Reader Mailbag: Early Mornings

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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. Paying off low interest debt
2. Refinancing question
3. Coaching youth sports
4. Building credit from scratch
5. Buying home without down payment
6. Breakfast question
7. What happened to WaMu?
8. Handling my first large paycheck
9. Collectible toys for kids
10. Retirement fund on low income

About three times a week, one of our children wakes up really early. It’s often due to a bad dream, but sometimes it’s due to a noise in the night or simply stirring to wakefulness.

Usually, the kids come into our bed for a while, but I don’t get any more sleep once they arrive due to their moving around and restlessness, so I’ll get up with them sometimes.

I’m writing this early in the morning. There are Legos all around me. One of our children has fallen back asleep on the carpet.

Welcome to parenthood.

Q1: Paying off low interest debt
Two sentence summary of question: What should I do with my money when I already have a significant amount of money saved and my only debt has a very low interest rate? Is it a bad decision to pay off low interest debt?

I am 30 and married. My wife and I hope to start a family this year. We are both lawyers and we currently make approximately $350k a year (combined). Once we have a child (God willing), my wife will attempt to work part time and we expect our combined income to drop to approximately $250k. We currently rent ($2200 a month) and we are looking to purchase a home in the next 12-18 months. We have $116k in student loan debt ($66k at 2.625%, 36k at 1.63%, 13k at 2.25%). We were fortunate to have low interest rates on this debt. We also owe 11k on one vehicle (.9% financing). So, we owe $1,110 a month for our debts (education and car). We have approximately 350k saved for a house in our ING account and I have 30k in a Vanguard account (investing in index funds). We both max our our 401k contributions.

For the past year, I have been making minimum payments on our debt. For this year, I am thinking about paying off one of my wife’s two remaining loans (the 13k one) in order to free up our cash flow when she no longer works full time.

We currently save $6k a month. Would you continue to make minimum payments on these student loans or would you start to aggressive pay them off. I know that I have a lot of money saved up for a house etc. I just do not know whether I should save more or get out of debt (even though the interest rate on the debt is low).
- Vince

It is never a bad decision to pay off debt, even debt at a low interest rate.

The best way to think about paying off low interest debt is to think of it as an investment that’s guaranteed to return that interest rate through the original length of the debt.

So, let’s say you have a car loan that is at 4.5% and it has three years left to go. If you pay it off now, you’re essentially doing the same thing as buying a three year CD that returns 4.5%, with the advantage that the returns aren’t taxable but with the disadvantage that it’s a bit less liquid than a CD.

Is that a good choice for your money? I think that most of the time, the positives outweigh the negatives.

Q2: Refinancing question
I currently have a mortgage with a rate of 6%, but I have seen rates offered as low as 3.5% to some of my friends when they refinanced. Because I was curious, I called up my current bank and they offered me two options:
1.) 4.25% on a 30 year loan. This would reduce my mortgage by about $60-$80 a month. But, I would lose the $12,000 that I already paid off on the house, which I don’t like.
2.) 4.00% on a 20 year loan. This would save me approximately $35,000 over the life of the loan, although my mortgage payment would go up about $25 a month.

The numbers above include the $3000 I would pay for closing costs and another $3000 I would have to pay off (from a grant i rec’d when I purchased the house). Both these would be wrapped up in the refinancing loan above.

SO, now the big question…should I choose #1, knowing that the extra money would help in paying off my $27,000 in credit card debt (which we are trying to dig out of now) and about $25,000 in student loans. OR, do I choose #2, even though I would like to move within the next 5-7 years (so I don’t know how much of a real savings I would get). My husband and I think #2 may be the better option but it will just take us that much longer to pay off our debt. Our budget is a bit tight at the moment – we have enough to live month to month, but extra spending like presents for Birthdays or Christmas, do put quite a burden on the finances. And, we have no savings or emergency fund to speak of – aside from taking a loan against our 401K.

What do you think?
- Eve

You should look at the results of a detailed mortgage calculator, like the one over at Bankrate.

I don’t know what your balance you’re hoping to get a mortgage on is, but let’s say it’s $200,000. At the seven year mark (the point at which you think you might sell), your balance would be $172,726.96 on the 30 year loan. At that same seven year mark, your balance would be $146,519.38. Simply put, at the seven year mark, you’ll have $26,000 more in equity in your house if you choose the 20 year loan over the 30 year loan now. The point is that taking the shorter-term mortgage will result in a lot more equity in your house in a few years when you choose to sell.

Is that the right choice to make? It’s really hard to tell. I think it depends on other factors such as job stability, the size of your emergency fund, and the career opportunities you have. The more stable you are, the more I’d lean toward the twenty year loan.

Q3: Coaching youth sports
Coaching youth sports seems like something really interesting to me. It’s a way to give back to the community and get myself outside, plus it’s a free form of entertainment. The only thing I’m unsure about is how to get started.

- Marvin

The first step is to contact your town’s parks and recreation department and find out if they have any openings for youth sports.

You’ll find, though, that if you’re not a parent, you’ll probably have significantly more luck serving in other roles, such as a referee. My experience in several communities has been that the coaches in many early youth sports are parents of some of the children involved and the coaches of more advanced youth sports are professionally trained to do so.

Regardless of what role you fill, there are few things better that you can do in the community. It means physical activity, lots of fresh air, and providing great opportunities for kids.

Q4: Building credit from scratch
My brother-in-law has recently turned 18, moved out of his home with his parents, and into a home with a school friend. He is finishing high school, and will graduate in May. At that time, he will be moving closer to us and attending one of the local junior colleges for at least a year. I am trying to give him some budgeting and credit advice but my own path in each of these areas was initially flawed at that age.

My question is this: being that his income is comprised of social security (until he graduates high school), and should have a job within a few weeks, what is the safest and smartest way for him to establish and then build his credit? His initial solution was to open a credit card, but I am afraid the allure of spending will be too much for him to control.
- Jenny

One option is to have him open a credit card, but give the card to you. Then, use that credit card for things like gas only when you’re with him, and have him give you the cash to cover it. This will build his credit without any risk.

Another option is to contact your card issuing company and ask about adding him as an authorized user on your own card. Make sure that such information is reported to the credit agencies and will benefit his credit before you do so.

A final key is to remember that he won’t be listening to a lot of the things that you tell him. The best thing you can do is make sure he knows you’ll be there for him whenever he needs you. While stuff about “credit” and “Equifax” will likely go in one ear and out the other, making it clear that you care and support him as he finds his own path will stick around.

Q5: Buying home without down payment
My husband and I would like to buy a house. This is our dream and we have been trying to buy but unfortunately prices were always too high for the places we wanted to buy. This time around I’ve finally convinced my husband to look in an area which he previously didn’t want to live in (no real reasons) and where prices are a bit more affordable. The houses are around $400,000 for something decent. This is a bit expensive for us, but I think we can do it.

The problem is he wants to put down a 20% deposit, which we don’t have. We only have about $50,000 and we can maybe reach $60,000. So he becomes stubborn and asks me to look for cheaper homes, which is impossible because for $300,000 we would get nothing or a house in a crime infested neighborhood. We have a 3 year old! My thinking is, let’s put down less. 10%. His thinking is let’s put down 20% or we don’t buy the house. Because of his thinking we still don’t own a house.

What do you think? If we both really want a house, how much is really PMI going to be in the long run and is it right to make PMI such an important factor. I understand that it would be nice to have the whole 20%, but if you don’t have it and if you know it would take at least another 5 years to get that money together, what would you do?

I have a toddler and I would like her to have her own backyard, her own home and such… Also, if this makes a difference, I am not planning on being in this new house for more than 4 years, so the PMI wouldn’t be as substantial as it would be in a 20 years home…
- Linda

I don’t think you should get a house at this point. Essentially, if you’re only going to stay in the house for four years, you’re basically going to be renting for that timeframe as you’re not going to build much equity given the current housing market.

That “rent” will include your mortgage principal, your PMI, your property taxes, your homeowners insurance, your lawn care costs, and increased energy bills, at the very least. That’s a lot of money each month for a home that your child will barely remember when they get older.

Rent as cheaply as you can for four years and sock every dime away for a down payment that you can. When you reach the four year mark, then you’ll be in a much better position to buy the house that you’ll be in for the long term.

Q6: Breakfast question
I need a breakfast of some kind in order to get going in the morning. However, most mornings, all I have time for is grabbing something through the drive-thru on the way to work and that adds up quickly (both in the wallet and around the waist). Any suggestions?

- Jill

Plan ahead for that breakfast.

My solution to this problem was to make giant batches of breakfast burritos on the weekend and store them in the freezer. Then, in the mornings as I got ready to go, I’d grab one from the freezer, wrap it in a paper towel, and microwave it. I’d grab this on my way out the door and eat it on my way to work.

The cost per burrito was much lower (helping with the wallet), the ingredients were healthier (helping with the waist), it was pretty tasty, and it actually cut five or ten minutes off of my commute time because I wasn’t stopping at a drive-thru.

Q7: What happened to WaMu?
I’m a college student that’s starting to look around at banks to see which one might be best for me. In reading some old articles, I discovered a bank by the name of WaMu that was very popular and apparently a fierce competitor to ING. However, when I went snooping to their website, I discovered that they were now becoming a part of Chase. Do you know if this has changed much about the experience of using WaMu?

- Mark

WaMu is short for Washington Mutual. Washington Mutual was a bank chain that failed during the banking crisis of 2008. It’s now out of business. JP Morgan Chase wound up with most of the assets and accounts of Washington Mutual.

Most of the features that made WaMu distinct – good rates, a very unique floor plan in the branches, aggressive and quirky marketing – have not really continued under the new ownership. It’s just a part of Chase.

WaMu made a lot of poor business decisions, but it made some good ones, too. More competition is always better for customers, so I’m kind of sad to no longer see WaMu in the mix.

Q8: Handling my first large paycheck
Taking advice from your blog and several others, I’ve recently quit a low-paying job in the education field (about $19K a year, September to June) to take on a position as an office admin assistant (for about $30K a year). I feel good about the move: while I’m not using the degree that put me into such debt, I enjoy office work, I’m good at it, and it both pays better and is far, far closer to home (hour commute compared to fifteen minute commute!). I’m looking forward to no longer living paycheck to paycheck within the next two months, and have a plan in place for getting rid of my debt a bit faster and creating a more solid emergency fund (it’s currently about $1,000).

While I know I’ll still be living on a tight budget for some time, I’m looking forward to having a bit of “breathing room” – no longer living paycheck-to-paycheck, having an emergency fund, etc. Talking with friends has raised what I think is a good question, even though it might not apply to me for several years. I’ve witnessed (and even succumbed to) the “first paycheck” trap: the “hey, look, I’m making a ton more money than I’m used to – that means I can splurge and treat myself to xyz!” Obviously, until I’ve paid down my student loans in the coming years, I won’t be able to fall into this trap, and I’m hoping that after my loans are gone I can begin saving for a house.

But I was wondering: what, if anything, do you consider worth splurging on once you’re comfortably making more money than you’re used to? Assuming debts are paid off, emergency funds are more than adequate, retirement is funded, and you’re already saving towards whatever goals you have in mind, etc. Obviously, the trap of just splurging on instant-gratification items isn’t the way to go, nor is pitching out everything you’ve “made do” with until this point to buy bigger, better, brand-new whatevers. But once you’ve achieved that leeway, what do you think would be worth spending that extra in your paycheck on?
- Ben

If I were you, I would focus your “splurging” on replacing items you already use with very well made and reliable replacements.

There’s not really an exact answer here, as it depends a lot on what you do with your time and the lifestyle choices you make. If you spend a lot of time preparing high-quality meals, for example, you may want to focus on upgrading your kitchen tools slowly. If you have a lot of guests, you may want to slowly upgrade your flatware and dishes.

Don’t buy “new” things – or, if you do, be wary. Instead, slowly upgrade the stuff you actually use to high quality and reliable versions.

Q9: Collectible toys for kids
How do you handle it when your children get into some sort of collectible toy that never seems to end, like Pokemon or Pokemon cards?

- Andy

They buy such things out of their allowance. Because of that, it somewhat limits itself.

My son got heavily into Pokemon cards for a while, as it was heavily spurred by a cousin who gave him several hundred cards and some older kids at school who played with the cards in the cafeteria. He received a few packs as stocking stuffers and bought some more with his allowance, but eventually the fad passed.

This isn’t really a problem if you don’t give into your children and constantly buy them things.

Q10: Retirement fund on low income
I am 24 years old and renting in NYC. I have roughly $11,000 in student loan debt, and only $1000 in an emergency fund. I don’t have any credit card debt because I hate the idea of spending money I don’t have. I am aggressively paying off the loans (5 separate loans, averaging a 5.5% interest rate) paying close to 3x the minimum payment. I hope to have it all paid off in 3 years. Even though I have a masters in social work, the field doesn’t pay too well. Luckily I do LOVE what I do. My job offers a 403b but I am afraid to invest my contribution because I know nothing about investing, however there is a savings account type option. Then I hear all about IRAs and other retirement fund options, which, again, I know little about. I feel like I don’t have too much disposable income to even begin to put towards retirement. I still feel like I’m so young, but I don’t want to struggle to catch up later in life. What type of retirement fund is appropriate for someone who potentially can only contribute $100 or so a month?

- Fred

Your best option is probably a Roth IRA, as you can set it up yourself quite easily, keep control of it yourself, and it’s pretty simple when it comes to taxes.

However, where you save your retirement money is less important than the fact that you’re saving it. You are better off saving $100 a month in a sock drawer for retirement than you are saving $0 a month in the perfect retirement account with the best possible choices.

Just save. That one right decision dominates any small wrong decisions you’re likely to make.

Got any questions? Email them to me or leave them in the comments and 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 hundreds of questions per week, so I may not necessarily be able to answer yours.

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41 thoughts on “Reader Mailbag: Early Mornings

  1. Trent, I tease you a lot but the answer to Q8 is great. Take things you already use a lot in your life and replace them with new better quality versions, rather than try to find something you don’t already do/use in an effort to buy some happy. Simple but profound.

    Q1 – at your level of income you’re probably better off getting professional financial advice from a planner or CPA rather than writing into a free website. Penny wise pound foolish.

  2. Q5 — I don’t understand why she wants to buy a house so bad, yet move in 4 years or less. I agree with Trent, it’s better to keep on renting and saving. Buy when you intend to stay put for longer.

    If you aren’t happy with your rental, can you find a better option? Maybe increase your rental budget a smidge and see if you can find something close to a park, or with a safe yard or in a better area.

  3. @Q6

    The thing is, in most cases going through the drivethrough takes *more* time than making your breakfast at home. (MY problem is I can’t eat that early, although I do need breakfast.)

    But for quick-food-out-the-door, think about other things that are quick and you enjoy eating – my breakfast this morning was a wedge of cheese and an apple. I’ve brought in plain (NOT non-fat) yogurt with a little honey, hard boiled eggs, fruit … anything with a nice combination protein and fat, plus some fruit, will make a good breakfast. If your office has a toaster, bring in some bread and a jar of peanut butter … or even do that right before you leave the house, it’s still faster than a drive through.

  4. Q10 — Fred, you can start saving for retirement now! It is overwhelming to pick out options from your company’s retirement plan when you’re first starting out. Perhaps someone in HR can help you.
    Do you have a company match?

    Even $100/month right now will have a big impact since you are 24 years old, because you can gradually increase it. Starting now is the most important thing.

    If you want to pick something and forget it, see if your retirement plan offers a “target date” fund. You choose the retirement year most close to the age you think you’ll be when you retire, and the account will automatically adjust as you get older, and it’s diversified already.

    If your 403b doesn’t offer that, perhaps you can open an IRA with that option. Vanguard’s Target Date plans have an extremely low expense ratio.

  5. One thing we did differently with our children is this: all sleep disruptins due to bad dreams, etc. were resolved in the child’s bedroom. Any cuddling or comforting happended at their own bedside. We never brought them into out bed. It worked out very well for all concerned and I think we avoided a lot of problems.

  6. @ Wiley-Really? His writings about his family life always come across to me as cold, even though it’s clear he’s attempting to be tender and warm.

    Q5-Listen to Trent and your husband! You *think* you can afford this expensive house? No, you’d better *know* you can.Take Trent’s advice and continue to rent and save as much as you can. I’m sure your daughter would choose parents with a solid financial foundation over a back yard.

  7. Q6 – You can also eat a looooootttt of cereal in the five to ten minutes that it DOES take you to go through a drive-through.

  8. @Q5

    Trent’s right on. Your letter is pretty much the perfect storm of ‘don’t buy this house.’

    While in my opinion PMI is a pretty big factor, the bigger factor is how short of a time you want to stay in the house – you’ll almost certainly lose money, and it doesn’t make sense from a financial point of view. If you were planning on staying in the house for years and years, PMI can make sense, but not in your situation.

  9. @Q5 – the fact that you would move in 4 years is the reason not to buy a house. We bought with 10% down and it was absolutely the right decision – I don’t believe that everyone falls into the category of “if you don’t have 20% down then you can’t afford it.” But seriously, if you’re going to move in 4 years, you’ll have great difficulty in recovering the costs. That’s the big reason for you not to buy a house.

    @Q1 – rather than prepaying debts because you can’t think of anything better to do, I would spend some time thinking about your goals. Do you want to travel? Have your wife stay at home full time? Buy a vacation home? I mean, if you truly have nothing else you want to do with the money, feel free to pay extra on the low interest rate loans, but I would also make sure that there’s nothing else you want to do with the money.

  10. “Have him open a credit card, but give the card to you. Then, use that credit card”

    Isn’t that credit fraud unless you’re registered as an authorized user with the bank issuing the card?

  11. Q1: One of the cases where it does not make sense to pay off low-interest debt is when you end up replacing it with higher-interest debt. If paying off a $13K loan at 2.25% means adding $13K onto your eventual mortgage (at a rate higher than 2.25%), that is a net loss for you.

    I admit I am not considering the tax consequences of your various loans, because I don’t know what they are at your income level and don’t feel like looking them up.

  12. Q1 – I’d pay them off in a heartbeat just for the peace of mind and for the flexibility of being able to spend money the way you want to. What if jobs were lost? What if your future child is ill and she wants to be home full-time?

    I don’t know the cost of housing where you live, but $350K is a lot of money to have for a house, at least here. I think I’d rather than $223K for a house with no debt (I’d pay off the $116K and $11K to bring the 350 down to 223). Then all those monthly payments can go into your bank account. But that’s me. Obviously, the decision is up to you.

  13. Q2 – Why would you lose the $12K you’d already paid off? I don’t get that part. You’d refinance for the amount you owe on it, right? So, even if you bought it for $100K, if you owed $88K, you’d just refinance for the $88K. You wouldn’t lose $12K. I’m confused.

    It sounds to be like your closing costs are pretty high and with moving in 5-7 years, it’s probably not worth it – unless there’s another driver for it (ie: can barely make the payments).

    Q6 – I used to buy oatmeal packets and eat them at my desk at work, using a cup and the hot water that you can get out of the coffee machines here. Might be an option for you.

  14. Q4 – Part of establishing good credit is not only having the cards or loans but being adult enough to handle them responsibly. Having you hold the card isn’t really teaching him that.

    Once the BIL has a job, he should be able to get a credit card, even if it’s a secured card to start, with his bank or credit union.

    If he’s concerned about the lure, then once he has the card, he can file it away where he’s not seeing it every time he opens his wallet. And DON’T cosign on the CC application or let him have one of yours unless you know you can comfortably cover any charges he makes.

  15. Q6 – I had the same problem of wanting a hearty breakfast that I could take with me, but I don’t like to eat the same thing every day as I find it tiring. However, I don’t mind eating the same thing every day for a week, so I would plan one breakfast for the week, eat it every day and the next week do something different. This way I didn’t get tired of my food, but the one breakfast a week made preparation easier.

    Some ideas:
    - Yogurt and fruit or cottage cheese and fruit. Portion them up the night before and then just grab a container on your way out. You can even pour some granola on your yogurt.
    - Multigrain toast with peanut or other nut butter (I like almond) with bananas or apples
    - Steel-cut oats can be cooked overnight in a crockpot and then served up in the morning. Alton Brown has a recipe for this on the food network site. This is better if you have multiple people to feed in the morning and doesn’t work as well as a week long meal.
    - Cold overnight oats. You combine equal parts milk, yogurt and rolled oats (I find about 1/3 cup of each to be a good serving for me.) and whatever else you want (fruit, nuts, spices, sugar, nut butter,…) and put them in the fridge overnight. The oats absorb enough moisture to soften and they are ready to eat in the morning without cooking. I like this in the summer when a hot breakfast is not as appealing. A blog called Kath Eats has a lot of different recipe for this, but I just throw in whatever I have around.
    - I like to make multigrain waffles, put portions in sandwich bags and freeze. Then I cook them in the toaster and put applesauce or nut butter and fruit on them.
    - There are multigrain hot cereals that can cook quickly and are nice break from oatmeal. I tried several varieties from my health food store and liked Hodgson Mill 7 Grain cereal for its taste and how quickly it cooked in the microwave.
    - I also will make a batch of multigrain muffins and then eat them all week with some fruit.

    Like Jayme I keep some instant oatmeal at my desk and cook it with water from the coffee maker. It’s my back up when I forget my breakfast. I also explore a lot of food blogs which often give me ideas for new breakfasts. Happy eating!

  16. I second everything Jayme said to Q1, especially the part about having $223K in the bank and zero debts. I’m willing to bet the student loans and car payments, even at their low interest rates, are a liability over $800 a month. Pay them off, and avoid any lifestyle inflation, and you’ll be saving about 7K per month. I don’t think people at that income level can deduct student loan interest, so that’s not even a mitigating factor in favor of keeping the loans.

  17. Q7 – I had a WaMu account that converted to a Chase account when Chase took over. It was fine at first, but then Chase started adding all sorts of fees, and I closed my account because I’d had enough. There was nothing wrong with their services; I was unhappy with their high fees and the bad attitude of one Chase staff member.

    Why don’t you find a credit union to join instead? They usually have no or low fees. If this is not an option, find a bank that offers a good deal to students.

  18. Jayme said – “Q1 – I’d pay them off in a heartbeat just for the peace of mind and for the flexibility of being able to spend money the way you want to. What if jobs were lost? What if your future child is ill and she wants to be home full-time?”

    To my mind, you’ve made the opposite of your point. By paying them on the regular schedule rather than early, they have MUCH more flexibility. If I lost my job, I’d much rather have an extra $127k in cash (which is over 9 years of $1,110 monthly payments) than not have the cash or the payments.

    In response to Q1, I’d seriously look at investing the money for income or growth. Don’t bother paying off the super-low interest debt quickly (especially consider the comment above regarding trading 2% student loan debt for 4-5% mortgage debt – a loss any way you look at it). You say you have $30k in an investment account and max out 401ks. Great. But at your current income level you could start investing for cash flow (pick your poison – dividend stocks, real estate, whatever else) and with a few years of clever investing be producing thousands of dollars of monthly income. THAT would give you flexibility.

  19. Linda @Q5 – The transaction costs of buying and selling a house within 4-5 years added to the PMI and the possibly higher rate you’ll get putting less than 20% down makes it a really bad decision to buy a house now.

    You do know you can RENT a house with a backyard, don’t you? In fact, in most communities you can rent such a home for far less per month than it would cost you if you’d bought it.

    If what you want is to live in a particular type of housing, don’t feel that you have to put off that part of your dream until you can buy it.

  20. Did anyone else feel a brief flicker of hope when Q1 opened with a 2 sentence summary of the issue at hand? I thought maybe Trent was going to start doing that for the looooooong questions.

  21. I’m with #6 Maureen. When a baby wakes in the middle of the night, stay in their room with the lights as low as possible and stay as quiet as possible – don’t make it entertaining to wake up then. Older babies can be waited out to help them learn to self-soothe. And yes, that can be disruptive to other members of the family, but it’s surprising what other kids can learn to sleep through!

    Once the kids are old enough to come into your room to find mom & dad, they’re old enough to be quietly walked back to their own room, put back in bed, & patted or otherwise quietly soothed until they fall back asleep. Again, it’s all about making it not entertaining (or a way to get mom or dad all to one’s self for awhile) and learning to stay in bed to eventually fall back asleep when you wake up in the middle of the night.

  22. Q6 – I sympathize with this situation. I keep a loaf of bread in the fridge at work, plus peanut or almond butter at my desk for back-up breakfast when our groceries are running low. Its not much, but it tides me over till lunch and keeps for a long time. I also keep a box of instant oatmeal, but that stuff is so sickeningly sugary it is just for last resort.

    Also, this won’t work for everyone, but sometimes I’ll just have coffee and skip breakfast and eat lunch a bit earlier. I figure an early lunch that is larger and healthier (usually dinner leftovers) is better than having breakfast through the drive thru. That only works if you’re not also eating lunch out, but its an idea.

    In a perfect world, I’d love to make batches of my favorite breakfast foods ahead of time, in perfectly portioned packages, but that just isn’t realistic for my lifestyle.

  23. Q2: I honestly think the third option that you don’t mention is the best one for you, namely don’t refinance at all. If you are planning on moving that quickly it doesn’t make any sense. We just refinanced from a 6.5 into a 4.125 for 30 years. It lowered our payment by $200 and we pay off the closing costs in less than a years. I just don’t think it’s worth it for you to go through all the hassle for the small amount you list. And the 20 year doesn’t make sense because you aren’t going to save $35,000 in interest if you plan to move.

  24. Ben @Q8,

    Consider “splurging” occasionally on new experiences, building skills and expanding your horizons.

    If you’ve never done it before, take in an opera, a symphony, a play, a rodeo, a circus, a county fair — something truly new to you. Make it more meaningful by spending a few hours in advance on the Internet learning about what you’re going to see.

    If there is a productive, artistic, or active hobby that you’re attracted to, splurge on some classes or needed tools. Classes first, to make sure your interest holds, before tools you’ll end up not using if your interest doesn’t hold (and look for tools at garage sales, Freecycle, Craigslist, etc.) Things like carpentry, auto repair, welding, sewing, cooking, hunting, fishing, hiking, camping, gardening, geocaching, dog training, and many others. Caution: It is possible to throw away a lot of money on hobbies, so go slowly. But such hobbies and activities can really add great pleasure to your life and in some cases can develop into side businesses, increase your self-sufficiency or save you money.

  25. Q2: I re-read your question again, and now I REALLY think it makes no sense for you to refinance. You can’t even begin to pay off your credit card debt with the small amount you gain. But the main reason you shouldn’t refinance is because you don’t have the money to pay the closing costs upfront. Wrapping it up in the loan is a terrible idea. Based on my math, you truly won’t make up the closing costs and extra you are adding to the principle before you sell the house in 5-7 years. And you could put yourself in a worse position to sell, especially if the housing market doesn’t improve before then.

    We debated refinancing for a long time, and the only thing that tipped the scales for us was the decision that this is probably our forever home once we put an addition on the back of the house next year. Otherwise it really didn’t make sense. Refinancing is not a magic bullet. In your circumstance, I think your move would only serve to benefit whatever bank buys your loan.

  26. “take in an opera, a symphony, a play, a rodeo, a circus, a county fair”

    But not a rap concert? :)

  27. Q1 there’s a reason why they use the word “liability” and job loss or injury would mean that debt is indeed a bigger liability. It’s always better to have less debt. Period.

    Q8 Things I used to splurge on with bonuses and windfall checks: guitars, basketball jersies, gadgets.

    Things I would splurge on now: home appliance upgrades (they work, but they’re 10 years old, and it’s better to hunt and find a deal when you have time vs an impulse buy because the fridge just died and your food is going bad.
    A new suit, a nice suit. The best suits keep for years in style and quality. But no one likes buying one on the fly for a wedding/funeral/interview.
    A new desktop computer: laptops are great but take wear and tear. A super computer will last a long time by being ahead of the obsolescence curve. PC or Mac, a $2000 desktop is a better value than my $400 craptop, or a base model iMac. Bigger guts will last longer with tech requirement upgrades.

    Splurging on new tires, not so much gratification. But it’s better to again shop and buy when it’s not an emergency vs when it is. So think about that when planning a “splurge”.

  28. Q4. At 18 he should be less concerned about building credit than in not messing it up. Many (most?) 18 y.o. would have a hard time not running up a balance. He should focus on paying rent and utilities on time and saving money. In a couple of years of being responsbile he can think about getting a cc (secured, if necessary).

    Don’t add him as an authorized user on your card. What if he decides to use the authority you’ve given him? There are lots of ways he might get your account number

  29. The Much-Festering-in-the-Marsh County Amateur Dramatic Society proudly presents “Otello”, music by Verdi based on a play by Shakespeare. The drama will be staged on horseback, except when the clowns fall off. We’re sorry not to be able to combine this with a symphony, but we hope it will meet most of your needs.

  30. Q2 – how do you “lose” the $12,000 you’ve paid down on your current mortgage? Can’t you choose to refinance the existing balance? If I were you, I’d consider how long you expect to live in this house and then evaluate as follows: $6,000 will be added to your mortgage balance (I’m assuming you don’t need to add back in $12,000 that you’ve paid down before), and you’ll be saving $60 a month in payments. This is a 12% return on $6,000. However, it will take over 8 years to break even on this; if you sell the house in less than 8 years, you lose money (though you improve cash flow in the interim, which is another consideration). If you stay in the house for 10 years or more, you start to see a positive return on the investment.

  31. Q1 Vince : It won’t hurt to pay off debt. But you can save that money in a CD and get 2% and come out ahead. And if you’re looking to buy a house you can put it towards the home purchase and save the 4% on the home mortgage you’d have been paying there. So any free money is better spent elsewhere than paying down 1-2% debt. Keeping money in a CD or mortgage isn’t higher risk than paying off the debts.

    Q2 Eve : Given the 2 choices, I would take the 30 year and pay down your credit cards as fast as possible. However, you may want to reconsider refinancing if you only plan to stay in the home a few years. You’re spending $3000 on closing and repaying a $3000 grant so refinancing costs you $6000. I’m assuming your loan is around $100k given the figures you cite. You’d only be saving maybe $2000 in interest so it would take you 3 years minimum just to repay the cost of refinancing. If you itemize and deduct your interest it would take you longer to break even. You should also definitely shop around for better rates. I think your closing should be closer to $2000 or $2500 and interest of 4% on 30 year.

    Q4 : Don’t give him a card or co-sign. Let him build his own credit.

    Q5 : You should really look at renting a good home instead. Buying and selling in 5 years is too short to try and come ahead. You’d probably spend $8k to close a $400k loan, then $24k to pay a realtor commission to sell. Thats $32k cost in 5 years just in buying/selling. Plus all the other costs of owning. Its a good bet you’d lose money trying to buy a home for 5 years versus renting.

  32. re Q2: comment about “losing $12000″ I am guessing what they mean is that they already paid $12,000 towards a 30 year mortgage and if they then refinance into a new 30 year mortgage they feel like the mortgage payments they already made are lost. Restarting the clock at 30 years may feel like the money already spent is ‘lost’. Most of it was ‘lost’ to interest. Some of it went to principal and is NOT lost. Whether or not you refinance to 20 year or 30 year the money you spent on interest in the past is already gone so its ‘lost’ no matter.

  33. @Q2 @Jayme I had the same question. Where does the $12k come from (or go to)?

    5-7 years isn’t a long, long time, but it’s probably long enough for a refinance from 6% to 4% to pay off. But you do have to run the numbers.

  34. “…contact your card issuing company and ask about adding him as an authorized user on your own card…” NO, NO, A THOUSAND TIMES NO!!! You will regret this! He will run up debts, refuse to pay, and you will be on the hook for the money. He will go bankrupt (he’ll figure this one out on his own, amazingly enough) and you will have tattered credit and be forced to pay his debts. This is among the worst advice the author of this blog has ever given and that is saying something.

  35. Um, 18 year olds can’t open their own credit cards now, right? At least not without parental consent and proof of income. We don’t know the family situation, but it sounds unlikely he’ll be able to open his own card.
    Stop worrying about your brother-in-law’s credit score. If he makes smart, responsible choices, his credit will get to a desirable number soon enough. You should be teaching him good money habits, which can certainly be done without a card.

  36. 18-year-olds don’t need parental consent to do a damn thing in this country. They might need a co-signer on a credit card but that has nothing to do with parental consent.

  37. Q2 Call the bank back and ask if they offer “streamline” re-fis. Some lenders will offer this option (if asked) to keep you from moving to another lender. It may not get you the very lowest rate, but it usually costs a flat fee of about $500.
    The five-alarm fire is in your last sentence: NEVER, NEVER take out loans against your 401k! It is a HUGE mistake. Trent, JD and others have detailed the reasons in the past.
    Sounds like what you’re missing is discipline: start an emergency fund of at least 1K and then pay off your credit card debt. 6% is not a bad mortgage rate, historically speaking. If you can’t do a streamline re-fi, forget the whole idea and focus on the EF and CC debt.

  38. We have a “toddler alarm clock” (search that on amazon) that turns green when my daughter is allowed to get out of bed. She was getting up earlier and earlier all the time. She is still an early riser, but I decided that I could live with 5:50 am. The clock has really helped her judge time better. The clock is a bit overpriced, but it has been worth every dime!

  39. The new CARD act says that :
    A credit card cannot be issued to someone under age 21, unless they have a co-signer (who is 21 or over), or can provide proof of a means to repay.
    So an 18 year old can get a card if they have a job that gives them sufficient income or if they get a co-signer. The co-signer doesn’t have to be their parent.

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