Financial Q&A: Credit cards used to build a house lead to big financial trouble

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Q: I took my credit cards and created myself a summer job – when I am not teaching – by building a house. I am almost finished building the house with my credit cards and about to go bankrupt. The banks tell me they will not make me a loan even when I finish the house, as my credit-card debt is too high. I tried to explain to them that I wanted to pay off the credit cards, but they said it made no difference. What should I do?

T.S., Pine Bluff, Ark.

A: If Joel Doelger had the power to turn back the clock, the director of counseling at Credit Counseling of Arkansas says that he would have recommended that you use a traditional builder's spec loan to cover the initial cost of building the home. That would have allowed you to purchase supplies, but with a lower interest rate than the credit cards have charged.

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Unfortunately, that's not the case. And to worsen matters, given the current soft housing market, it may be difficult to sell a completed home, much less an almost completed home.

It's a bit of a long shot, but Mr. Doelger knows of one loan product that could help both you and any potential home buyer. The FHA offers a rehab loan that allows the buyer to roll the cost of home improvements into the initial loan.

If you found a buyer who would qualify for such a loan, he or she could buy the home now – as is – and roll the completion of the home into the initial loan. That would prevent the borrower from having to turn around right away to qualify for a second mortgage to complete the home.

Second mortgages typically have higher interest rates than first mortgages. If a buyer can purchase the home in its present state, you may be able to get out of this venture now, without having to sink additional money into it to make it marketable.

If you aren't able to pay the credit-card bills with the sale of the house but are hesitant about filing for bankruptcy, you might be able to use the services of a credit counseling agency, Doelger says. You'll want what is called a debt management plan (DMP). A legitimate agency will help you determine your current financial situation and assess the suitability of a DMP, as well as other options, for helping you repay the debt.

The Federal Trade Commission produces a variety of useful brochures on financial issues, including one on how to select a credit counseling agency (ftc.gov/bcp/edu/pubs/consumer/credit/cre26.shtm).

Q: Could you help me find the best and safest annuity company in Switzerland? I would rather have a fixed annuity, but they aren't available at this time in Switzerland.

F.M., via e-mail

A: One source of information on this might be swissannuities.com. On this website you can learn a lot about the ins and outs of Swiss annuities – who sells them, who regulates them, what the advantages are to owning one, etc.

What you won't find is direct advice on which particular annuity to buy. And when we contacted the Swiss Financial Planners Organization, in Bern, CEO Nicholas Koechlin said that, by law, financial advisers in his country cannot dispense such guidance. For general information on personal finances you can ring them at 011-41-31-326-2730, or e-mail them at info@sfpo.ch.

Back stateside, Rich Arzaga, a financial planner in San Ramon, Calif., can't vouch for a Switzerland-sold annuity (nor could we find anyone else in the United States with Euro-specific experience on annuities). Regardless of the country of sale, there are common threads to annuities that Mr. Arzaga says a buyer should consider:

•Time horizon. How long are you willing to tie up your money? How big a penalty are you willing to take if you withdrew more on an annual basis than the annuity contract allows?

•Risk tolerance. You say you can't buy a fixed annuity. That would leave you with a variable annuity in the US, and they mostly invest in the stock market.

•Fees. Annuities carry sales charges, as well as other fees for add-ons such as death or survivor benefits. The more add-ons, the more fees.

Annuity sales and marketing are regulated in the United States at either the federal or state level, depending on their type. There also are rating agencies that assess the claims-paying ability of insurance companies that market these products.

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