Money 911: Can credit card debt be inherited?

Q: Are there any programs to help people who have good credit and are not behind in paying their bills? We are trying to sell our home in Florida because my husband took a job in Atlanta. Even if we can find someone to buy our house, we will have to take a check to closing. We don't have money in the bank to pay off the negative equity. What can we do? Do we get an unsecured loan? would we be able to get an unsecured loan without the house as collateral? Do we take a loan against our 401(k)? What can a responsible person who doesn't want to ruin their credit do to get out of this housing mess? — Ashley and Jeff, Jacksonville, Fla.

Sharon Epperson: Ashley, You did what many Americans have done over the past few years. You extended yourself to buy a great house in a great neighborhood during the housing boom. Now you've left that dream behind and you're paying the consequences. You've kept up with your bills and have good credit, but now that track record is in jeopardy. You extended yourself again when you used a home equity line to make some home improvements. Yes those improvements should add to the value of the home, how much did you spend? It often takes more than two years to recover the expense of those kinds of improvements. And you're right, the government's homeownership programs don't really help folks like you who have been paying bills on time. So what do you do now?

1. Talk to your husband's employer. He should speak to his new boss about relocation assistance. This is something that should have been worked out before he took the job, but you still may be able to get some help in selling your house. Some compensation consultants say that assistance could be $5,000 to $10,000 for a mid-level professional.
2. Rent the old Florida home. If you have renters for your Florida home, you should probably continue to rent for a few months and see if housing prices stabilize. Unfortunately, you may not be able to get the rent to cover the entire housing cost, but try to make it enough so that you break even.
3. Rent, don't buy in Atlanta. Continue to rent in Atlanta until you are able to sell your Florida home. You'll likely have to be in a smaller place than you had before, but you want to keep your housing costs down as much as possible.
4. Last resort, talk to your lender about a short sale, where the lender accepts less than the loan's outstanding balance. But that will be a huge blemish on your credit history and will impact your ability to get a new loan for a house in Atlanta. So before you do this, talk to a credit counselor or certified financial planner.

I don't think you'll get an unsecured loan in this environment and don't advise taking 401(k) loan. It might be the only asset that's protected from creditors if your situation worsens.

Q: Two of my husband's credit card companies raised their rates dramatically. They will let him "opt out" of the raised rates by closing the accounts and paying off the balances at the previous rate. Will this adversely affect his credit rating? — Laura, Westbrook, Maine

David Bach: The short answer to your question is yes, closing the accounts will have a negative effect on your credit score.

So many of us are finding ourselves in the same exact situation right now, where credit card companies are taking advantage of consumers by jacking up interest rates "at any time, for any reason."

If you opt out by paying off your balances and closing the accounts, you're increasing what's called your "credit utilization ratio," which compares your total credit used against your total credit available. And when your credit utilization ratio goes up — which it will — your credit score goes down. My recommendation is you pay the card off in full and keep the card open, don't opt out. Then the higher interest rate won't matter, and if you continue to use the card the rate issue won't affect you.

If you can't pay the bill off in full, I still would not opt out, but rather work hard and fast to pay the bill down as fast as you can by adding extra each month to the minimum payment until the bill is paid off. Don't use the card anymore and work to find a better card with a lower rate.

Go to bankrate.com, lowermybills.com or lowcards.com to compare rates and find a card that works for you.

Q: I am married, mother of two and getting ready to go back to school to get a teaching license. At some point in the very near I will have to do some student teaching (which of course is unpaid) so I would like to stick to a budget with this new income adjustment. Do you have a format, tool, software, etc. that you would recommend to use?  — Holly, Parker City, Ind.

Jean Chatzky: One tactic I like to use to prepare for the loss of an income is to start practicing by banking one income while you have two. That way, when you start student teaching, you'll have a hefty amount in the bank to fall back on if you need it.

Then, my recommendation for budgeting always starts with pen and paper. You need to write every penny you spend down so you know where your money is going. Once you have a snapshot — either over a few weeks or a month — you can figure out what you can eliminate to adjust to your new income level. That may mean small cutbacks like cooking Saturday night dinners at home instead of going out, or it may mean big like dumping the cable during your student teaching. But you won't know until you have it all laid out in front of you.

In terms of software, a whole crop of new online budgeting tools have popped up over the last several years, and many of them are very good. They aggregate all of your account information — bank and credit cards — so you can see what you're spending where. You can also set budgets for certain areas, like groceries and entertainment, and most sites will notify you if you're close to going over. Two sites that I'm familiar with are Wesebe.com and Geezeo.com.

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