Reader Mailbag: Christmas Rush

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Clearing off old debts
2. Life insurance and suicide
3. Handling three child seats
4. Various health insurance plans
5. Credit card roulette
6. Understanding employer matching
7. Tax deductible student loan interest
8. Selling old trading cards
9. What next?
10. Rebounding from a bankruptcy

For must of us, this is the start of the last full work week of the year, as next Friday is Christmas Eve.

Around our house, that means it’s a busy time of the year. Remember those homemade gifts? Well, we’re busy finishing up the packaging and some of the gifts – expect a final post or two wrapping up (both figuratively and literally) the series later this week. After continuing to work on them, we began to realize just how many gifts we’d made this year – and how much we have left to do.

Q1: Clearing off old debts
All my creditors write to me each year and offer greatly reduced settlement figures to clear the debt but, as yet, I haven’t had to money to settle any of them so would it be a good idea to implement a version of the snowball effect by saving fixed amount that I can afford each month and put it into an account to earn some interest, no matter how small, and then when I have a couple of thousand saved up contact the smallest debt creditor and offer an amount, say 30% of the balance owed to clear the debt? I am sure they would agree in order to clear the debt. Then carry on saving as before and add the amount I used to pay the creditor … and so on.

I don’t want to increase the amount I pay each creditor on the current agreement because they might think I can afford more and therefore increase the likely amount they would accept in the future as a settlement.

I do want to pay off my debts and so far I have done a fairly good job of working towards this goal. I want the best possible deal but I am unsure of the best strategy.
- Tom

Since these debts are in collections and thus not accruing more interest, I’d say your strategy is a relatively good one assuming that your goal is to actually be honest with your debts and pay them off now that you have your life in order.

It’s important to note that when you pay off the debts, the act of paying them will have an immediate negative impact on your credit rating which will be somewhat mitigated by an improved debt-to-credit ratio. It’s crazy, I know, but when you pay a debt that’s been in collections, you take an old debt and make it current, and your credit score pays much more attention to recent debts than to old ones.

Why am I mentioning this to you? If you’re about to take out debt for some other reason, wait until after you take out the new loan before paying off an old loan. You need your credit score as high as possible in the moment in which you’re getting a car loan or a home loan.

Q2: Life insurance and suicide
Is it true that life insurance does not pay out if you commit suicide?

- Fred

I excised a good deal of Fred’s note for obvious reasons. I sent him a personal note directly encouraging him to rethink some of the things going on in his life.

Nevertheless, Fred’s question is a good one. The truth is that most life insurance policies have some sort of suicide clause in them stating that there are either no benefits or reduced benefits in the event of suicide. This is obviously to protect a life insurance company from someone signing up for a big policy just to off themselves and give their family a big payout.

In short, if you’re considering some sort of misbegotten “I’ll get life insurance and then kill myself” plan, not only is it a dangerous and painful idea, it won’t work, either. Instead, you should spend your energy seeking out someone to talk through your problems with, whether it’s a trusted friend or a psychology professional.

Q3: Handling three child seats
My husband and I are expecting our third child. Our kids are currently 3 and 18 mos., and of course both are in car seats. By the time the next one arrives, the oldest will be in a booster, I think…but of course we’re contemplating the car question.

Our current fleet consists of three old, paid-for cars. We don’t travel much, and this works for us financially, as we’re paying off student loan debt and can’t fathom a car payment…Our cars are a 1993 Saturn wagon (220K+ miles), a 1999 Buick Regal (208K miles), and a 1999 VW GTI (78K miles). If one breaks down, we have an extra. So far we’ve been able to manage the occasional repair ourselves, by troubleshooting, talking with a knowledgeable parent, and networking for affordable repairs.

My question: with three in child seats, we may need to rethink a “family” vehicle soon. All three vehicles manage two child seats handily (the little VW is actually our favorite, as it’s deceptively roomy), but three seems like a real stretch.

If we need to think about a car purchase, we want to avoid a payment if at all possible. We have about $8K, optimistically, to use for a car. We just want to be reasonable and safe. Any thoughts on a bigger car?
- Kathryn

I’ll tell you right now that you don’t need to worry about fitting three car seats into your vehicles. We have three car seats in the back of a Toyota Prius – your station wagon will be just fine.

Based on what I could find, I’m sure that your station wagon and your Regal will be able to fit three seats in the back. I’m not 100% sure when it comes to the VW GTI, but I suspect that three seats will fit in there, too.

If it turns out that the GTI doesn’t quite fit three seats, put the GTI at the top of your trade list.

Q4: Various health insurance plans
Have you ever researched the cost of private insurance vs. employer provided plans? My wife and I are both Registered Nurses and were shocked by the cost of our “employer provided health care” for next year. In order to keep our current medical plan it will be $497.00 every two weeks (per pay period) which is $12922 per year. The only other option was $390.00 every two weeks and would have required that we change all of our MDs. We are both in good health in our early 30′s, have no significant health history or any medications and rarely see our MD unless it is for our kids (ages 4 and 2). This policy also comes with the standard co-pays and deductables for usage. Basically, I am wondering if this $12922 could be put to a better use? We are planning to get pregnant this year (so it makes sense to stick with this plan this year and keep our OB doc) but I am wondering about the years ahead. Why not purchase a quality plan for the family that has a higher deductable and invest the difference in a Health savings account (that could be tapped when needed) year after year? Why do we shop around for car insurance but never look at alternatives for health insurance? I guess it never occurred to me until it reached $12922.00/ per year out of pocket. Any thoughts would be appreciated.

- Andy

This is an impossible question to answer for several reasons.

One, not all health insurance plans are created the same. Different deductibles, different premiums, different policies, different levels of customer service… the variables go on and on and on.

Two, the field of health care is going through some serious upheaval right now as insurers adjust to the changing world of health care due to the recent legislation passed. A trend today may or may not be a trend tomorrow.

With just those factors, it quickly becomes impossible to offer up an answer. When you add in the uncertainty of life, that just adds another factor.

Your best solution is to simply figure out what you actually need, then seek out the best deal available to you for a health care plan that’s close to it. It might be through your insurer – it might not. Quite honestly, this kind of legwork – really digging into what you need, then trying to find private plans that compare to your one at work – is going to be a long process which may or may not save you anything, but it will certainly give you some peace of mind and a deeper understanding of the health insurance industry.

Q5: Credit card roulette
I have three credit cards – a Chase Amazon card that I use for all of my online purchases, a Sam’s Club card that I use at Sam’s Club and Walmart, and a Barclaycard iTunes card that I got to finance my laptop at 0% last year (paid off before any interest was due). Now, the iTunes card is probably about 1/4 of my total revolving credit limit, but I use it approximately none (once in awhile I’ll throw an oddball iTunes store purchase on it ~$2.00 to remind them that I have a pulse). Does getting rid of the unused card make sense, or would the drop in total revolving credit hurt my credit rating significantly? Currently, my credit rating is pretty stellar – student and car loan in repayment ahead of schedule, credit cards never have carried a balance over month to month (unless it’s 0%).

- Michael

I don’t think it’ll have a significant impact either way since it’s only 1/4 of your overall credit limit and it seems to be your newest card.

The only exception that I can think of is if you keep your other cards charged up to near their credit limit, in which case the iTunes card is helping significantly with your overall debt-to-credit ratio. If you’re actually diligent about keeping your cards paid down (if not paid off completely each month), then there’s no reason not to cancel it.

In fact, if you don’t use it much, i would cancel it, just to minimize your identity theft risk.

Q6: Understanding employer matching
If my company matches 401(k) contributions each pay roll equal to 100% of the first 3% (free money!) and 50% of the next 2%… would my amount looks like this?

Lets says that a 3% contribution for me for each pay roll (bi-weekly) is $30. At $30, I am really investing $60 per check ($120/month) since I have a 100% match for the first 3%.

$40 a pay roll = $75

$50 a pay roll = $85 ($170/month) is this correct?
- Andy

The easiest way to calculate it is to just break it into separate offers. In your case, I would look at it as an offer to completely match 3% of your pay and an additional offer to match half of 2% of your pay. Naturally, you’ll do the full match first.

So, you calculate that 3% of your pay is $30 and thus 2% is $20.

If you contribute $30 and use that full match offer, you get $60 in your retirement plan – $30 times 2.

If you contribute $40, you’ll use $30 of it on the full match offer – $30 times 2 being $60 – and then $10 in the other match offer – $10 times one and a half being $15 – totaling $75.

If you contribute $50, you’ll use $30 of it on the full match offer – $30 times 2 being $60 – and then $20 in the other match offer – $20 times one and a half being $30 – totaling $90.

So, the math is actually a little bit better than what you thought!

Q7: Tax deductible student loan interest
I’ve got around $55,000 in Stafford Student Loans at 6.3% interest, around $10,000 with Wells Fargo Student Loans at about 8%. I also have $1000 from a Federal Pell Grant (which feels like it has no interest!) and I owe my family around $5000.

My question is about how to pay back my student loans. Is the interest on the Stafford and Wells Fargo loans tax deductible? If it IS tax deductible, why would I ever want to make more than the minimum payments?

As I have things planned out now, I will pay back the Wells Fargo loan as quickly as possible, and then set in on the Stafford Loans. I will make minimum payments on the Federal Pell Grant, and the family debt will either be forgiven or paid back after I get onto my feet several years later.

But I’m really curious about the interest for those loans, or any tax breaks I might be eligible for due to paying them back! Any ideas?
- Nick

I don’t know what your exact loan offer is, but most student loans have tax-deductible interest.

The part of your question that deals with “why would I ever make more than a minimum payment” is troubling, though. This is a tax deduction, not a tax credit.

Let’s say you have $2,000 in student loan interest this year and you made $40,000. A tax deduction means that you just pay taxes on $38,000 this year – $40,000 minus your $2,000 in interest. That will only actually save you a couple hundred bucks on your tax return – you’ll still be losing about $1,800 in interest.

A tax deduction really isn’t an enormous savings and it certainly isn’t a reason to hang onto a 6% debt.

Q8: Selling old trading cards
When cleaning out my closet, I discovered a box of old Magic: the Gathering cards from my high school days. I don’t have even the vaguest idea of what any of them are worth. How would I go about figuring out if they’re worth dealing with? What would you do with them?

- Emory

Depending on how old they are, this can be a bit of a challenge.

The first thing I’d do is start identifying what you have. You can use this page to figure out which sets your cards belong to, which you’ll need to know before you use a card-pricing site. I suggest using a retailer like Star City Games and using them as a guide.

If you find individual cards of worth – specific ones worth more than $20 – I would sell them on eBay. I’d take the rest of them and sell them as a bulk lot on eBay, listing the ones worth more than $2 in the auction listing.

It will take some time and you might find you don’t have much of value, but if you do have old cards, you very well might have some significant value there.

Q9: What next?
I wanted to run some numbers by you to see what you thought.

2 40 year old adults no kids(by choice)

Two incomes=$130K/year combined

Two new cars(2008 and 2009) both paid off.

240K house with about a 200K balance 4% fixed rate 20 years left. No PMI

50K in emergency funds-This has been in TIPS for the last year

230K in 401k. Probably about 20K of that is in Roth 401K

No other debt

About 20K in company stock. 15% discount on company stock. I usually use this money to buy cars and go on vacations.

My wife puts about $5,500/yr in her 401K and gets a match of about $3,600/yr

I put $2,400/year in a roth 401k, $3,200/year in my 401K, and I get a match of about $3,600/yr

Any recommendations on if we should be apply more towards the Roth 401K and move away from the normal 401K? I know we don’t know what the rate will be when we retire so it’s kind of a gamble. Any opinions on this mix?
- Curtis

If a person is eligible for a Roth, I usually tell them to put their money into the Roth option.

The reasoning is simple. The United States is racking up nearly a trillion dollars in debt per year. Current income tax rates are staggeringly low compared to the 1950s and 1960s. In other words, the current taxation path isn’t a sustainable one. The fight to keep tax rates low is merely fighting the inevitable growth in rates – it will happen, sooner or later. The numbers don’t add up if we don’t do it.

If you believe that the tax rates will be higher in retirement than they are now – and I certainly do – then you’re better off paying the taxes on retirement savings now. That points straight toward a Roth.

Q10: Rebounding from a bankruptcy
I recently filed bankruptcy and am in the process of rebuilding my finances since i depleted everything in the process. I want to build my emergency fund quickly and somewhat effortlessly and thought about selling the contents of my closet (I have way too many clothes/shoes). What the best financial savvy way to accomplish this? I thought of ebay but am wondering if it would be too costly with their fees, and shipping costs and all.

- Joni

In my experience, the most effective way to re-sell quality articles of clothing that aren’t deeply worn is through a local consignment shop. Used clothes buyers on eBay are usually looking for bulk items and don’t want to be paying a high rate for them.

If I were you, I’d ask trusted friends in the area if they have any experience with clothing consignment shops and follow their lead. If you can’t find any information that way, use the yellow pages, then research the shops that you find and see what others have said online about them.

If your clothes are mostly low-end, I wouldn’t expect to get a whole lot for them, no matter what their condition.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. Interested Reader says:

    I’m glad for Q2 Trent finally mentioned getting professional psychological help; HOWEVER, I think the emphasis should have been on getting help first and then answering the question. To me that’s the most important part of the response and it’s buried at the end.

    But still thank you Trent for starting to mention psychological help rather than trying to steer people away from it.

    About the first part – about how many Christmas presents are you making?

  2. Johanna says:

    Q9: Again with the erroneous Roth versus non-Roth advice. For pretty much anyone who has a non-zero income tax liability (which Curtis and his wife certainly do), it is better to have a mix of Roth and non-Roth than 100% Roth.

    Now, Curtis and Mrs. Curtis already have a big balance in their non-Roth accounts, so shifting some of their contributions toward the Roth is probably a good idea. But if they were starting from scratch, pointing them straight toward the Roth would be bad advice.

  3. Rebecca says:

    In regards to the car seats, depending on what seat style you have you may not be able to get 3 across in the back. Britax seats are very wide. We have one car a 2001 Saturn SL1 and when my 3 child was on the way we talked about a bigger car, instead we purchased 2 Radian 65 car seats from Sunshine Kids. They work from 5 to 65 lbs, foreword and back, and are rated as highly as Britax or better. They are also the slimmest on the market. My oldest already had one, and he used it till he maxed out the weight last year. They price about $200 apiece, but still way cheaper than a “new” car.
    .

    And regarding the suicide clause in life insurance. I was recently denied life insurance because they said I had a history of chronic depression, which made me more likely to commit suicide. What I actually have is a history of postpartum depression, which I didn’t even have much of with my 3rd and last child because I pushed my doctor to get me back on meds before the baby was born, by 6 weeks I was off them and doing great. Since I am done having kids I no longer have to worry about it, thankfully. But why would the insurance co deny coverage on the grounds that I am more likely to kill my self when they wouldn’t pay out even if I did! GRRRRRR!

  4. Kevin says:

    “Since these debts are in collections and thus not accruing more interest,”

    Where did you get the idea that debts in collection don’t accrue interest? It’s my understanding that they in fact very much DO continue to accrue interest, although it usually ends up being moot, as the debt will likely end up being settled for a lesser amount. But the total amount against which the lesser amount is being compared does in fact include a (constantly growing) interest component.

    That’s why the agencies will accept 30% of the balance owed. Because the “balance owed” has been inflated with ongoing late fees and interest charges, making the debtor look like he’s getting a fantastic deal.

    Someone correct me if I’m wrong.

  5. Sara A. says:

    Re: Life insurance and suicide.

    Check with your state insurance commission. In my state, life insurance must pay out if it is more than 2 years after you originally got the policy. This, however, doesn’t apply if you have certain risk factors when you originally sign up that make them put a rider on your policy.

    (I used to work for an insurance company.)

  6. Luci says:

    To the person posting about their student loan debt..you don’t pay back grants. Pell Grants are basically free money and are not repaid.

  7. LB says:

    Q4- I empathize. My contract position (funded by stimulus money) runs out in 3 weeks and the plan had been to add me to my husband’s coverage…. but we just learned that it would be $100 a week. Yikes! That’s a good chunk of what I’ll get in unemployment, and it basically removes the possibility of me taking a part-time instead of a full-time job because I have to get a job with benefits. It sucks.

  8. Kim says:

    There have been several posts in the last week or so promoting the Roth IRA. I agree that it is a great savings device and no doubt our Federal tax rates are going to go up in the future from these historical lows. HOWEVER, there are other considerations to evaluate and that should be mentioned when discussing the ROTH. It only matters if YOUR PERSONAL tax rate is going to increase when you retire and take IRA distributions, not what the IRS rate tables will be in the future. My husband and I are in the a very high Federal and State tax bracket NOW. During retirement when we take our distributions, there is NO WAY we will be in this high of a federal and state tax bracket (will move to a state with lower state and local income taxes). In this case deductible IRAs and deductible 401Ks will win all the time. I really think this fact needs to be mentioned when discussing Roth IRAs. Yes, for a lot of people the Roth will make the most sense, but for others the deductible may make more sense.

  9. Jane says:

    Rebecca’s situation is precisely why I never tell any medical professional that I struggle with depression. Once it’s on your record they can use it against you. Sad but true. But it’s truly ridiculous if it was postpartum.

  10. Bill says:

    @q4 Move to Massachusetts. We have universal health care and we could use a couple nurses too:)

  11. Gal @ Equally Happy says:

    @Q7 Unfortunately, student loan interest is not always tax deductible. It depends on your income so it may not even qualify for a tax deduction. Just one more reason to pay it off as soon as possible.

  12. Johanna says:

    Q5: “The only exception that I can think of is if you keep your other cards charged up to near their credit limit, in which case the iTunes card is helping significantly with your overall debt-to-credit ratio. If you’re actually diligent about keeping your cards paid down (if not paid off completely each month), then there’s no reason not to cancel it.”

    This seems to be based on a misunderstanding of how the debt-to-credit ratio is calculated. Even if you always pay off your cards in full each month, you still have to worry about your debt-to-credit ratio, because you have no control over when the balance gets reported to the credit reporting companies.

    Suppose you have just one card, with a $2000 limit, and you charge $1000 on it. If that $1000 balance gets reported, then you have a debt-to-credit ratio of 50% (not good!), regardless of whether you pay off the full $1000 at the end of the month or not.

  13. valleycat1 says:

    Curtis, Q9 – If you’re looking at possibly retiring early, you need to beef up investments that you can withdraw without penalty before you hit retirement age – enough to get you through however many years that might be.

    And regarding Trent’s comment on tax rates probably going up, you also have to consider whether your income will be staying at the higher level or dropping some when you retire, which could make your taxes actually drop if you move into a lower bracket.

  14. jim says:

    Q4, Andy: $12k for a family of 4 is about what you might pay for full cost. Thats pretty awful insurance for a pair of nurses. I’d assume you don’t work directly for a hospital. It may make sense for one of you to change jobs to an emloyeer that pays your insurance, thats $12k a year difference. In your case though if you stay with your current employer(s) then yes it makes plenty sense to shop around for individual insurance and opt out of the employer group plan. But you may find that individual plans are more expensive still.

    Q7, Nick said: ” I also have $1000 from a Federal Pell Grant (which feels like it has no interest!)”

    Pell grants are not loans. Its a grant that you do not have to repay.

    Q9, Curtis: You are in the 25% tax bracket with is a very ‘middle’ bracket. You are not paying very low nor very high taxes right now. I see no compelling reason for you to use a Roth and voluntarily pay taxes today. It seems Trent tells everyone to use a Roth regardless of the situation. I think that your current plan of putting most of your retirement in 401k and some in Roth 401k is just fine. That way most of your income is tax sheltered right now yet you’re hedging your bets your retirement is ‘tax diversified’ with some pre-tax and some post-tax. That way in the future you can manage your retirement withdrawals to optimize it for lower taxes.

    Tax rates are only “staggeringly low” compared to the 50′s & 60′s for very high income people. At an income of 2x median income in 1960 your marginal tax rate would have been 20-26% range. Today you’re in the 25% bracket. 20-26% is not “staggeringly low” compared to 25%.

    In fact if you add income tax, fica and state taxes someone in your situation could easily be paying a little more today than you would have paid in 1960.

  15. Interested Reader says:

    With all the mistakes (and some repeat mistakes)Trent keeps making the disclaimer at the bottom that this is for entertainment purposes and Trent is not a financial advisor should be much more prominent.

  16. jim says:

    Why does everyone think our current taxes are at “historical lows”?

    THe top marginal tax rate was lower as recently as 1992 when it was 31% compared to 35% today. Effective total income tax rates were lower in the 1930′s and 1940′s. Taxes as % of GDP were lower in the 50′s. Social security taxes have never been higher than today.

    Any way you cut it I don’t see how people can accurately claim that we’re at “historic lows”.
    Yes taxes are very low in many ways, but its not unprecedented levels.

  17. Johanna says:

    And the thing is, even if tax rates really were at historic lows in some incontrovertible sense, and even if you had a crystal ball that told you with 100% certainty that tax rates would be higher when you retire than they are today, it would *still* be a good idea to put some of your retirement savings in pre-tax, non-Roth accounts. This is because of how tax brackets work. I know that Trent knows how tax brackets work, because he’s explained it correctly in the past. And yet, he seems unable or unwilling to make the connection between that and this.

  18. Stacy says:

    I’m with Johanna. If you understand how tax brackets and deductions work, you also understand that the first $18,000+ for a retired married couple is tax free. That’s $18,000 that could be pulled from a non-Roth account. Singles can earn or withdraw about $10,000 before paying taxes.

    We live on about $20,000 after our retirement contributions… so when my financial advisor “strongly encouraged” we switch a Roth IRA, I knew it was time to get a new advisor. We have a small Roth account, but put the bulk of our savings towards a Traditional IRA.

  19. jim says:

    I also do agree with Johanna on that last point. It is smart to have at least some of your retirement money in a taxable form since everyone gets some untaxed income due to standard deduction and exemptions.

    And your choices about your tax situation depend on YOUR situation primarily. There are many situations where Roths make sense and many where they are a bad idea.

  20. Mule Skinner says:

    Entreprenurial opportunity! Someone should make a double or triple wide car seat that would fit the anchors in a standard sedan.

    Struggling to fit two and failing to fit three is a very common problem.

    (Now someone will tell me there is a law forbidding this . . .)

  21. SP says:

    I had never thought of this – if I’m retired and married, and we withdraw 18k (roughly) from a 401k, and then 20k from a Roth IRA, would our tax liability be zero?

    I’m a long way from retiring, but this logic seems so obvious that I can’t believe I never realized this.

    (Also, I agree with those who claim that for the average person, we aren’t at historic tax lows. Maybe for war time though?)

  22. Bill says:

    @question #2
    The suicide exclusion clause is limited to the first 2 years, after that they have to pay in full. This only applies private life insurance. Employer provided life insurance usually does not have this clause at all.

  23. Johanna says:

    @SP: Yes, that’s right, as I understand it. That’s assuming that the $18K from your 401(k) is your only income that’s subject to taxes – if you have any other income (from a part-time job, or from interest or dividends on a taxable account, say), then you get $18K, total, tax free, and the rest is taxed at 10%, then 15%, or whatever the lowest tax brackets are at the time.

    The $18K derives from the married-filing-jointly standard deduction plus two personal exemptions. Those amounts get adjusted for inflation each year, so they’ll go up between now and when you retire.

  24. J.O. says:

    @ Kevin

    I know of a person whose loan went to collection three years ago. It has been sold and re-sold to different collection agencies. The balance currently being quoted in their letters to him is the same balance as when it first went to collection.

    So, no interest has accrued on the debt in this particular case at least.

  25. Izabelle says:

    To Fred (Q2) re:suicide

    17 years ago, a good friend committed suicide exactly 2 years and 1 day after her mother had taken a policy for the family. The insurance did pay, but, trust me, her family would have much preferred to deal with anything that was going on than to receive the money.

    Instead, we are all left wondering what could have been. I miss her terribly, and so does anyone who knew her. Please, whatever the reason is for your asking the question,seek help. You would be surprised of the support that you may find.

  26. Bill says:

    I have much more experience with suicide than seems fair, I lost 4 close friends and 2 people I knew well during high school. After graduation I lost 2 more close friends. I live by the advise I got from one of the consulers(sp). “Chose rage”, screw you if you kill your self, I will not mourn you, I will not attend your funeral, you are selfish and I don’t have time for that.

  27. LeahGG says:

    #9 Jane: It’s nice in theory, but if you don’t tell a medical professional, you can’t get treatment. Sometimes medication improves your life quite a lot.

  28. deRuiter says:

    #15 Interested Reader: The disclaimer is there so no one can sue Trent for bad or innacurate advice. Trent, by the disclaimer, is an entertainer, not a financial advisor. It’s up to the reader to decide upon a course of action. The value of this column is that it gets the ball roling on a financial topic, and then it gets a lot of smart readers with different life experiences offering their 2 cents. You get a variety of views, and when most people agree on a topic, it’s likely that there is something useful there. In the end, you make your own financial decisions. This is a fun way to get a lot of different ideas on a financial topic, and I enjoy it very much.

  29. Randy says:

    Re: Q1 – “assuming that your goal is to actually be honest with your debts and pay them off now that you have your life in order.”

    Am I the only reader who struggles with equating “offer an amount, say 30% of the balance owed to clear the debt?” with being HONEST with your debts?

  30. Kim says:

    I would like to say something that has been bothering me about Trent’s post where he doles out financial advice. I know he has a disclaimer but by having this website/blog and answering financial questions, he is presenting himself as an expert. I don’t believe Trent has any formal education or expertise in finacial planning or taxes. One could argue it is “free” advice and you get what you pay for, but Trent is making a living giving out advice. Often on subjects he obviously has no knowledge, no education or hasn’t even bother to research. He also often doesn’t have enought facts about the situation to be giving out any advice. I just don’t understand how this is honest or ethical. I think this is something that really needs to be addressed. I enjoy the frugal postings and subjects that look at ways to think about money.

  31. Laura says:

    Joni (Q10) – Selling anything, especially clothes, is rarely effortless. In my experience, clothes are the hardest items to sell. I’d consider selling more valuable items like electronics, furniture, household items, or musical instruments. You could also try selling other things that aren’t quite as personal, like books, video games, or dvds.

    Check prices for similar items on craigslist or Ebay. My personal rule is that if I won’t make more than $5, it’s not worth selling, considering the time I spend listing, preparing, shipping, or selling items. Of course, if I sold things regularly and had more of a “system”, I might lower that, but since I’m more of a recreational seller, I try to keep it higher.

    The condition, age, season, and size of your clothes will directly affect your ability to sell them at consignment shops. Sorry to say, you might take in a whole box of clothing to a store, and only be able to sell a few items for a couple of bucks. You may not get a lot of money for your trouble. Keep that in mind when you think about how much effort you’re going to put into selling your clothes. Also, of course, when you go to the shop to sell, don’t let yourself be tempted to buy more clothes, either.

    You might try hosting a yard sale if consignment shops don’t work out for you. If you have some unique or vintage items, you might try Etsy instead of Ebay.

    Another thing you could do, if you’re at all creative, is to try to “upcycle” your clothes into some new items and then try selling those on Etsy. Or, give them as gifts or repurpose them into something you need or want so you’re not buying new things. That’s not “effortless” but it might help salvage some value out of otherwise worthless clothes.

  32. Interested Reader says:

    I know this is supposed to be a fun place to get information about being frugal and personal money management. However, Trent is pushing beyond just that and into giving peopel advice about different things both financial and otherwise when he doesn’t have good advice to give.

    He keeps making the same mistake that is pointed out every time it comes up, which means either Trent isn’t reading the comments and doesn’t know he’s giving bad advice, or he knows it’s bad advice and is giving it anyway. Or, well I guess he could disagree and think it’s good advice.

    If it’s one of the first 2 then that’s really really bad form. If it’s the third, then Trent needs to explain this.

    There’s also advice he gives about subjects he can’t possibly have a good handle on –like the Canadian financial advice in a previous mailbag where he got somethings wrong.

    The lack of communication between Trent and the readers is really bad and it’s led to confusion and, at least for me, a feeling that Trent doesn’t really value the readers. I know he’s busy (he must be if he needs 11 calenders to keep his life straight) but there have been so many times where multiple people have asked for clarification about a post or mail bag answer and there’s never been a response for Trent.

    But then Trent has stated that he’s not going for quality just quantity and increasingly that is showing through with some really sloppy writing and blog posts.

  33. Sarah says:

    I am with you, interested reader, but this really is nothing new. I do wish he’d NOT just take a stab in areas where he is ill informed, or at least formally invite the commenters into the conversations (as they often have superior advice). Not that it is a shy group here, but i think it is friendly when bloggers explicitly encourage contributions, treating us like a community, rather than acting like the “leader” while we are “followers”. He’s no more expert on most of these topics than anyone with common sense and google access

    I didn’t bother correcting him, but whether or not your loan interest is tax deductible has nothing to do with your “loan offer”. A link to the IRS website about what loans qualify (most do, and it has to do with how they were used, not the loan offer I think). And he didn’t mention the income phase out (someone else did) or the pell GRANT (someone else did)

  34. Sarah says:

    Sorry for the careless grammer – a link to the IRS site would have been better, is what I meant. But it isn’t much of a mailbag if he just links to stuff, i suppose!

  35. Steve in W MA says:

    REgarding Q9, retirement contributions:

    Your question is really putting the cart before the horse. The first thing to do is to determine how much money you are going to want to have during retirement.

    Once you have that information in hand it serves as a target and you can determine how much of your money you need to put away every year. Then you can think about Roth, Non-Roth, and non tax-advantaged investments.

    If you don’t have a good target you probably can’
    t go wrong by maxining out your Roths or your 401 (k) match every year, but you won’t know if that’s going to be enough.

    Find out what you’re going to need, make a decision on your end target, and then these shorter term investment decisions will be much easier to make. Right now you’re trying to make decisions without really knowing exactly what you are trying to accomlish.

  36. Steve in W MA says:

    Regarding Q9, retirement contributions:

    Your question is really putting the cart before the horse. The first thing to do is to determine how much money you are going to want to have during retirement.

    Once you have that information in hand it serves as a target and you can determine how much of your money you need to put away every year. Then you can think about Roth, non-Roth, and non tax-advantaged investments.

    If you don’t have a good target you probably can’t
    go wrong as a start by maxing out your Roths or your 401 (k) match every year, but you won’t know if that’s going to be enough.

    Find out what you’re going to need, make a decision on your end target, and then these shorter term investment decisions will be much easier to make. Right now you’re trying to make decisions without really knowing exactly what you are trying to accomplish.

  37. Todd says:

    If Fred is reading this, I hope the primary issue in thinking about suicide is not just financial problems. I’ve read on a couple other financial blogs on occasional disclaimer something along the lines of “Money is important, but it is, after all, just money….If you read a lot of financial sites, after a while it is easy to lose perspective. Money is symbolic; it’s not as important as actual living people.”

    I have a great deal of respect for money, and I believe it is a matter of moral honor not to declare bankruptcy or to borrow too much or beg, for example. That’s why I enjoy sites like this. I want to avoid that. BUT, if it ever came down to my actual life vs. financial troubles, I would beg, possibly steal, borrow more, declare bankruptcy, do whatever it takes, to preserve my life. Please don’t think of death as an honorable or reasonable exchange for any amount of money.

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