HLN Money Expert Clark Howard.

Help Me Clark!
From HLN's Money Expert Clark Howard

JAMES:
Two years ago, my mom charged about $11,000 dollars to my credit card and now they're coming after me. I am 22 and just graduated from college, and many employers look at my credit as a negative towards hiring me. The debt collectors call me and I have tried offering a settlement and they will not accept it even after I have explained the situation to them. What should I do? I cannot afford to pay them anything.

CLARK:
Well what a sad thing that your mom betrayed your trust and charged to your credit card. I get this question a lot where a family member or a friend abuses your credit card and you're left holding the bag.

Normally you would have to fill out an affidavit where you swear that you did not make the charges and you say that they were made by your mom and if you do that at the time that the charges have taken place or the time you knew the charges had taken place you normally are not liable for those charges.

You've let this go on and it doesn't sound at all like you want to put your mom in to legal jeopardy so it's going to be up to you to try to make a deal. You have two issues. One is the affect on your credit which for seven years the unpaid debt harms you on your credit report. If you reach a deal and the debt no longer exists on your report the harm to you lessens enormously and with time essentially disappears so the most important thing is to try to cut a deal. And the key number for you is you're two years out from this, once you hit statute of limitations in your state, which means the amount of time that somebody could sue you against a debt you have far more negotiating power to negotiate a settlement for a much smaller amount than the 11,000.

Likely once you go outside of statute of limitations you should be able to settle the debt for 1,000 or so dollars.

If you go and do a Google or Bing search and put in your state and put statute of limitations on debt as the search, you'll see. And that varies by state from either 3 or 4 years on a credit card debt. Some states it will be longer than that.

HELP ME CLARK!

TERRI:

I recently discovered my stepson has never filed income taxes. He just turned 22 and worked when he was in high school. I'm trying to help him straighten this out, but I don't know where to start. He made approximately $45,000 in 2008 and I don't have all the W2s for the previous years. Any advice?

CLARK:

HLN's Money Expert Clark Howard

In recent years where he's been making a substantial amount of money, he needs to file a return and the IRS will actually help you with that.

I know that sounds crazy, but if you contact the IRS at the taxpayer advocate office and you tell them, "Hey, I didn't file I know I should have, I need your help in filing returns for the last three years,” you file returns, and if you don't owe money because of the amount that was already withheld then there's no harm, no foul.

If you owe money, you will pay the taxes you owe plus interest and penalties. But the amount you'll be charged if you come forward is more favorable than if they find you later.

For earlier years while he was a teenager, odds are that he didn't owe any money so there's no real problem not having filed, if there were years that there was no tax liability.

Money Coach with HLN’s Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!
We’re looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard.

This week’s question comes from Tasha Alexander of Columbus, Georgia.

HLN Money Expert Clark Howard.

Clark Behind The Headlines
From HLN's Money Expert Clark Howard

“Short sale” is a term that no one had heard of 18 months ago. And, even today, it’s very misunderstood.

A short sale is where I own a home, and  I owe more on it than what it’s worth.  I need to get out and I don’t want to be foreclosed on.  So I ask my lender if I can market the house as a short sale, meaning that the price of the home is marked to market. The bank then takes a hit on the loss between what the mortgage is and what the market is today.

Now, are banks running charities?  No way!  The reason why a bank would do a short sale is that it’s much cheaper for them than a foreclosure.  The costs of foreclosures are much greater for the bank because, ultimately, they get less than what they’d get on a short sale, and they end up with enormous costs going through the foreclosure process and the aftermath.  So it sounds like it would be a logical thing to do in a marketplace where people who bought at peak with 100% financing are now so far upside down.

What has changed is the federal government is now subsidizing the banks to allow short sales to go through. The feds are eating some of the losses as an incentive to try to get the banks to do something that’s better for them anyway from a business stand point, which is to cut a deal with people short of foreclosure.  For the seller, it’s a deal because you get out with the shirt still on your back and you didn’t suffer foreclosure.  Your credit score does suffer in a short sale but not as much as it would with a foreclosure.  Quite often, foreclosures lead to bankruptcies, which devastate your credit standing.

So the short sale thing is starting to flip.  It doesn’t mean that every lender has it together.  The biggest lenders have set up the equivalent of war rooms with specialists whose job it is to process these.  Some of the big lenders now take short sale request electronically rather than give that phrase we kept hearing: “Oh, the paperwork is lost”.  So as someone who has long derided short sales, I want to tell you they’re back in the game if you’re looking for a distressed piece of real estate.

HLN Money Expert Clark Howard.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

KIM:
I have student loans, a Stafford subsidized and Stafford unsubsidized, that were consolidated to lock in a low interest rate. I have heard that after either working for the government or in law enforcement for 10 years you can ask to have your loans forgiven. I work for my state's government and am considered law enforcement. It will be 10 years in November. My loans are current. In fact I pay more than the minimum payment very month. Can I ask for my student loans to be forgiven if they have been consolidated?

CLARK:
Okay, here's the story. Under the income based repayment plan you are eligible for forgiveness of the remainder of your student loans after 10 years of payments if you're working for a non-profit or for government, or 25 years if you work in the traditional private sector. But you have to go in to the income based repayment plan first for the clock to start ticking. Believe it or not the years you've already been paying don't count toward the 10 years so get yourself converted to income based repayment and get that clock running.

HLN Money Expert Clark Howard.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

NATASHA:
My husband is 50 years old and a smoker. We are looking to increase our life insurance to $300,000 plus. Should we get term life insurance or whole life insurance?

CLARK:
Term life insurance is almost always my choice for someone, although there can be rare circumstances where another type of insurance would be the right one.

With term insurance you can buy level term that will cover pretty much the rest of a working lifetime, a 15-20 year term is probably appropriate. As a smoker, the rates will be surcharged and you'll pay quite a bit more than you would otherwise, although some companies discriminate against smokers more than others which is why it's really important to shop multiple companies.

Level term is a very simple product. You pay the same premium through the 15 or 20 years and all it does is pay if you die.

Money Coach with HLN’s Money Expert Clark Howard

Having trouble managing money? Do your money goals seem impossible? Clark Howard wants to help you!

We’re looking for individuals or families who are willing to be profiled on HLN. Those chosen will get money advice and information from Clark Howard. This week’s question comes from William Hickey of Arlington, Virginia.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

RONALD:

I had some floors put down in my home for about $7,000. From the beginning, I have had nothing but problems. They sent out a "floor doctor" at their expense, who stated that the floors were installed incorrectly. They then offered to sell me a new floor at cost and the installer would install it for "free." I consulted an attorney who wants $7,500 to begin any action. I wrote my senator who sent it to my state representative who won't get involved. Where do I turn now?

CLARK:

You have to turn to yourself. In a situation like that where you feel that they have failed to deliver, you have a report from an expert that says they failed to deliver, that is made to order for you being your own lawyer, or the equivalent of a lawyer, representing yourself in small claims court.

Now, the limits on what you can do in small claims court vary from state to state. There's a great guide at nolo.com that will walk you through what the rules and requirements and limits are in your state.

Clark Behind The Headlines
From HLN's Money Expert Clark Howard

The best service in the world is yourself. I have believed that for so long.

I remember when the first self-service gas pumps started appearing. For younger people, there's no concept of when you didn't pump your own gas. Oregon and New Jersey are the last holdouts in the United States on not allowing you to pump your own gas. It costs more as a result in those states. And if that’s what they want to do, fine. But it’s so much easier to pump your own gas. And I think about how many things are like that.

If you go into a fast food restaurant, which I'm very familiar with, I'm always annoyed if I can’t make my own soft drink. I want to be able to do my own perfect mix. And when they make it behind the counter, it’s not going to be the way I want it. Now, Coca Cola is testing a new kiosk that is essentially a touch-screen computer that allows you to make your own custom beverage.

The first time people use this type of thing, it can be completely befuddling and overwhelming. Go back a few years when airlines started putting in check-in kiosks, and think about how people were confused by them. And now, more and more people are using them.

Rental car company Hertz installed a check-in kiosk two years ago at the airport in Orlando, Florida, and now 80% of its customers there use it, instead of checking in at the counter with a person. Hotels are starting to roll it in now. And restaurants are the final frontier.

In the next few years, even at mid-priced restaurants, you will most likely place your order and pay for your meal at a kiosk. At mid-prices and below, it’s hard to track and retain servers because there’s just not enough tip income. Or you have a server who has to cover too many tables. And it will be so much easier to have a kiosk where people can place and pay for their orders, and the server just brings you your food and beverage.

I know it’s hard for people that didn’t grow up in the era of the Internet, kiosks and all the rest. But it’s a part of the future. I know there are people who will say, "Wait a minute, what ever happened to service?" Well, isn't it a service if someone puts in a machine that allows you to do something better and more quickly? I sure think so.

HELP ME CLARK!
From HLN's Money Expert Clark Howard

KRIS:

I've fallen into severe debt and am trying to cash out my 401k to satisfy my debts. When I told my investment company I wanted to do so, they told me that since I'm still repaying a loan from my 401k, I can't cash it out. When I asked if I could use the available funds to satisfy the existing loan and have the remainder cashed out and sent to me, they balked. Is there any recourse I have and what steps do I need to take in order to have the funds ASAP?

CLARK:

Well first, everybody's telling you can't do this and I'm telling you not to do it, even if they say you can.

You don't solve a problem by wiping out your retirement funds to deal with the debt.

The real thing that eats you up with that is the tax burden.

A typical person who does a withdrawal from a 401k pays, with taxes and penalties, 40% of that amount of money in taxes.

So if you take out $10,000 you actually only have $6,000 that you can use for debt, you're going to have to have that other $4,000 to pay tax next April.

Instead, attack debt one step at a time.

If you need help negotiating, you need help working out a plan, go to your NFCC affiliate, check them out at nfcc.org, that's the National Foundation for Credit Counseling.