Michelle’s Mailbag: Co-signing on student loans; bottom line on long-term care insurance

Michelle Singletary
Columnist April 22, 2013

This week I’m starting a new feature. I’ll be answering the questions I couldn’t get to during my weekly live chat. I’ll also be pulling from questions you send to me thorough e-mail (colorofmoney@washpost.com), Twitter (@SingletaryM) or Facebook (www.facebook.com/MichelleSingletary.com).

Kids’ “life happens” funds gone

Michelle Singletary writes the nationally syndicated personal finance column, “The Color of Money.” View Archive

I wrote in last week wondering if I should use my kids’ "life happens" savings accounts (for proms, summer camps and braces) to put a big dent in my $11,000 credit card debt that snuck up on me. It took me less than five minutes after your advice to empty the accounts and pay $7,000 on the debt. While I was sick to my stomach for about five minutes I then felt this huge relief because I was no longer facing a mountain, rather a small hill that I can tackle with some determination. I have come up with even more creative ways in the past week to pay off the rest in a hurry. Thank you, thank you, thank you. You are a gem!

I’ll take the compliment but I’ll also give one. It takes a lot of courage to let go of money to dig out of debt. Good for you!

Student

I’m trying to help my daughter consolidate some student loans, but having difficulty because of her credit rating. Can we consolidate in my name only and then transfer the loan in her name with me as a co-signer after her credit rating comes up?

Consolidation loans pull together all the loans into one payment. The greatest benefit to consolidation is having one loan to deal with rather than multiple loans. The one loan can then be stretched out longer, making monthly payments lower. But the longer the loan, the more interest your daughter will pay.

There’s also typically a small interest rate break if the borrower pays the loan on time for a certain amount of time. Consider this from www.finaid.org , a great Web site with a treasure of information about student loan borrowing: “Don’t be fooled if someone tries to suggest that this will save you money by getting you a lower interest rate. The interest rate may be lower than the highest of your interest rates, but it is also higher than the lowest of your interest rates. More importantly, the amount of interest you pay over the lifetime of the loan will be about the same.”

So, with that in mind, I would not recommend taking on the responsibility of the loans. Doesn’t matter if you could get one loan to pay off your daughter’s loans. Once you assume responsibility for the debt, it’s yours. What if she still can’t qualify later or pay on the loans? Then you are completely stuck with her debt.

One of my primary money rules is never to co-sign for anyone — yes, even your child. Here’s a horror story on Consumerist.com of what can happen when you co-sign for student loans.

I would just help her come up with a plan to aggressively pay off the student loans . If her loans are federal loans, there are a number of payment options that can help if she can’t afford the payments.  Here are two sites I want you to visit to explore your daughter’s options:

www.finaid.org/loans/consolidation.phtml

www.studentaid.ed.gov/repay-loans/consolidation

My girlfriend is broke. Should we move in together?

A health crisis caused my girlfriend to file for bankruptcy, so for that reason I don’t think it’s a great idea for us to get married just yet. However, I think we are great together and we would love to build a life together. I’ve been financially fortunate thus far. I’m of the mindset that nothing is promised and no one should be judged for circumstances they can’t control. If we were to move in together, I would most likely shoulder most of the finances. Is this a wise idea? My heart says one thing, but my head says the opposite. Help!

I’m not sure why her bankruptcy is a barrier to getting married. If she filed a Chapter 7, her unsecured debts were wiped away, so they are gone. If she filed a Chapter 13, she’s making an effort to pay the debts off over time. In either case, she’s moving forward with less a financial burden.

Nonetheless, listen to your head, not your heart. You are not her husband and therefore not responsible to help her financially heal. Stand back and see how she handles her financial recovery. Her actions will give you a great insight into what she may do with your joint finances should you later decide to marry.

Long-term care insurance

My office is really pushing hard for employees to purchase long-term care insurance, although the company doesn’t pay a dime for it. I assume there’s some kind of benefit to the company for pushing it, but I’m still interested in your opinion, generally, of this form of insurance.

Michelle: For many people, I would recommend getting long-term care insurance, which covers the cost of nursing homes, assisted-living facilities and in-home care. In most cases, the insurance will cover expenses for those who need assistance with such daily activities as eating, dressing and bathing, or who have a severe cognitive impairment such as Alzheimer’s disease. Depending on your age and the options you choose, yearly premiums vary from $1,000 to as much as $8,000.

But trust me, because I recently had to take care of a relative who needed long-term care, you need to be prepared for the cost of this type of care. Medicare doesn’t pay for custodial care, which involves helping someone with daily activities.

For more background, here are a few stories you should read:

Before You Insure For Long-Term Care

Long-Term Care Insurance: Vital Part Of A Healthy Retirement Plan

Readers may write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071 or singletarym@washpost.com. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to postbusiness.com .

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