Newspaper article The Christian Science Monitor

Financial Q&A: Readers' Money Questions Answered

Newspaper article The Christian Science Monitor

Financial Q&A: Readers' Money Questions Answered

Article excerpt

Q: My daughter got a credit card while in college, ran it up, and then failed to pay. The bank wrote it off and sold the debt. She has now received an offer to settle the bill for much less from a company that is not the original creditor. A letter says it will alert the credit bureaus of the agreement and consider the debt settled. Should she repay this debt this way?

S.K.W., via e-mail

A: It won't do a huge amount of good to repay a charged-off account unless it's done at the time it's charged off, according to Bryan Beatty, a certified financial planner in Vienna, Va.

His reasoning is that once the account is written off, the reporting activity stops, and a clock begins to tick, and your score will begin to improve (slowly, but it does). If you were to then negotiate to pay it off after that charge off, that money-due clock will start ticking all over again.

By resurrecting a charged-off debt, you may relieve any guilt of having walked away from an account. But you have reopened a wound on your credit report, Mr. Beatty says, and it takes seven years for old information to disappear from a credit report.

Q: What are the differences between a traditional IRA and a Roth IRA?

P.C., via e-mail

A: Greg Fernandez, a certified financial planner in McLean, Va., explains the differences this way:

* A traditional IRA is a personal savings plan that offers tax benefits to encourage retirement savings. You can contribute up to $5,000 for tax year 2008 (and you may be able to contribute up to $5,000 on behalf of your spouse, if you're married). The annual amounts are indexed for inflation thereafter. If you're age 50 or older, you can contribute even more: $6,000 for 2008. Contributions are either deductible or nondeductible, depending on your income and whether you participate in an employer-sponsored retirement plan, such as a 401(k). Regardless of whether your contributions are deductible, earnings in a traditional IRA grow tax-deferred.

* A Roth IRA is another type of personal savings plan. …

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