Do you have a question about personal finance or need some advice from an expert?
The Akron Beacon Journal is partnering with credit counselors and financial planners to offer two free call-in advice programs this week.
Volunteers from Apprisen, formerly the Consumer Credit Counseling Service of Northeast Ohio (CCCS), and the Financial Planning Association of Northeast Ohio will answer readers’ calls.
The times are 6 to 8 p.m. Wednesday, Oct. 10, and 9 a.m. to noon Saturday, Oct. 13. The number is 330-996-3644.
Looking at hot topics on the subject, I gathered some experts to help create a Top 10 list of common financial myths. Thanks go to certified financial planners Darrell C. Claytor (a registered representative with Securities America Inc. in Twinsburg); Andrew J. Maimona (with Ameriprise Financial in Stow), and Jay Seaton (area president of Apprisen) and Victor Russell (regional operations manager for Apprisen).
We couldn’t settle on 10, so the number grew to 12:
• MYTH: Carrying a balance each month on your credit cards means you have good credit.
• FACT: Having no balance and showing a history of paying your balance builds good credit.
Seaton said this is one of the biggest misconceptions in the industry. People mistakenly think, “I don’t pay my credit card bills off because then they won’t know what kind of credit I have. The real fact is that it’s exactly the opposite. What you really want to do is pay everything off,” Seaton said.
• MYTH: Don’t pay taxes now, pay later.
• FACT: Deferring taxes for your retirement savings isn’t always smart, especially for younger people.
The focus when thinking about retirement is often “defer your taxes in a traditional 401(k) or IRA.” But Maimona said, “Paying taxes now when both income and tax rates are low relative to later in life can be a huge advantage.” Consider a Roth 401(k) option if offered and/or a Roth IRA. Both use after-tax dollars, but your money would grow tax-free and distributions in retirement would not be taxable, Maimona said.
• MYTH: It’s all about the monthly payment. The lower payment, the better the deal.
• FACT: Look at the total amount you will be borrowing, the annual percentage rate and the length of the contract.
A car dealer might offer a low monthly payment, but how long is the loan for? Are you paying for a longer time with more in interest costs in the end?
• MYTH: Costs will go down when you retire.
• FACT: Nobody knows what your costs will be at retirement.
The assumption when you think about retirement is that your costs will go down, Maimona said. But people who don’t work might spend more money than they did when working.
“Retirement is, in essence, six Saturdays a week,” he said.
Also, consider health-care costs. Often, you are no longer on a company health-care plan.
Another item: If you haven’t paid off your mortgage before you retire, those payments remain part of your budget, Russell said.
• MYTH: I must always be the provider, even when my kids are grown.
• FACT: While you always want to be there for your children, once they become adults, your financial responsibility to them should be negligible to small.
Some parents remain so emotionally attached to helping adult children with everything from mortgage payments to private school tuition for grandkids that it can present parents with a financial burden, Claytor said.
Said Maimona: “From an emotional and financial standpoint, you’re not as much the provider as you are the enabler.”
• MYTH: I have to have larger amounts of income before I can save. Small things can’t add up.
• FACT: Even with the lowest of interest rates, saving is a good financial habit to practice. Small dollars add up.
“I don’t care if you sock it into a zero percent interest savings account. The habit of putting away savings is the single most important thing you can do to build your investment portfolio,” Maimona said. “There’s too much focus on picking a five-star mutual fund as opposed to just saving on a consistent basis.”
• MYTH: If you are behind on your mortgage, move out as soon as possible.
• FACT: Don’t move out. Work with your lender. Just because you walk away from the house, you would still be obligated to the same things as if you were still in the home.
“Individuals are better off staying in the home until court action states they can’t be there any longer,” Russell said.
A program called Restoring Stability is an initiative by the Ohio Finance Agency to help families at risk of default or foreclosure. Call 888-464-4674 or go online to www.restoringstability.org.
• MYTH: If I’m not using a credit card, I should call and close that account.
• FACT: Closing the account is going to reduce your credit score. It is not a benefit.
Your credit score is based on many things, including your history of whether you have paid your balances on time, Russell said. Unless you are being charged an annual fee and aren’t using a card, keep it open.
Your credit score is also based on how much of the available credit to you is being used.
You shouldn’t call to lower your credit limit since that also messes with ratios, he said. It’s better to have a higher credit limit and borrow less of it, so your ratio is low.
• MYTH: Creditors will accept any payment and as long as I am paying them, they can’t take me to court.
• FACT: A collector or creditor at any time can take action against an individual if he or she is not abiding by the contract or payment schedule.
You can try to offer creditors a settlement, but they are not obligated to take it, Russell said.
• MYTH: Reviewing my credit will reduce my credit score.
• FACT: When you review your credit, it does not affect your score.
Pulling your credit report to review is considered a personal view. Your credit score is affected by inquiries from creditors when you are applying for new credit.
All consumers are entitled to one free credit report per year from each of the three credit reporting agencies. Go to www.annualcreditreport.com or call 877-322-8228.
• MYTH: If I use online banking, I don’t need to maintain a checkbook register.
• FACT: The balance shown on your online banking account or by calling your bank for your balance isn’t accurate. You need to account for all outstanding checks or debit card transactions that haven’t cleared.
Some institutions might be taking a day or two to post transactions online.
There are plenty of programs calls “apps” for people with smart phones or who are comfortable online. I use the free version of Clearcheckbook.com. The program syncs all devices, so when I enter a transaction on my iPhone, it shows up on my online account if I also want to access it from the Internet.
This doesn’t link directly to my bank account (I prefer that), but I can easily reconcile or check my actual accounts with my balances on my program.
• MYTH: I can pay my mortgage off early, but I don’t want to lose the tax benefit.
• FACT: If you can afford to pay off your mortgage, the money you save will far outweigh any tax benefit.
Claytor said he sees senior clients who have more than enough in their savings to pay off their mortgage and an emergency fund, but still won’t pay off their mortgage.
“Most of them already get a standard deduction, which is way more than the mortgage interest anyway,” Claytor said.
If you pay off your mortgage, that money can now be saved, which also is more than your tax benefit, he said.
• MYTH: Risk tolerance is simply the amount of risk you are willing to take.
• FACT: Balance taking in investments with factors such as your age, goals and individual situation.
“Too often, investors, especially those in retirement, take more risk than they should solely based on their willingness to take risk. The Las Vegas high roller that put 70 to 80 percent of his investments into stocks in his 40s probably should be more prudent in his 60s and 70s,” Maimona said.