Smart Money: Check out credit counseling agencies before picking one

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

Dear Bruce: My credit-card debt is becoming unmanageable. I make the minimum payments on seven cards, but each month it becomes harder. I have read, heard and seen advertising for nonprofit companies that promise to get my interest reduced or even eliminated and get me out of hock. Do these companies have any value? What's the nonprofit angle? R.T., Toledo, Ohio

Dear R.T.: If you have been following the news recently, you may have noted that one of the largest advertisers of the so-called nonprofits has agreed with the IRS to cease-and-desist. While there are legitimate nonprofit credit-counseling agencies, there are many charlatans in the business hiding behind nonprofit status, which the IRS is now questioning. Despite claims to the contrary, when you go to the credit grantors and want to change the rules (i.e.: get lower interest) they are not going to be happy with you and this may very well affect your credit rating. That having been said, since you are only able to make the minimum payments, you're effectively in hock for the rest of your life.

Consumer Credit Counseling Service is one of the nonprofits that has earned a reputation for integrity. It certainly wouldn't hurt to sit down and have a chat with them. If anybody asks for a lot of money upfront or large fees, take it on the duff and run.

You absolutely must control your spending, and, if at all possible, increase your income. If that means you and your wife (if you're married) getting part-time jobs, that's what must happen then. Good luck.

Dear Bruce: In a few months I will be required to take funds out of my 401(k). I don't need the money for everyday expenses. Can you suggest options to protect my assets? J.S. via e-mail

Dear J.S.: It is not really a question of protecting your assets, it's a question of trying not to pay the taxes. I don't know any way to avoid that. You don't have to take the money, you can have it transferred into another investment account with the same custodian that is currently managing your 401(k). On paper the amount is reduced by the actuarially dictated number and the money can then be reinvested in a traditional way but without the tax shelter. Look at it this way: A lot of people don't have the privilege of reaching this age where a withdrawal is required.

Dear Bruce: Some years ago, my wife and I bought many E Government Bonds with 30-year maturity dates. We were trying to be patriotic. We have been converting them to HH Bonds, which gives us another 20 years before having to cash them in. Now I see in the paper that the government is going to discontinue the HH Bonds in 2004, which means that we either keep the Es and not draw a cent of interest or cash them in and pay taxes on the interest they have earned. Any suggestions for an old World War II vet who survived the attack on Pearl Harbor? I think this is a lousy deal for the government to pull on us old vets or anybody else who bought E Bonds. J.D., via e-mail

Dear J.D.: I don't know that anyone is pulling a "lousy" deal. The government is just discontinuing one type of an investment, which they feel is not in the best interest of our government. You will be obliged to pay the taxes on the Es, which was part of the deal when you purchased them. Patriotism aside, the bonds were an investment and have earned you a return it's time to pay the piper. I wouldn't lose a lot of sleep over it.

As to how to invest the money, that is a matter of your tolerance for risk and the degree of sophistication that you have regarding investments. You can buy regular government Treasury instruments, which are paying reasonably competitive interests and these can always be sold on the secondary market.

Dear Bruce: My aunt has given me 25 Series E savings bonds, each valued at $25. She is 91 years old and wants me to have them. However, the bonds are in her name and my deceased uncle's name. How do I change the ownership, or what do I need to do to make them legally mine? A.O., Santa Maria, Calif.

Dear A.O.: Assuming that your aunt is fully capable of making financial decisions, the quickest way to handle this would be to have her cash in the bonds that she has, pay whatever taxes might be due, then make a gift of money to you to do with as you wish.

Trying to transfer these bonds into your name could become quite involved, given the fact that you first have to get her deceased husband's name off and yours on. I'm not sure what that's going to accomplish. If your aunt becomes unable to handle her affairs or dies, this could be far more complicated than it need be. Any banker should be able to handle the matter. This assumes that her late husband didn't leave a lot of unpaid bills behind or perhaps collected from Medicaid and the state is looking for settlement. Other things being equal, the easiest thing would be to see a banker, have the bonds cashed and then she can do with the money as she wishes.

Dear Bruce: We are each 57 years old. We have owned our home for three years and have a new mortgage at 5.75 percent. Aside from our mortgage, we owe very little money. We earn $85,000 a year, but we have not been too prudent in planning. We are now thinking that we really have to hustle before we retire. We have $27,000 in our 401(k) and the value of our home has appreciated in just three years about $80,000. Our goal is to remain where we are now in Nevada and retire to Oklahoma where property values are much lower. We're going to have about $1,800 a month in Social Security. We need another $700. What we are doing is paying down our mortgage at an additional $150 a month.

We know we should diversify our rather modest portfolio but with so many unethical financial planners out there we don't know which way to go. D.T., Henderson, Nev.

Dear D.T.: I agree that you should diversify. Paying off that very low rate mortgage is not the best way to make that happen. Given that you haven't been as prudent in terms of planning, a degree of aggressiveness is called for.

I would take that $150 a month and anything else you can add to it and invest in solid American companies. Over the long haul you will get a far better return than you will on that effective five-and-a-fraction percent, which is generated by paying off the mortgage early.

Dear Bruce: My husband received a settlement of $14,000. Should we invest it or put it in the bank? I am 30, he is 35, and we're both self-employed.

We have a 2-1/2-year-old child that we would like to consider investing for tax-free. What should we do? K.G., Harrison Township, Mich.

Dear K.G.: The last place that $14,000 belongs is in a bank. If this is money you can do without for a while, then invest in an aggressive mutual fund. Become familiar with such resources as Money magazine's Fund Watch. With $14,000, you're going to have to invest it yourself. You also asked about tax-free investing for your 2-1/2-year-old child. Keep the money that you're investing for your child in your name so that you have complete control. There are investments, such as the 529 plans and the educational accounts, where the monies used for educational purposes can receive favorable tax treatment. However, the money is no longer available to use for the next 16 years. Until your child is considerably older, whatever investments you make will be taxed at your rate. There is no immediate relief in that regard.

Dear Bruce: I contributed the maximum possible last year to my 401(k) plan. I also put $3,000 into a Roth IRA. Can I also contribute money to other IRAs that I have? They are rollovers from past employers. K.N., via e-mail

Dear K.N.: You are restricted to a $3,000 contribution in IRA form, be it Roth or self-directed.

The other IRAs can continue to work for you in a tax-deferred environment, but you cannot add more than $3,000 in total to a Roth. If you are married, your spouse can make a contribution in their name. The maximum IRA contribution one can make in any one year is $3,000 or $3,500 if you are 50 or older.

Dear Bruce: My parents are in their early 70s and have lost almost all of their investments, which now have only $20,000 left in value. The broker had them investing in annuities and mutual funds. They recently moved this to a money-market account and have been withdrawing $2,000 a month for living expenses, plus they receive $1,500 a month in Social Security. My father is going to inherit $25,000 from a family member. My parents own their home, which is worth about $80,000. Their only debt is $10,000 on their automobile. Should they sell their house, invest that money and find an apartment or pay off the car? What do you recommend? I would like to help my parents. They have always been there for me. D.H., via e-mail

Dear D.H.: Your last line is the most telling. Unlike many children, you recognize that your parents were there for you. In taking $2,000 a month out of the account, they are living beyond their means.

That works out to more than $40,000 a year, which they just can't afford to continue doing. The home might well sell for $80,000, but then where are they going to go? Investing $80,000 is not going to provide very much income. A reverse mortgage is one way to tap the equity in the house without losing their place to live. They may want to pay off their car, given the very low interest they receive on their money-market account.

I'd like to hear how they lost money in annuities. While this is possible, annuities generally prove to be a safe, if not highly rewarding investment. Mutual funds are another matter.