'Brady Bunch' families face financial challenges

-Blended families are the new normal. Divorce, remarriage, and living outside conventional marriage have changed families and created an expanded network of step relatives.

With more than half of all marriages ending in divorce and more than 40% of all Americans having at least one step relative, it's imperative to talk about money and how you'll handle it before entering into a new marriage (USAToday.com Feb. 6).

To keep your relationship sane and decrease money problems:

• Find common ground--Talk about money before blending families. Decide if you'll have separate or joint accounts, or both, as well as who'll be responsible for each child's expenses. What contributions can you count on from ex-spouses; what financial commitments have you made to ex-spouses?
• Discuss money issues with family members--Your children might have to change habits or get used to new rules pertaining to money, but including the kids in discussions about finances early on will lessen future problems.
• Plan ahead--If you're remarried and you and your new spouse each bring children to the new marriage, discuss how you'll pay for your children's college education. Will you both chip in for each child or will you be responsible for paying for only your own children? Will your former spouse, and perhaps the child's grandparents, play a role?
• Check insurance policies and wills--Read policies carefully to be certain that all family members are covered the way each parent wishes. It's just as important to check your wills to make sure the wording includes all children, both natural and adopted.
• Consider estate planning--Meet with an attorney and make sure all kids from past marriages are considered. This includes looking at college educations, inheritances, and even custody issues. Determine who will be responsible for your children if you die.

Act to lower your credit card rate

With the national average interest rate for credit cards reaching a record high of 14.73% (creditcards.com Feb. 2), you'll want to make sure you're getting the best deal possible.

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009 restricts issuers' ability to raise rates, but whenever they can, you can be sure that many will. Here's some advice from the Credit Union National Association's Center for Personal Finance for getting the lowest rate possible on a credit card:

• Get a card from a credit union. A credit union credit card typically has a significantly lower interest rate than a bank credit card. For example, right now the national average rate for a high-limit "platinum" card is 2.34 percentage points higher at a bank than at a credit union ( Informa Research Services Inc. Feb 6).
• Use your card for convenience only. The very best way to control credit card costs is to use your card for its primary advantages only--as a convenient and secure way to make daily purchases or cover emergency expenses. Then always pay off your balance as soon as possible--preferably within the grace period, when no interest charges apply.
• Use a different kind of credit. Suppose you're buying a big-ticket item, such as a computer, or paying for major car maintenance. Rather than use your expensive credit card, consider "closed-end" credit, a loan with a set number of monthly payments. A personal installment loan, even if it's unsecured--that is, not backed by collateral--will have lower finance charges.
• Tend to your credit score. The rate a credit card issuer will offer you is highly sensitive to your credit history and the score derived from it. The credit score is the lender's estimate of the risk that you won't repay your card balance. That's why you'll want to do everything you can to demonstrate that you're creditworthy, such as by paying all your bills on time, without fail.
• Use a secured card. A credit card backed by money you've set aside in a special account is a good way to start improving a weak credit score. Your lender will give you a better interest rate because it can always take money from your account if you don't make your payments. But if you do, your credit record will improve and, over time, so will your score and your future cost of credit.

Don't pass up retirement tax credit

Hard to believe, but as many as 88% of taxpayers who could benefit from it don't even know about the Saver's Credit.

Officially named the Retirement Savings Contribution Credit, the 10-year-old saver's credit was designed to encourage low- to middle-income workers to save for retirement. But a survey released mid-January by the Transamerica Center for Retirement Studies of 3,598 full- and part-time workers with incomes of less than $50,000 indicates that as few as 12% of those who could benefit from the credit are aware of it (TheStreet Jan. 17).

One possible explanation for low awareness is that tax filers must use Internal Revenue Service (IRS) Forms 1040A, 1040, and 1040NR to claim the credit; it is not available if you file using Form 1040EZ. Thus, lower- to middle-income workers, those most likely to use 1040EZ and eligible for the credit, may miss it or remain unaware of it.

An eligible worker can apply the credit to the first $2,000 of voluntary contributions to a 401(k) or similar employer-sponsored retirement plan or individual retirement account (IRA). There are credits of up to $1,000 for single filers and $2,000 for married couples. The saver's credit is available to workers aged 18 years and older who contributed to a company-sponsored retirement plan or IRA in the past year and are:

• Single or married filing separately, with adjusted gross income (AGI) of up to $27,750 in tax year 2010 or $28,250 in 2011.
• Head of a household with AGI of up to $41,625 in 2010 and $42,375 in 2011.
• Married and filing a joint return with AGI of up to $55,500 in 2010 or $56,500 in 2011.

You may not claim the saver's credit if you're a full-time student or claimed as a dependent on someone else's return.

If you use tax preparation software, look for prompts that refer to the saver's credit, retirement savings contributions credit, or credit for qualified retirement savings contributions. If you work with a professional tax preparer, make sure he or sure is knowledgeable about the credit. And if you prepare your own forms, complete Form 8880 to determine the credit rate and amount; transfer that amount to the appropriate line on Form 1040A, 1040, or 1040NR.

Do falling home prices signal time to buy?

Home prices in many of America's largest cities continue to fall. The recently released Standard & Poor's/Case-Shiller home price index reports average home prices slipped 1.6% in 20 U.S. cities during November. Prices in eight cities sank to their lowest levels since 2006 and 2007 (nytimes.com Jan. 25).

These circumstances could mean it's an excellent time to buy a home. Here are three things to consider before taking the plunge:

1. How do you want to spend your extra money? Once you buy a house, you have to maintain it. You may need money you previously spent on life's little luxuries to repair a leaky roof, fix a broken window, or replace light fixtures.
2. Would you benefit from tax breaks? Owning a home means you can deduct mortgage interest and property taxes you pay throughout the year from your taxes, but you must itemize these on your tax return. You benefit from tax breaks afforded to homeowners only if itemized deductions will be greater than the standard deduction.
3. Can you afford a monthly house payment? The 26/38 rule can help you identify how much house you can afford. A monthly house payment should be less than 26% of your monthly gross income and includes your mortgage, property insurance, and property taxes. Your total monthly debt obligations—including house payment, car loans, and student loans, for example—shouldn't exceed 38% of your monthly gross income. This standard has some wiggle room; talk to your credit union home loan specialist for guidance.