Reader Mailbag: Christmas Week

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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. Credit score and car question
2. Returning Christmas gifts
3. Negative credit card balance
4. New Year’s Eve party planning
5. Saving money on a cruise
6. Starting out with home renovations
7. 529 plan recommendations
8. Making an e-reader cheap
9. Retirement or debt freedom?
10. Paying off debt

Sarah and I typically have a Christmas celebration with several different groups at several different times around Christmas. This year, our first one took place on December 22 and our last one will take place on New Year’s Eve.

In other words, the week around Christmas becomes a week of spending a lot of time with family and friends. We get a chance to see friends that we only see once a year. We get to watch our children spending time with their cousins – and we get to spend time with our cousins and aunts and uncles, too.

It’s the best time of the year.

Q1: Credit score and car question
Recently my upromise cc was sold from Bank of America to Barclays. Well, I’ve always paid it off each month automatically (I have a monthly donation that is automatic too.) However, Barclays randomly stopped my auto payment (I set it up as soon as I got the new card.) And they’ve messed up my statements from the Bank of America days so they say I now owe MUCH more than I do. I’ve always paid it off but they say I missed one (not true, my mint account shows it paid and so does the actual statements.) I’ve reported them to the FTC and Consumer Protection Bureau too. I think they’re fixing it now though, hopefully! My main question is, if I stop using my credit card all together will it hurt my credit score? Honestly I’d like to even be mortgage free in the future and pay cash instead, but I have a credit score of about 750 (I’m 22.) I’d like to keep it high too. Will not using my card lower it?

- Jill

If you stop using it in the short term and start focusing on getting the balance fixed, it will not hurt your credit score a bit.

Over the long term, you’re going to want to get this fixed. At the same time, keep paying your bills on time and keep steadily reducing the amount you owe. Both of these things will be continued positives on your credit score.

If your current score is 750, if you keep doing things in a healthy fashion, you’ll be fine when it comes time to get a mortgage. You’re fine now, actually, but you’ll be able to overcome any negatives from this experience.

Q2: Returning Christmas gifts
My family tends to put gift receipts on the gifts that they give (if possible) which is nice because it makes it easy to return the gifts if they duplicate things we already have.

Of course, this also makes it easy to return stuff we simply don’t like. What do you think? If it’s easy to return a gift we don’t want, should we do it and get something fun? Should we use it for something practical? Should we do it at all?
- James

It really depends on your family culture. In some families, there’s a lot of sentimental pressure to never do such a thing. In other families? No one will care a bit.

My approach would be that, if I didn’t have use for an item, I wouldn’t stress out about returning it. Whether I got something practical or not, I’d probably get something fairly practical with it because that’s just the way I’m wired. I tend to appreciate more practical items.

Do what feels right. If it doesn’t feel right, don’t do it.

Q3: Negative credit card balance
I’ve been attacking my credit card balances over the past year and a half and actually paid one off completely a few months ago (wooo!!). But then last month, they informed me that they were reimbursing me for some purchases that they had “incorrectly charged”, which has resulted in a negative balance for this card. It is a small amount (< $30), but do you have any insight about how credit card companies view negative balances, in general? Is it as simple as just deducting that amount from your total debt utilization ratio?

- Roger

It’s hard to know the exact answer here because no one outside of the Fair Isaac Corporation knows exactly how the FICO formula works.

However, based on what I’ve read and observed, a negative balance works more or less the same as a zero balance in terms of credit score. You’re not penalized for winding up with negative credit card balances.

If I were you, I’d use that $30 to pay for part of a grocery trip, then pay off your bill in full the next time it comes in.

Q4: New Year’s Eve party planning
How do you keep the cost of a New Year’s Eve party from spiraling out of control? We’re hosting a pretty big one, but with the costs of all of the snacks and the bottles of wine and stuff it’s getting really expensive.

- Martin

The easiest suggestion is to just ask everyone to bring something. Have them bring a bottle of wine or an assortment of their favorite finger foods. Naturally, you’ll want other things to supplement this, but it should cut down on the cost. (In fact, I’d consider it bordering on rude for guests to bring nothing to a party such as this, but that’s another story.)

I’d just call up the guests and ask some of them to bring a bottle of wine (“Could I count on you to bring a bottle of good wine? Thanks!”) and ask others to bring some finger foods (“Could you maybe bring a batch of those delicious marinated garlic rolls? Thanks!”).

It’s pretty much expected for our regular guests to bring beverages and other snacks at an event such as this, and we reciprocate with their invites. It’s simply polite, for one, and it also makes the event more enjoyable and less stressful for the host.

Q5: Saving money on a cruise
I`m going on a cruise and want to save money. Any Ideas?

- Jim

Plan your own airfare instead of just getting it in an overpriced package. Stow some beverages in your luggage when you board, and maybe some snacks, too. Pack a powdered mix to reduce beverage costs – some single-serve mixes like Crystal Light can provide a flavorful drink with free tap water.

If you’re going to gamble, bring a specific amount just for that purpose and stop when it’s gone. Bring your own digital camera and have fellow travelers snap pictures for you. Handle your own luggage if at all possible.

Don’t spend money on internet or cell access. Be picky about shore excursions. Don’t spend money on more upscale meals.

Cruises become expensive because of the nickel-and-diming. Be aware of that and minimize it.

Q6: Starting out with home renovations
My wife and I have been talking about renovating parts of our home, but we’re frankly scared by the scope of the job. We want to re-do our whole kitchen but it just seems like a tremendous amount of work that we’re not sure how to do. Do you have any suggestions for books to read or other things that can break down our dreams into simpler steps?

- Trevor

I’d suggest starting smaller. Look for a smaller home improvement project in your house that doesn’t scare you as much.

Look for help from friends that might know what they’re doing. If you have friends that have done this before, ask them for advice and even for help.

If you have friends who are about to do this themselves, volunteer to help them and use the opportunity to learn about what goes on during a kitchen remodel. If you’re helpful, they’ll be likely to help you when you’re doing it yourself.

Read. Hit the library and check out books on doing home improvement projects yourself. Read them thoroughly. Watch Youtube videos on parts that you don’t quite understand. The more you know, the more approachable the task seems.

Q7: 529 plan recommendations
I’ve been considering opening 529 plans for my nieces and nephew since I don’t think anything has been done about investing in their future. I like the idea of other people being able to contribute directly to the account, but unfortunately my state (NJ) seems to be ranked fairly low when it comes to their 529 plans. There are no tax benefits to enrolling in the NJ plans. What state’s plans would you recommend?

- Alan

I love Iowa’s plan because it’s managed by Vanguard and there are tax benefits for me as an Iowa citizen, so I’ve not had personal incentive to shop around.

I wouldn’t stress out too much about shopping around. You can’t estimate future performance based on past returns, so the only things you should be looking at are how the accounts can be used and the investment house running the plan. Even if you don’t choose perfectly, you’re better off starting now rather than dithering for the “perfect” plan and waiting a while to start. The tiny gain you might make is dwarfed by what you lose by wating.

So, here’s what you do. Pick a plan that matches what you need and don’t worry about finding the perfect one. Just get started quickly and start putting aside a healthy amount. You’ll be glad you did.

Q8: Making an e-reader cheap
I got a Nook for Christmas. It’s a reasonable gift for me because I’m an avid reader, but I’m not sure how to make this a good value. I know you have a Kindle but do you have any ideas for a Nook?

- Beth

This post outlines many ways to find free and very inexpensive books for the Nook. Most of these tactics work identically well for the Kindle and for other e-readers.

I use many of these tactics. I check out books electronically from the library, and I also keep a careful eye on electronic book sales. The end result is a plethora of inexpensive books I’m excited about reading.

If you’re patient at first, you’ll likely find that there’s more to read than you ever have time for and you don’t have to spend much at all to build up that collection. At first, though, you don’t have many books and it can be frustrating. Be patient.

If you’re flexible in what you read, you’ll find almost infinite reading material with an e-reader, which is wonderful since you can have a small library in the palm of your hand.

Q9: Retirement or debt freedom?
This may be a question of short-term versus long-term goals and impacts. I could take my contribution to retirement (currently $17K) and place it into my mortgage ($600/month) which in three years would be gone. I am 45, making $100K/year. I also have $20K in a money market (saving 400/month) which I draw upon for big ticket items for the house: roof, etc. The mortgage is at 5.1%. TSP is earning roughly 8%/yr over 10 years (thanks, Trent, for helping with that calculation last year in a letter). What do you think?

- Margo

It depends on how much you already have socked away for retirement. If your retirement bankroll is pretty big, then I’d feel okay getting rid of that mortgage. If you don’t have a lot in retirement, I’d focus on the retirement.

How much is “a lot”? Forbes offers a sensible estimate of six times your annual spending by age 46. If you’re there, then I would get rid of that mortgage. If you don’t have that much saved, I’d keep whacking away at retirement.

I will say that I don’t think you’re committing a giant financial mistake no matter which way you go. Both paths are reasonable and since both paths have you investing money and spending less than you earn, they’re both financially responsible choices.

Q10: Paying off debt
My husband is getting an inheritance from his aunt who passed away. We are paying off our rental condo off which willhelp us put money away for our childrens future as well as a nice emergency fund. I have saved almost 20 grand so this will be a nice cushion. My question is this my spouse has 15,000. in credit card debt 20,000.00 in a car loan,and 7,000 in Other stuff. How do you tell a person that it’s better off being debt free than only Earning the very minimum in a savings account. He wants to put the rest of the money in a savings account so he has “money in the bank”. He has never been one to save money and I have tried to talk with him about how He would have so much more liquid money if he just paid off his bills monthly or paid cash for every day stuff. I try to show him my monthly budget and am willing to help him. What does one do when parent is better at money matters where the other is not.

- Erin

I think you should just run through a month of numbers with him. What is he paying in interest on all of those debts each month right now? What is he earning in interest on his savings account right now?

Next, show him a situation where he applies all of the money to his highest interest debts. Roughly how much will he be paying in interest then? How different is that than the situation before the inheritance?

Then look at the situation where he puts all of the money into a savings account. How much will he be earning in interest in that scenario? How different is that situation than before?

Since I don’t know the specifics, I can’t say for sure, but I’m pretty confident that the amount he pays in interest each month would go down drastically, while the amount earned in interest would only go up a little.

Sometimes, you’ve got to turn concepts into real dollars and cents.

Got any questions? The best way to ask is to email me – trent at thesimpledollar dot com. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

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