one bank, and one of the depositors or beneficiaries dies, you should review the coverage to determine whether funds exceed the insurance limits. The FDIC's rules allow a six-month grace period after a depositor's death to give survivors or estate planners a chance to restructure accounts. But if you fail to act within six months, you run the risk of, for example, joint accounts becoming part of the survivor's individual accounts, and that could put the funds over the $100,000 limit. Also note that the death of an owner or a beneficiary named in trust accounts can reduce the deposit insurance coverage.
For more guidance about deposit insurance coverage, go to the FDIC's Web site or contact us.
A medical emergency. First, carefully review all doctor and hospital bills and insurance claim payments/ denials, because mistakes do happen and uncorrected errors can be costly. If you are unable to resolve a billing dispute with a doctor, hospital or insurer, contact your state consumer protection office or insurance regulator for guidance.
Think twice before using credit cards to pay for large medical expenses, especially if you are already deep in debt or if it will take years to pay off the card balance, in which case the interest charges could add up significantly.
If you can't afford your medical or hospital charges, don't allow the debt to be turned over to a collection agency, which could damage your credit score. Instead, contact the service provider's billing department to try to negotiate a reduced bill or a payment plan with monthly payments. Also ask about assistance from a government program or charitable organization.
You can also consider turning to a credit counselor for guidance, but choose one carefully because some offer questionable or expensive services and others may be scams. For guidance on choosing a credit counselor, see a Web site from the Federal Trade Commission at www.ftc.gov/bcp/ conline/pubs/credit/fiscal.shtm.
If your medical bills are sufficiently high, you could qualify for a federal tax deduction, so be sure to save bills and cancelled checks or other receipts for your tax preparer.
A divorce. Consult legal counsel because uninformed decisions could cost you. Also consider discussing tax issues with an accountant or other advisor because certain decisions, such as who will claim children on his or her tax return, can affect each parent's tax liability. For more information, see IRS publication 504, "Tax Information for Divorced or Separated Individuals," online at www.irs.gov/pub/irs-pdf/p504.pdf.
You also may be able to reduce some legal fees by working with a mediator to resolve issues such as child custody.
Cancel joint credit cards to prevent the other spouse from running up large bills. Start or build your own credit history independent of the marriage, such as by opening a new credit card in your name only. Decide who is responsible for debts incurred during the marriage. If you change your last name, notify the major credit bureaus (www.equifax.com, www.experian.com and www.transunion.com).
It's also important that you update your will and the list of beneficiaries you designate on life insurance policies, retirement savings accounts and U.S. Savings Bonds, so your money and other assets will go to the right people upon your death.
A job loss. Try to keep spending under control so you can pay your bills using existing bank and brokerage accounts for, say, the next three to six months. If possible, avoid withdrawing or borrowing money from your retirement savings. If you anticipate problems paying debts, such as your mortgage or the minimum due on your credit card (see the next two sections), contact your creditors immediately and attempt to work out a payment plan.
One reason to keep loan and credit card payments current is so that you can maintain the best possible credit record. Prospective employers may review your credit reports when you apply for a new job.
Also, carefully review your employer's severance benefits, including the temporary continuation of your salary and health insurance, and try to negotiate a better deal.
You can't make your mortgage payment. Regardless of the cause, if you're having difficulty paying your mortgage, you should contact your loan servicer and find out if you qualify for modified loan terms or other options to help you keep your home instead of losing it to foreclosure.
You may also want to seek help from a trained homeownership counselor. To find a reputable counselor, contact the Homeowner's HOPE Hotline at the Homeownership Preservation Foundation (1-888-995-4673 or www.995hope.org) or the U.S. Department of Housing and Urban Development for a referral to a HUD-approved homeownership counseling agency (1-800-569-4287 or www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm).
You're having problems making credit card or other loan payments. No matter what triggers a personal financial crisis, the important thing is to be proactive and address the problem as soon as possible by contacting your lender to try to negotiate a long-term, workable solution.
And if you need help negotiating with a lender or otherwise getting a debt problem under control, consider asking an attorney, accountant or another trusted advisor to refer you to a reliable credit counselor who, at little or no cost, can help you develop a recovery plan. If you're facing problems on a loan secured by your home, including a home equity loan, see the previous bullet point about mortgage payments.
For more help or information when dealing with changing events: See the back page for suggestions about government resources you can contact regarding money matters. One is www.mymoney.gov, a financial education Web site from the federal government that includes a page of information about responding to life events. Another is 1-800-FEDINFO (1-800-333-4636), a toll-free hotline you can call if you're not sure which federal government agency can provide guidance with a problem.
Source: Spring 2008 FDIC Consumer News. This publication may be reprinted in whole or in part. Please credit FDIC Consumer News.