Money 911: Can credit card debt be inherited?

Q: Are debt settlement companies like Novadebt a good solution to credit card debt or are you better off trying to pay on your own? My high interest rate is killing me and makes it impossible to gain any headway on my balance. — Trent, Brooklyn, N.Y.

Jean Chatzky: I don't know about that particular company in particular, but in general, my position on debt settlement companies is that they're simply not necessary. If you have high credit card debt and high interest rates, you should check into a credit counselor through the National Foundation for Credit Counseling. They have a new program, called Call to Action, that works with the top ten creditors to help consumers enrolled in counseling pay off their debts in under 60 months. To make that math work, the creditors may need to reduce your interest rates.

If a counselor doesn't think it's possible for you to finish off your debt in that amount of time, he or she may suggest debt settlement. But you can contact creditors directly; you don't need a debt settlement company, which will charge you hundreds if not thousands of dollars in fees. Particularly now, in this climate, credit card companies are willing to work with you — but you have to pick up the phone and call the toll-free number on your bill. Ask to speak to either a supervisor, or someone in the settlement department if the creditor has one. Be ready to provide a clear, legit excuse for why you can't pay — you lost your job, a divorce, a medical emergency — and provide proof. And remember that when you make an offer, you should be ready to send in that amount in full immediately.

Q: I've tried to get I-bonds because I've heard so much about them from the Today show but I can't find any place to get them. Where do I get them and what do you suggest for 23-year-old college, married women who wants to start saving for her and her family? — Jina, Bonita Springs, Fla.

Sharon Epperson: You can buy inflation-adjusted Savings Bonds, or IBonds, directly from the government. But you'll get the same return with this investment as if you kept the money under your mattress. Earlier this month, the Treasury Department announced IBonds issued from May to October will get 0 percemt return in the first six months they're held. The drop in the Consumer Price Index, which the inflation part of the IBond is based on, has dropped so sharply in recent months that even the interest on older IBonds will be negatively effected.

Treasury Inflation Protected Securities, or TIPS, are a better bet to protect yourself against inflation. TIPS principal and interest payments are also adjusted for inflation as the Consumer Price Index rises and falls. They're are issued in 5, 10, 20 year terms, but the real — after inflation — return on TIPS is significantly higher than IBonds, historically around 2 percent (maybe closer to 1.5 percent now). You can buy TIPS through the Treasury department as well at www.treasurydirect.gov or through a mutual fund, such as Vanguard Inflation Protected Securities, or and exchange-traded fund, like iShares Barclays US Treasury Inflation Protected Securities. (Another tip: Hold TIPS in a tax-deferred account as interest on TIPS is taxed every year.)

Now for the big picture, the first step for you to start saving is just to do it. If you can, follow the "60 percent Solution" that I talk about in my book, THE BIG PAYOFF. Make sure no more than 60% of your gross household income goes to committed expenses (all taxes as well as housing, utilities, food, car loan, student loan, credit card debt etc.). Stash away at least 20 percent of your gross income toward retirement and long term savings and 10 percent for short-term savings for emergenies. The other 10 percent is your "fun money" — split evenly between you and your husband. But if you have overwhelming debt, use some of that "fun money" to pay it down. The key is developing a savings strategy now, which will make it easier to stick to a savings and spending plan, it in the future.

Q: I have an AES private student loan that has a variable interest rate (currently at 2.75 percent, it is usually 6.5 percent). I have been paying more than I need to on it even though I am unemployed. Is there a way that this loan can be rolled into a consolidated loan along with my other federal student loan (which is locked in at 1 percent)? — Marisa

David Bach: The simple answer here is no because you're looking to consolidate two completely different types of loans: a personal student loan and a federal student loan. And you can't mix the two.

The low interest rates and superior benefits offered on federal consolidation loans are not available to private education loans. You would need to look at other options for refinancing your private education loans.

Start by contacting your current lender to see what options they can offer you. AES services your loan, but look at your loan paperwork to see who your lender is and get in contact with them directly.

Since the interest rates on private student loans are based on your credit score, you may be able to get a lower, fixed interest rate through a private consolidation loan if your credit score has improved significantly since you first obtained the loan.

Ask your lender if they'll reduce the interest rate on your private loans rather than lose your loans to another lender. Again, these are private consolidation programs, so the interest rates are dictated by the lender, not the government.

Then shop around. There are a number of lenders that will consolidate private education loans. You can find a listing for them on many of the leading financial aid web sites like www.finaid.org but just be sure that when you're evaluating a private consolidation loan, you ask whether the interest rate is fixed or variable, whether there are any fees, and whether there are any prepayment penalties.

Q: Recently I checked the online statement for my credit card and noticed a finance change/interest around $9. I have never been late for a payment and have always paid my full balance. As a graduate student with loans I work very hard to manage my money and avoid additional debt. I had mistyped my last payment and owed $0.90 from the full balance, but had paid well over the minimum payment one week before my bill was even due. It doesn't seem right that I was penalized for paying almost the entire bill on time. Is this something that the credit card reform bill is hoping to address? For larger purchases that I may need to pay over time, how can I avoid these extra charges? — Erin, Columbus, Ohio

Jean Chatzky: Unfortunately, the best answer to this is simply to check and recheck. Paying your bills online is convenient and fast, but that also means you can whip through it and make little mistakes like these that can add up. Whenever you don't pay off your full balance, your credit card company is going to charge you interest on the amount leftover. It's unavoidable unless you have a 0 percent interest rate card — and even those offers only last for a few months — because that's a large part of how they make their money. $9 seems like a lot for a $.90 balance, but I'm guessing you charged something else between the time the bill went out and the charge was assessed.

So, you learned your lesson. It sounds like you've been a top-notch customer in the past, so I'd try to give your credit card company a call and see if they'll let you off the hook this time. Explain that you made a mistake. If that doesn't work, take the loss, and the lesson, and move on.

As far as the credit card reform bill, that is intended to curb things like wild interest rate hikes, deceptive card offers, and universal default, which is when a card issuer increases your interest rate based on a late payment you made on an unrelated bill or a change in your credit score. It will also make fees and penalties more reasonable.

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