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By LIZ PULLIAM WESTON
Illness Doesn't Excuse Credit Card Spree
Dear Liz: I was working as an attorney in the fall of 2002 when I was diagnosed with HIV. After the initial shock wore off, I quit my job and went on a wild spending spree. I traveled, bought cars, gave expensive gifts to family members and secured a grave plot, among other purchases. I sold my house and most of my other possessions. When that money ran out, I got started on my credit cards. Now, almost six years later, I am still completely healthy, still unemployed and have $75,000 in credit card debt. I was miserable as an attorney and would prefer not to go back to that type of work. However, with the credit card debt and the $100,000 in student loans I still owe, I feel trapped because I will have to earn a high salary to pay my way out of this mess. Would Chapter 7 be a good option for me if I want to be able to take a lower-paying but potentially more personally rewarding job and still make ends meet?Answer: Your situation might have been somewhat more understandable if you'd been diagnosed 10 years earlier, when an HIV diagnosis was thought to be a death sentence rather than the treatable chronic disease it's typically considered today.
Even then, understanding has its limits, and you exhausted mine the minute you pulled out the credit cards. If you spent that money not intending to pay it back, you committed fraud. And fraud has a way of complicating bankruptcy filings. You also can't ditch the student loan debt in Bankruptcy Court.
The right thing to do is to pay back what you owe if you are able to do so. There's certainly more than one way to practice law, and a career counselor could help you match your skills, education and preferences to the right job. Explore those options before making an appointment with a bankruptcy attorney.
Dear Liz: I was very upset with your saying in a recent column that a couple in their 50s should encourage their child to look at lower-cost schools. You know that many top private schools now have eliminated loans in their financial aid packages for families. Therefore, many top schools now actually cost middle- and lower-income people less than a state school. If students work hard to get great grades, they may be able to go to a top school – at least they can try. You need to help get this word out, not foster what most people believe, which is that they have to pick an inexpensive school.
Answer: It's true that some private schools with big endowments recently have reduced or even eliminated loans in their financial aid packages, which is a welcome change. At
But you overlook two things. One is that it's extremely hard to get into these top-flight schools, even with excellent grades; there are simply too many qualified candidates and too few spots.
The second is that the couple in question may have too high an income to qualify for a reduction in their expected family contribution. Although they suffered financial setbacks and wiped out their savings, they did say that they had "some good high-earning years left" – and that could make qualifying for any financial aid tough.
The big problem with higher education isn't that too many people settle for cheaper schools. It's that many people think they (or their children) should be able to attend any school they want, regardless of the cost and the effect on their financial futures.
Dear Liz: I recently came into some money. Is it better to pay off my credit cards in full or take a few months to do so? I've heard if I pay them off all at once, it could hurt my score.
Answer: That's nonsense. Paying off your credit cards will help your credit scores. What you don't want to do is turn around and run up big balances again. Use your cards lightly and pay the balances in full every month.
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© 2008, No More Red Inc. Liz Pulliam Weston is author of the new book “Easy Money: How to Simplify Your Finances and Get What You Want Out of Life.” She regrets that she cannot respond personally to inquiries, but questions for possible inclusion in her column may be sent to 3940 Laurel Canyon Blvd., #238, Studio City, CA 91604, or use the “Contact Liz” form at her website, www.lizweston.com.
