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How to help a loved one in a financial bind

By Michelle Singletary
Thursday, June 17, 2010; A15

When someone you love is laid off, the news can feel debilitating to you, too.

I grieve every time I get such news because I know how tough it will be. So I'd like to address the question of how to help a family member or good friend who is unemployed, as well as a few other questions left over from one of my recent online discussions.

"One of my family members confessed she's in a major financial bind," a chat participant wrote. "She's looking for a job but has no other source of income. While she didn't explicitly ask for anything, I'm concerned about her ability to pay for bills in coming months. What's the best way to help? Do I give her money? Oh, and she only confided in me, but no one else so far. Should I reach out to our siblings even though she hasn't told them?"

Upon hearing such news, don't offer advice or money. Just be comforting. That's what I did with a relative, letting her know I was available to listen to her talk, vent or cry. Also be careful about sharing the news with others, even members of your family. That news is for her to deliver. Losing a job can be embarrassing, and many people don't immediately want everyone to know.

Finally, in extending an offer to help financially, tread lightly. Pride can prevent people from asking for assistance. Rather than make an open-ended statement such as, "Let me know if you need any money," ask if there is anything specific the person needs help with right now.

For example, if you see that someone is struggling to afford basic necessities, offer to pay a bill for a month or two. This will give the person some financial breathing room. And if you agree to pay something like a utility bill, be sure you pay the provider directly.

People often ask me whether they should pay off a debt quickly even if the interest rate is low. That's what this participant wondered: "My interest rate on my student loan is 1.85 percent for $64,000. I have no credit card debt and I am trying to build my savings in general and for a home. Since my interest rate is so low, do you still advocate that I pay that down sooner rather than [putting] the remainder of my income to savings and my other goals?"

If you're in a similar situation, do me a favor. Find someone who is unemployed with student loans or any loans. I'm serious. Ask that person if he is concerned about still making loan payments. It's highly likely that the person is stressed because he can't make payments even if the interest rate is low.

If your loan has a zero percent interest rate, it's still a weight that will feel much heavier in hard times. If you lose your job and then run through your savings, you can't pay a loan at zero percent or at 21 percent or at 1.85 percent. But you sure can weather a financial crisis a bit better the less debt you carry.

When times are good, get rid of debt as fast as you can. What I advocate is both saving and aggressively paying down your debt.

Here's the final question: "Our daughter will get free tuition if she goes to the university where my husband teaches, but we'd be foolish not to save just in case. If she doesn't need money for tuition or she gets a scholarship to another university, can we get that money back?"

The money you put into a state-sponsored 529 plan is always yours. A 529 plan is a tax-advantaged way to save for college, much like a 401(k) is designed for retirement. If you don't use the money you've invested for qualified higher-education expenses, the earnings are taxed and you get hit with a 10 percent penalty. If your child gets a scholarship, you can withdraw up to the amount of the award without incurring the 10 percent penalty. But you have to pay taxes on the earnings part of the withdrawal.

Even if tuition is covered, there are other expenses. The money can be used for room and board, books, supplies and other qualified higher-education expenses.

If you're saving in a 529 plan, it's important you know what education expenses are considered "qualified" and will stay tax-free. So go to http://www.irs.gov and read IRS Publication 970, "Tax Benefits for Education." Look for the section titled "Qualified Tuition Program."

Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.

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