Money Talk: If you are facing a layoff, conserve cash to survive
Dear Liz: I am looking at a layoff in the near future, possibly in two to four months. I have paid off all my credit card bills and use the cards sparingly now. I have several loans, including $25,000 left on my mortgage, plus car, truck and personal loans that total about $60,000. I have enough savings to pay them off. If I get laid off, is it better to pay off the loans or to use the savings to continue to pay them monthly?
Answer: When you’re facing a layoff, you should be conserving cash. That means paying the minimums on any debt and looking for other ways to trim expenses as much as possible. Selling one of your vehicles might also be in order.
Try to avoid tapping any retirement savings, since you’re likely to incur penalties and taxes if you do so, plus you’ll lose all future tax-deferred returns that the money could have earned. Dip into other savings sparingly.
You need to batten down the hatches because you may be without a job for months.
Given the environment, you should consider any job that will provide income and help you conserve your cash.
Dear Liz: I was deep in credit card debt but, because of a stroke of good fortune, came into enough money to completely pay off all my debts except my home. My house payment is now easy to make and my family is in the best financial shape we have ever been in. We even have several thousand dollars in the bank for emergencies.
After paying off the credit cards, we began receiving notices from many of the credit card companies canceling our cards or increasing the interest to astronomical rates. Each time I told my wife not to worry because it was just one less card to worry about monitoring, but this trend is continuing.
Recently we got a letter from a major retailer we have had an account with for over 25 years saying our credit debt was considered too risky and they were closing our account. I do not understand this because I do not have any credit card debt anymore. My question is, why am I being penalized for paying off my debt? Or is there something happening I do not know about?
Answer: Run, don’t walk, to your computer and point your browser to the free credit report site at www.annualcreditreport.com. (This is the only address to use; beware of fake and look-alike sites.)
You need to check your reports to see whether your good name has been hijacked by an identity thief. Although many issuers are closing inactive accounts and raising interest rates for broad swaths of their customers, most aren’t referring to nonexistent debt as the reason to do so.
If you discover credit accounts or collections that aren’t yours, you’ll need to file a police report and dispute the errors with the credit bureaus. The Identity Theft Resource Center at www.idtheftcenter.org has fact sheets and other helpful information to guide you through this process.
If you have been the victim of identity theft, you should at least put fraud alerts on your reports at the three credit bureaus and consider freezing your credit.
A fraud alert signals to lenders that they need to verify the identity of anyone trying to open an account in your name; a credit freeze would prevent the lender from accessing your credit reports, which should halt new credit accounts altogether unless you "unlock" the report in advance. Again, the Identity Theft Resource Center has more information.
If you don’t spot any obvious problems, it could be that the retailer was using outdated information. You can ask it to reconsider its decision, although most issuers are reluctant to reopen accounts once they’re closed.
Liz Pulliam Weston is the author of the book "Your Credit Score: Your Money and What’s at Stake." Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., No. 238, Studio City, CA 91604, or via the "Contact Liz" form at www.asklizweston.com.