Calculated risk helps boost interest rates

Dear R.C.: Your last word changed your question rather dramatically. There are lots of ways – corporate bonds, government bonds, etc. – to double or triple this percentage, but, as in any case, there are downsides. In the case of the bonds, if you had to sell them before maturity and interest rates rise, you are very likely to be penalized on your principal. Corporate bonds can go bad, but risk and reward are definitely handmaidens. I believe that with just a modicum of risk, you could do considerably better. Bear in mind that there’s a great deal of speculation and interest rates are going to rise, although not enough in the short term to make any difference in the answer I’m giving you.

Dear Bruce: My wife and I both work full-time, have four kids, and are very bad at managing money. We are considering bankruptcy and are discussing it with an attorney. We have a lot of unsecured debt, medical bills and back taxes owed. We barely avoided foreclosure with help from my mortgage company. We filed for Chapter 13 eight years ago. I don’t want to do it again, but I’m drowning in debt. I am confused about the many debt-negotiating Web sites out there that claim both bankruptcy and credit counseling are bad. I have a plan to get our finances in order, but right now we can’t make any of the minimum payments.

We’ve received final notices from our creditors threatening legal action. It seems like everywhere I turn they say they are the only answer. What do you suggest? – Tom, via e-mail

Dear Tom: Without specifics, it’s hard to say which way to go. You mentioned you’re both working full-time and that’s good. How you got yourself in so deep is another matter. You also mentioned back taxes. Some taxes can be discharged through bankruptcy; most cannot. I caution you against picking a company off of the Internet, as some are not legitimate. No matter what you make, it’s clear you are going to have to get a handle on budgeting. It’s not a lack of ambition – you are both holding full-time jobs – but rather a lack of discipline or management skills. Without developing these skills, you are bound to repeat this whole cycle. As to whether bankruptcy is the answer, if you are truly over your head in trouble it is probably the unhappy, but viable, solution.

Remember: You only get one bite at this apple. From this point forward, if you do declare Chapter 7, you won’t have that escape valve available to you for a good many years.

Dear Bruce: My wife and I invested $80,000 two years ago with a financial advisor. He charges us $1,000 a year. Our investment has grown to $106,000, and because it is over $100,000, he is now charging us 1 percent of the total assets. We are very pleased with the results, but I would like to know if this is a reasonable fee for his service? – Barry, via e-mail

Dear Barry: You haven’t made clear what this financial advisor does other than give you advice. Is he a broker? Does he get commissions on the purchases and sales that he makes on your behalf? Is it strictly a matter where he gets a percentage with no extra fees? Actually, his charge on a percentage basis has been reduced given the fact that the $1,000 was on $80,000 resulting in 1.3 percent. If your investment can continue to appreciate at the rate that you have described, it would seem to me that he is earning his money.

Dear Bruce: I know this is a problem most people are having. It seems like every credit card I or my son have continually raises their interest rates. Usually with a phone call to the company’s supervisor, I can get the rates lowered. Now I have two accounts that have had incredible interest increases and they are not backing down this time.

I’m sure what they are doing is legal, but what a rip-off. Even if they do change it back, they keep the excess interest of the previous month or two. Their basis is a change in your credit report. In my case, my credit is nearly impeccable. What I was told was they saw an increase in my debt so they raised my interest. Something needs to be done about these companies. – R.R., via e-mail

Dear R.R.: I can understand why you are upset, but you should understand that these people are in the business of loaning you money. When your debt increases substantially, the chances of you defaulting also increase. History can be used to prove this.

The companies are saying that you have changed your situation and, as a consequence, according to your contract, you will have to pay more. Your point that they oftentimes will reverse it is a valid observation, but it does require a positive action on your part. The long and the short of it is there is a contract between you and the lender. When you violate any of the rules, which most of us never read, they are entitled to an increase. There’s also another point here: When your debt increases, it should not only be a warning to them, but also to you.

Bruce Williams is a national radio talk show host and syndicated columnist.