Reader Mailbag: Laura Nyro

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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. Saving for education
2. Downsides of balance transfers
3. Needs, wants, and emergency funds
4. Handling risk intolerance
5. Converting debt into student loans
6. Taxes and freelance work
7. Income-based repayment
8. Handling new annual fee
9. Buy or repair?
10. Paying cash for a car

Laura Nyro is one of my favorite musicians. She was a singer and composer of jazz, gospel, rhythm and blues, show tunes, pop, and rock music whose popularity peaked in the late 1960s, but she’s most well known for a pile of songs she wrote for others. Strange, really, because I find her own renditions of a lot of the songs to be superior and far more soulful. I think her shyness (which comes out in interviews) may have played a part in her relative obscurity. I’d suggest a YouTube search for “Laura Nyro” if you’re curious.

Anyway, why mention her? I came across a quote from her recently that I’ve been thinking about a lot. I’m just going to share it with you without comment.

“As beautiful as simplicity is, it can become a tradition that stands in the way of exploration.”

Q1: Saving for education
I’ve started to notice my checking account building up money that’s not going towards any particular goal. I’m in a serious relationship and know that one day I’d like to have children and send them to college. Is there a 529 or other investment vehicle that I could put that money into for college considering I wouldn’t be able to specify a beneficiary? On a similar note, if I decided to save for a (probable) return to grad school for an MBA, what types of plans should I be investing in?

- Bill

You can absolutely start saving now for a future child’s education. I started saving in advance of my own children’s births.

All you do is open up a 529 account identifying yourself as the beneficiary. Then, when the child is born, change the beneficiary to the child. The amount will be treated as a gift for taxation purposes, which means that if the amount is less than $50,000, you won’t have to pay any taxes after changing the beneficiary as long as you spread out the gift across multiple tax years when you file your taxes.

As for yourself, you can also open a 529 with yourself as a beneficiary. As for what you should be investing in, the easiest method is to use one of their targeted investment options. Most 529s offer investing plans that are designed to maximize risk and reward depending on the date at which you’re planning on utilizing the money. I would use the option that matches your target year.

Q2: Downsides of balance transfers
My husband and I have broken every rule in your book, and are paying for it now. We are at retirement age and are thoroughly unprepared, but still lucky, since we both have legacy pensions from employers to fill in the gaps.

One specific question I have has to do with our high interest credit cards. We have been receiving lots of offers from other credit cards for balance transfers at 0% interest for 12-13 months. We would have to get 3 or 4 of these types of accounts in order to eliminate interest for a year. And then we’d have to transfer again next year, in order to maintain a 0% APR.

Assuming we could remain disciplined while we go thru this, is there a down-side to taking this approach?
- Rita

You make the assumption sound trivial, but it really isn’t. Companies offer such balance transfers because they know that the ability of someone in debt trouble to “remain disciplined” really isn’t all that high.

A balance transfer is what it is on the surface. They’re offering to essentially give you a 0% interest loan to pay off another debt you already have. That 0% interest loan comes with caveats. It will reset in a year. Depending on the agreement, you may have to pay back the interest you would have earned during that year.

Before you do this, make sure you have a cash emergency fund and a step-by-step plan for paying off this debt. Without them, you’ll be in even deeper trouble in a year.

Q3: Needs, wants, and emergency funds
I guess I have two different money problems, so I’ll start with the easiest to explain, need vs want. I’m 24 year old student so money is quite tight as I’m paying my own tuition fees at £3,290 a year I’m not very good with budgeting and wondered if you had any great tips or advice with someone who wants to learn to start and my main problem is with excess money, as soon as I have any I spend it stupidly. And I need to stop doing that but my problem is figuring out the difference between need vs want and quality vs quantity. This recently hit me when I bought a cheap jumper that after three wears it got a hole in the back and had to buy a replacement. I thought if I’d bought a more good quality one it would have a longer life span and would be able to wear it more. Sadly although this idea is great I only had a certain amount of money to buy a replacement jumper and it wasn’t the price for a good quality one so I had to again settle for a cheaper alternative now this jumper is already wearing thin! But the end of winter I’d have bought three jumpers which in the end would have cost the price of one good quality jumper but I didn’t have that amount at the beginning to buy one decent one. How do I stop this from happening again?

Next it’s possibly quite silly but, I have a pair of boots I wear every winter for the snow they were a gift at £60 and every year for the last 5 years I’ve had to get them resoled at £15 this now makes the resoles more expensive than the boots and I don’t know whether it would be better to save up for next winter and spend £100+ on some better soled boots from an outdoor shop or to just continue spending £15 every winter on getting the boots resoled. It’s a really silly thing to get stuck on but its been plaguing since November!

The final part is my laptop has broken I’m trying to find someone to repair it and if I can’t I will have to buy a new one! But I have no savings, I’d be able to get one on finance but it’s not ideal as it would make money even tighter for my partner and I. We’re both mature students but my partner makes more money than I do working and gets more financial help from the University than I do so he often helps me out when things get extremely tight. If it came to getting a new laptop my partner would end up paying most of the payments for me, which I see as unfair as he’s trying to pay off his credit card that he ran up before we became students, it was at £2,000 I can’t remember what it’s down to right now. Ideally we’d both like it if I could use his computer but we’ve both had essay deadlines at the same which would make it impossible for us to share his computer. I don’t know what the best way to handle this situation would be, if my laptop was unrepairable!

And lastly, back in September 2009 I had a £500 emergency fund that I’d saved before becoming a student due to the possibility that it might take me a while to find a new job as we moved from one side of the country to the other and incase there was a family emergency and I had to get home asap as the train ticket would have been £100. Sadly, both things happened, I was unable to get a job and in January 2010 my father had a stroke was taken into hospital and two weeks later in was diagnosed with liver cancer during the second week of February I was told to come on asap as he didn’t have long left to live. This came as a shock to me, my partner and my mother. I ended up leaving university due to the grief and missing a month of university left me so far behind I was unable to catch up. During 2010 my partner and I went back to visit my mother three other times not including the february visit which meant we spent £600 in total just on travelling that we had no way budgeted for. I was unable to get a job for the whole of 2010 due to being so depressed and the £1645 of tuition fees that I didn’t have to pay as I’d left after just the first term I spent on travelling, bills, food, books and lots of random junk that was very unnecessary, which has now made everything really tight for me as I started back at University in September 2010 without any money. I really need to start a new emergency fund that would at least cover £100 incase I needed to go back home if something happened to my mother but I can’t see how to squeeze anything else out of my current budget when I’m trying to pay my tuition fees that are due 28th April! I suppose ideally I could cut down my repayments on my credit card its £250 and I wanted to pay it off this year and be done with it. The payments are £5 a month but I get £4.36 a month interest so I’m paying off £15 if I cut it back down to £5 a month I have the problem that eventually it’ll go over the limit and I’ll get charge £12 for going over and then it’s a never ending spiral of trying to pay my way out of it, as I found out during 2010!

If it was a great world I’d happily wait til I’d paid my tuition fees off in April but the problem with that is once I pay them off I have to save up again for the next year only in September 2012 am I able to get financial help for my tuition fees but the problem is getting there! I’m really not quite sure what to do!
- Ally

As I read this story, I kept asking myself questions like

Does she really need to have her boots resoled?
Does she really need a laptop?
Does she really need to be buying new clothes?

What I see in your story is a bunch of expenses that are completely unnecessary for a debt-burdened college student. Go down to your local secondhand shop or thrift shop and buy some cheap shoes and whatever clothes you can find. Don’t buy them new. Use the computer resources of your campus instead of buying yourself a new laptop.

If your reaction to this response was, “Well, that’s no help!” then you’re not really willing to dig yourself out of the situation you’re in for want of stuff.

Q4: Handling risk intolerance
After losing a considerable sum in the tech stock fall (way back when) and then a huge sum in a failed real estate investment,
we are now extraordinarily ‘risk intolerant’.

At 46 years old and 52, we have what’s left of our retirement in an online savings with Dollar Savings Direct…..(making ‘bupkus’ as my old Grandma would say)…but, it’s safe. We know we are not even keeping up with inflation but don’t have the stomach (or the time before retirement!) to lose any more money. We’ve become ‘chickens’!

Any advice?
- Laurel

Baby steps.

If you’re earning 1% interest in your account, put 1% of that somewhere where it’s at a higher risk. Even if you lose all of that, you’re still breaking even.

Next, if you’re earning 1% interest in your account, put 5% of that balance in a higher risk investment. Even if that high risk investment loses 20% of its value, you’re still breaking even.

Once these steps seem okay, start moving toward what a retirement portfolio should look like for your age, probably something like 30% stocks and 70% conservative investments (cash and bonds).

If an investment is keeping you up all night out of stress, it’s not worth it.

Q5: Converting debt into student loans
I make about $33,000/year and am currently $27,500 in debt. About $15,000 of that is VERY high interest rate credit card debt (between 24.99-29.99%) and the remaining $11,500 is 401k loans which I am locked into paying back at a rate of $55/wk for the next 4 and half years or so.

Minimum payments on my credit card debt are almost $500/month and, because of that, I’m living paycheck to paycheck. Worse than that, actually, I’m only making ends meet by taking on overtime at work. My other expenses are basically just the minimum that I need to get by, though I’ll admit to endulging in $16.99/month for Netflix.

I’m in this mess due to a recent divorce and medical expenses that were covered by the 401k loans, along with some bad spending choices in the past. This was manageable when I was married and had two incomes, but I just can’t keep up with all of this on just my income anymore and I’m not even making a dent in the credit card balances.

I don’t want to just stop paying the credit cards but I don’t know what else I can do at this point. I own no property to speak of outside of a car worth around $2500, and my credit is not the greatest (mostly due to high balances compared to available credit, not late payments or anything), so I doubt I would qualify for any kind of consolidation loan.

I want to go back to school and friends tell me I can get most (if not all) of it paid for through grants and loans, and even get money back to live on (the nature of my work would allow for me to work and go to school full time), which would effectively help me pay off the credit card debt or reduce the interest (or even defer the debt) by effectively converting credit card debt into school loan debt (although I’m told that might be illegal depending upon the loan source).

I guess I’m just looking for ideas or some kind of alternative to just giving up and letting the credit cards go to collections.

I’m afraid of what happens at this point if some major unexpected expense occurs, because I’ll have no way of covering it (half of the credit cards I’m paying on were closed by the banks a while back during the credit crisis, and the other half are still pretty close to maxed out).
- Tony

Student loans are typically awarded with a requirement that the money be used for education related expenses. However, most student loans do include a living stipend which is intended to be used to cover living expenses while focusing on your studies. This does include one’s bills.

If I were you, I wouldn’t go down this route. Instead, I would try to get into college with a student loan in hand, then negotiate with the credit card companies by clearly telling them that you are a student and you do not have the means to pay the bills. See if you can negotiate a settlement of some kind.

You can negotiate with them now, but you’ll have more leverage if you’re in a situation where you can demonstrate that you can’t pay the bills. Right now, you have a history of being able to pay the bills without a change in employment, so you’re less likely to have success by simply calling them up.

If you’ve reached a point where you’re simply going to default on these credit cards, call and negotiate with them.

Q6: Taxes and freelance work
As you probably know, when you earn money from a blog (or from freelance) you typically get it 30-60 days after you actually do the work. For tax purposes, should I account for this income when it’s earned or when it’s received? It seems a bit unfair to make me recognize it immediately when earned because I might never get it, but I can also see how maybe that’s the right thing to do.

- Nick

You are liable for all income received during the tax year. So, if you earned the money on your blog in December 2010, but the check doesn’t arrive until April 2011, you don’t have to file it until your 2011 taxes, which you would file in 2012.

This really is no different than earning a paycheck. If you work the last week of the year, you’re not getting your paycheck for that week (typically) until early in the following year. Many jobs don’t pay you for a pay period until the end of the subsequent one. So, if you start a job with a twice-monthly period on December 16, you won’t have to pay any taxes for that job during that year.

What matters is when you receive payment, not when payment is promised to you.

Q7: Income based repayment
I’m wondering if you know anything about Income Based Repayment (IBR) for federal student loans. Here’s my situation: 28 years old, graduated from medical school in 2009, now in my second year of residency (I’ll be completely done with my training in 2014 or 2015).
Debt:
-$205,000 in student loan debt (I know) from medical school mostly but also undergrad. Interest rates vary, 2-6%. Currently in forbearance.
-$2100 on private student loan, 2.2% interest rate, in repayment, making minimum payments monthly
-$6000 remaining on a $6500 residency application & relocation loan with 5.25% interest, in repayment, making minimum monthly payments.
-$2300 credit card debt – have been aggressively paying this down since I started reading your blog 6 months ago, it’s already down from $7000 and is my top priority

I have $2500 in savings, and am contributing automatically to that every pay period. I have not yet started saving for retirement. I’m wondering if you know anything about the merits of income based repayment, which (as I understand it) allows one to enter repayment on certain loans (about half of my education debt qualifies) and the amount due every month is based on your debt:income ratio. If you continue making payments for 25 years, any remaining debt is forgiven. However, since I can reasonably predict an increase from my current pre-tax salary of $45,000 to $200,000 once I’m done with training, I’m not sure the promise of forgiveness after 25 years is really a draw and thus I’m not sure of the benefits of entering IBR and wonder if I would be better off starting to contribute to retirement, since my student loans will be much easier to manage once my salary is increased and they are at a (relatively) low interest rate. I’m just anxious thinking about what is essentially a mortgage without the house.
- L. C.

Income-based repayment is a program in which your public student loan payments are capped at a reasonable amount based on your current income and family size. Typically, private student loans don’t have such a plan.

I don’t think that, since your loans are in forbearance right now and you’re confidently anticipating a big income spike in the future, IBR will really help you very much. When you get your post-education job and your loans go out of forbearance, your income will be high enough that IBR won’t really be of much assistance to you.

I think you’re thinking of this wrong, though, when you say that you have “a mortgage without the house.” You have an education that’s going to enable you to earn $200,000 a year. Without it, you’re earning $25,000 a year. Two or three years of that will take care of all of that outstanding debt, then you’re riding the financial gravy train to retirement. I’d far rather have $175,000 a year in additional income than a house worth $200,000.

Q8: Handling new annual fee
My husband and I recently noticed a $60 annual fee charge on his credit card. We’re unsure about to do about this, if anything. We don’t use the card much and never carry a balance, but would prefer to keep it because a) it has a high limit and b) we’re young and it’s our oldest credit history. Should we cancel the card and save the $60 a year, or just view that $60 as payment for a better credit score?

- Madeline

It depends on whether you have any other cards that are more than a few years old.

If you have such a card, I would cancel this one that is charging you a fee. The impact on your credit score will be small and that impact will disappear within a year or two.

If you don’t have such a card, I’d apply for one today and just sit on it for a few years. Pay the fees, then drop this lemon of a card in a few years.

Q9: Buy or repair?
Our basics: Roughly 3,000 cash emergency savings, heavily drawn down from what it used to be; about 5,000 in investments that I am hesitant to tap, since I was hoping to build them into an eventual house down payment; I expect to bring in perhaps 3,000-4,000 per month for the next few months, though I’m unsure how long that will last; our monthly expenses can be reasonably brought down to around 1,500 per month, including rent. We have close to 30,000 saved in Roth IRAs, but we haven’t contributed recently due to lack of income; I’m hoping to contribute something out of my next few paychecks to count as 2010 contributions (my husband and I are in our late twenties, so a bit behind schedule but not too bad). My husband has student loans, and will end up taking on more, but graduates of his program tend to either make more than enough to repay their loans or else qualify for loan forgiveness programs through public service, and he’s already ahead of the game since I’m (at least theoretically) able to work to pay our living expenses and he won’t have to take out extra loans to live on (yet). Other than that, we have no debt, credit-card or otherwise. Our credit histories are a bit sparse but very respectable.

(Very) Long story short, we will need a new(er) car eventually. Possibly two. Should we spend the money to fix up our old one? It feels like my decision to donate my car back in March is coming back to haunt me–it was a bit newer, a bit bigger, and somewhat better suited to the weather than my husband’s Avenger. That decision is made, for good or ill, but I’m worried about making the same mistake twice!
- Nicole

Nicole’s email was very long – I did my best to excise it down to a reasonable length.

In your situation, I’d try to keep your current cars running for as long as possible. If you replace them, you’re going to not only be on the hook for a monthly car payment, but you’re also going to be on the hook for higher insurance.

If you’re going into a period where you know that your income will be lower for a while, you do not want to take on required monthly expenses. Instead, I would bank the extra money you’re earning right now into a cash emergency fund in a savings account somewhere. Then, when an actual emergency happens (your car breaks down, etc.), you have the cash on hand to deal with it.

Q10: Paying cash for a car
I wanted to buy a car costing 20k. I already have the cash for it. However, financing for it means extra processing fee (350 cash vs 800 finance). It also means running around town to have the car evaluated, loan application (financing thru my current employer requires specific instruction) and will delay the delivery (car dealer will only release the car after the check from my employer cleared).

Do you think it is a wise decision to pay cash rather than financing it (my employer’s interest rate is very low compared to banks) as it means i have less money (very, very much less) in the bank?

I’m in a good financial situation (I think) as i’m single with about 4 month’s salary for emergency fund. But it will took me about 2 years to save 20k again, if i’m really careful with my money (as new car means additional maintenance expenses) and i do plan to register for postgraduate study part time soon.
- Zid

As long as you’re not reducing your balance in the bank to nothing at all, I would pay cash for the car. Once the car is yours, I would seek to replenish the savings in your savings account as quickly as I could.

Look at it this way. If you take out a loan to do this, you’ll have a monthly car payment. The interest on those car payments will go to some company. On the other hand, if you take the money out of your savings to do this, you’ll still have a monthly payment – it will just go into your savings account. The interest on those payments will go straight into your pocket.

If you’re maintaining an emergency fund of at least $1,000, I would buy the car with cash.

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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47 thoughts on “Reader Mailbag: Laura Nyro

  1. For Zid–I did almost exactly that this last year, paid about $20k in cash for a car though I had to draw my savings down a lot to do so. I immediately changed my direct deposit at work to allocate the $400 that would have been a car payment into my savings account so that in 5 years or so, I could do the same thing if I wanted to. Every month I LOVE seeing my savings account increase instead of writing a check to a bank. Good luck.

  2. Trent, this is about the last place I’d expect to find a reference to Laura Nyro. I can’t tell you what a breath of fresh air her songs were when they first hit–she had a sound no one else had, and she milked that ascending/descending ii-iii-IV chord progression for all it was worth, to make music that stuck in your brain and your heart, & made you want to get out and LIVE! (You can probably find “The Music of Laura Nyro,” now OOP, on Ebay someplace, or amazon has a few, not cheap, but where else ya gonna go?)

    OK, I’ll shut up now. This is a finance blog, after all.

  3. Wow, I have to say I think that the answer to Q3 was terribly dismissive and actually pretty rude. And not at all helpful.

    You’re talking about somebody who has been resoling the same pair of boots for years rather than buying a new pair and going off on wants versus needs as if she’s just being wasteful? That doesn’t even make any sense. She’s already making responsible decisions. You tell her to buy cheap clothes when her problem is that she BOUGHT cheap clothes (the jumper) and it’s wearing thin and she’s wondering if it makes more sense to buy high quality so that it lasts.

    And it does, particularly for somebody who is willing to wear something multiple years rather than always looking for trendiness.

    The advice to look in a thrift shop IS actually good, but not to buy cheap – buy high-quality used and get mileage out of it, rather than a cycle of constantly having to spend money for cheap clothes.

    But yes, if there are holes in your boots and your jackets, you need to replace them. Only in Trent’s world would that be a ‘want’.

    @Q3 – continue to pay off your credit card aggressively, then build your emergency fund up after that. If you can make it through the year, you’ll be in a much better position. Since your other issue is that you spend money when it’s ‘in hand’, move it out of sight as soon as possible. Write down every actual expense you have, and anything over that, put in an account that’s slightly harder to access, or put an extra payment to your credit card. Also, my deepest sympathy on the loss of your father.

  4. Q5 – never convert unsecured debt into secured debt. Student loan debt is essentially “secured” debt because it’s secured by your ability to work; unless you die or are permanently disabled it is next to impossible to discharge student loans.

  5. Q3 My daughter got her degree in Bangor, Wales. Many of her British friends took out student loans for their tuition and living expenses. According to my daughter, they were not obligated to pay back any of the loans when they finished University unless they earned over 15K pounds (which in American dollars would be over $30,000). It was frustrating to her to learn that some had no ambition to ever earn more than 15K pounds so they would never have to pay back the loans. This is different from America where the loans have to be paid back once you finish college whether you have a job or not. Are these student loans not an option for you?

  6. @Q5 – also, get more information on how much would be grants versus loans. Grants you wouldn’t have to pay back and loans you would and it makes a very strong difference when weighing going back to school.

  7. The answer the Q6 is not the complete truth. The answer actually depends on whether the taxpayer is on the cash basis or the accrual basis. Cash basis taxpayers recognize income when they receive the cash. Accrual basis taxpayers recognize income as soon as the work is completed, regardless of when they receive payment.

    So it depends on your classification. I would say that most small freelance individuals are probably on the cash method. But larger operations may be on the accrual method. Talk to your accountant about what is best for you.

  8. The answer to Q3 is really rude, moreso to me given that she stated that many of her expenses were run up dealing with her father being seriously ill and dealing with travel costs and depression from that.

    I would suggest looking for a great sale on a pair of boots that won’t have to be resoled for several years. Also check second hand and charity shops for quality clothes.

  9. I think Trent’s advice for Q3 was spot-on. Ally needs to straighten out her priorities, and stop wasting money on self-indulgent luxuries like repairing footwear to make it last longer, and visiting dying parents.

    [/sarcasm]

    Trent, I think your answer was at best unhelpful, and at worst insensitive.

  10. Re Q3: Agreed – Trent I expect your answers to be dispassionate but not uncompassionate. I believe you owe Ally an apology.

  11. Q3, Ally: Is the hole in your jumper something you can repair? Even if you can’t fix it well enough to make it look “like new,” if you can just close it up with a needle and thread, maybe you can wear the jumper around the house, which would help your other clothes last longer.

    Have you tried shopping for clothes from Lands’ End? They ship to the UK, their prices are fairly reasonable (especially for their sale section), and they have a famously generous return policy. You just have to be bold enough to take advantage of it.

    The thing about clothes and durability is, sometimes you get what you pay for, and sometimes you don’t. The expensive boots might have soles that last longer than the ones on the cheaper boots, or they might not.

  12. Q10 – My credit union offers “Second Chance” car loans. You can get a loan after you’ve paid cash for the car should your situation change. Generally, the rates are very competitive and less hassle because you have the pink slip in your possession.
    However, on re-reading your post, it sounds like there’s a “hassle” factor to consider. Taking on the “hassle” rather than paying someone else to do the work for you is a primary tenet of frugality. Maybe you should re-think your needs vs, wants in this transaction.

  13. @Diane
    I agree with you about the hassle factor and frugality usually, but in this particular instance, the hassle is all about the option that would cost *more* money, with the increased financing charge and interest payments.

    The real issue is how comfortable the questioner is with depleted cash reserves after making the purchase. But I think if you expect to pay it back in 2 years and you still have a solid emergency fund, etc, than it makes more sense to pay cash for the car. And if not, it probably makes the most sense to wait another 6 months, after you’ve increased your savings a bit more to make the purchase, assuming your current car isn’t falling apart.

  14. Q3 – If you don’t have the $ to buy better quality, then you’re making the correct decision to replace what you need at your price point. Trent is correct to suggest thrift stores/used clothing, as you might find higher quality used items for a price you can afford (which I think is what he meant buy buying cheap clothes there).

    Regarding the computer, you & your partner could work out a schedule for sharing the remaining laptop, if it comes to that, if using the college or public library resources doesn’t work for you – and yes, I did see your comment that you have the same deadlines. Otherwise, start saving up for a refurbished replacement & buy low-end that will do what you need (i.e., schoolwork) without the bells & whistles of added memory & features for music, video, games, etc.

    Otherwise, it sounds to me you’re making the right choices to pay down your credit & in the meantime purchase with what cash you’ve got rather than incurring more debt for something more costly that may or may not last longer. Yes, you may end up buying 3 jumpers in a year or resoling your boots, but if you don’t have the cash to spend 3x the amount at one time, then that’s your reality.

  15. @ Trent: clearly you’ve been oblivious to the amount of snow Europe has gotten recently. I consider resoling boots a rather frugal response to the ridiculous amount of snow and ice on the ground.

    And also, the letter writer very clearly explained that she and her boyfriend often have to write assignments simultaneously. True, this doesn’t mean that she needs to go all-out and buy a laptop with all of the bells and whistles, but a small netbook would be able to handle most student-y assignments quite well.

    She does seem like she’s made some mistakes and probably doesn’t need to be buying new dresses every month and all that, but your response to her was not exactly helpful.

  16. @ Jules – I think there may be some confusion based on British and American terminology. Ally’s refering to a sweater that got a hole in it.

    In the UK “jumper” is the term for what Americans call “sweaters”.

    And considering the winter Europe has had Ally really does need some good quality sweaters/jumpers with no holes in them.

  17. “If your reaction to this response was, “Well, that’s no help!” then you’re not really willing to dig yourself out of the situation you’re in for want of stuff.”

    Well. You really told us.

  18. Trent’s response to Ally’s question reminds me of the whole bathing suit insensitivity from awhile back….

  19. For #4, if you earn 1%, move it to something risky and then lose it, you are not back to even. You now lost money. You aren’t playing with the houses money, once that money is yours, it is yours, and if you move it to something risky and lose it, it is then a loss.

    That being said, I would encourage Laurel to develop a conservative portfolio as if you leave your money earning only money market interest inflation will eat away at it over time.

  20. Trent, I really wish you would re-write the questions people ask you–clearly and concisely, for the sake (and respect!) of your readers. One question was particularly frustrating, painfully written and unnecessarily long. Maybe people like reading an unclear sentence that lasts 4 lines, with lots of long winded and unnecessary details – and if you had answered with a quality, thoughtful answer, maybe I would have gotten something from taking the time to read it. I will sound like a jerk, but I think the quality of your writing and topics have changed. I have been reading and enjoying this site for several years. I’ve gotten a lot from you. I’m a better person since finding your site. And I’m sad to say, that although I enjoyed your homemade gift series, it has been a long time since I’ve gotten much from your posts. I think Ally’s question and answer pushed me over the edge.

  21. Q3-Suck it up was pretty harsh, and the suggestions cursory at best.

    Laptop:a dedicated student can expect to work very late hours, on a computer, that a college computer resource center would typically not be open. Relying on that resource compromises the amount of work one can do, and will affect grades. Repair the laptop if possible.

    Repair the boots as well. Trent- you gave advice on used cars a long time ago saying “Is the repair cheaper than a new car? Then repair it! Same goes for boots.

    Ally- talk to the head of the dept of your program, or a trusted professor. Explain your situation, and your concern about having a laptop. It is possible that your professor may know someone upgrading, or have ideas for you, or know another professor in need of childcare, or something of the like. Professors generally care about their students, and will go out of their way to help a dedicated student in a time of difficulty such as you describe. If you end up having to use only the school computer resource, expalin that to your teachers, and know the hours/week limitation you will have to complete assignments. This may help.

    Good luck to you!

  22. @Ann: I used to agree with you, but the regularity with which Trent reads things into readers’ questions that aren’t there, or ignores essential details that are there, has gotten me thinking that if Trent were to do much editing of the questions, we’d end up with highly distorted versions of what the questioners were trying to ask.

    I do still think that if Trent wants to address a very long question, it would be better to make it into its own post.

  23. Q3: I agree with Trent. I’m a computer science student and my laptop was rendered useless for two months while I waited for replacement parts for damage caused by an apartment fire.

    As a CS student I use my laptop for everything! But I got by without any problems for two months just by using the resources at school. You can use the school computer labs after hours, usually if you register for a pass or ID card. Usually it requires a small deposit. But it is well worth it!

    If I can get thousand line programming projects done every week without my own laptop, I think she can find time on her partner’s computer and her school computers for her essay writing needs until she saves up enough money for a new machine.

    My school library also has a laptop borrowing program. It lets you sign out laptops for use for a few hours a day with your student card. Perhaps her school has similar options.

  24. Ally should at least check out the computer resources available at her school. Both universities I attended had computer labs that were open very late and on weekends. Both also had labs that were open 24 hours in the weeks leading up to the end of the semester. I managed to do a BS (with a minor in computer science) and an MS without buying a computer. It may not work out that way for her, but it is definitely worth looking into.

    Going to thrift shops is a good idea. At least if the clothes wear out quickly, they were inexpensive. I think Trent’s advice wasn’t bad (although she could probably use a little more), but he sure was rude in how he presented it. It’s not unreasonable to need boots and sweaters in the winter. Nor is it unreasonable for a college student to need a computer.

  25. Re Q2: Another thing that isn’t even mentioned here is the balance transfer fee. Usually the fee is 4% of the amount you are transferring. It’s confusing because you immediately think “well 4% isn’t 0% but it’s still a good rate…” but you have to consider that the 4% is charged right at the beginning on the full balance. Because your balance goes down through the year as you make payments, that 4% off the top is equivalent to 7% yearly interest. Your credit card rate is likely to be higher that 7%, but it’s something you should keep in mind if you are planning to use balance transfer offers.

  26. Q3 – If I had a piece of clothing that got a hole after only 3 wears, I would be taking that back or complaining to the company for a refund or replacement. It was a defective item, regardless of cost. That’s water under the bridge now, but in the future make sure you save your receipts for a refund, if you don’t do that already.

    I think you should keep re-soling your boots. Yes, this reminds me of the bathing suit debacle. Women’s boots (especially ones with heels) wear out very fast. It doesn’t matter how much they cost, they’re still going to have wear on them. Many people wear out one side of the heel faster than the other because of how they walk. That’s just human nature. It’s not worth buying new shoes over. All boots, whether they are 100 or 60 are going to have maintenance costs, so better to keep the ones you have.

    It’s not clear what’s wrong with your computer. You could try going online and searching for ways to fix the problem. You might be able to buy parts and install them yourself for cheaper, if it’s a hardware thing. Or if it’s a software thing, you can most likely fix that yourself with no cost.

  27. Q8 – Try calling the credit card company and asking them to waive the fee. Sometimes they will do this. The worst they can do is say no.

  28. Q7, LC : You’re a doctor. Don’t worrying too much about your debt. You’re going to make piles of money in your life and face virtually 0% unemployment. Like Trent points out your loan payments will only be about 12% of your income. That leaves you with plenty of money to life off of. Right now as a resident you’re almost broke, so I understand the concern but just wait a few short years and you’ll be just fine. IBR might make sense for you when you’re a resident making $40k so that your loan payment doesn’t eat all your income. Past that you won’t qualify for it.

  29. Q3 (again!) – missed in all the discussion is Ally’s admission that whenever she has some extra money, she spends it stupidly. Awareness of the problem is the first step. So now she needs to redefine this, while developing some barriers so she doesn’t spend the “extra” money as she learns to exercise her self-discipline when it comes to seeing ‘extra money.’

    First, given the rest of her story, she could benefit from not thinking of this money as ‘extra’.

    If, by that term, she’s talking about cash in hand, then it’s a matter of getting that cash into a more inaccessible spot – whether it’s a jar with a slotted top that’s glued on (so the jar has to be broken to get to the $) – or possibly into envelopes designated for various savings goals (like a new computer, new boots, etc) – or whatever tactic works best for her.

    If she’s talking about $ in the bank left over at the end of the month – either set up automatic savings sweeps or pay more toward the CC debt.

  30. I don’t think its wrong for Trent to question if Ally “needs” the stuff she’s buying. Maybe she does but maybe she doesn’t. It should be considered. But it seems the bigger part of her question was buying quality versus cheap stuff and that should be answered too in any case.

    As a poor college student I think you need to do what you can to get by short term. That will often mean making due with a cheap item for now since you can’t practically afford the good stuff.

    Lets all not assume that what works in the USA will work equally in UK. Their universities and clothing market are different than ours.

  31. Johanna: “the regularity with which Trent reads things into readers’ questions that aren’t there, or ignores essential details that are there, has gotten me thinking that if Trent were to do much editing of the questions, we’d end up with highly distorted versions of what the questioners were trying to ask.”

    I think anyone in Trents position would run into that same problem. If anyone were to edit letters then occasionally things would get left out or accidentally misinterpreted. Just see how often everyone in the comments argues about the meaning of a question. If we can’t agree as a group then how could Trent accurately get it right every time? I’ve been in that situation myself trying to summarize the information my peers give me and invariably its a big pain to shorten the text and retain all the necessary information. At best you end up having to ask them to clarify things which compounds the amount of work required.

    In any case I agree that using the unedited original messages is best.

  32. Yeah #3 is kind of weird. It’s a really long question, and a really curt answer. I don’t necessarily think Trent was wrong, but it certainly came off blunt and obtuse.

    This person certainly seems frugal to me, and is trying her best under very bad circumstances! Warm clothing without holes in it in winter is not a “want”, it’s a need. I don’t think this letter writer is talking about going and buying a DVF wrap dress, for God’s sake.

    The laptop though, I guess times have changed because I went to university in the late 90s, and while yes I had a computer at home, I did almost all my written assignments in the computer lab at school. I liked it there, it was like an office to get work done. At home I was tempted by the baby internet on dial up and my computer games.

    Also at school I had access to search databases and the schools resources. I think the poster could suck it up and use resources rather than buy a new laptop (and borrow her partners when he doesn’t need it).

  33. @jim: That’s a good point. Even the most careful reader is going to have a tough time editing someone else’s writing without changing the meaning at all – especially if it’s writing about a (deeply!) personal situation.

    Another option for Trent would be to say “Reader Mailbag questions are limited to 250 words. If your question is longer than that, I’m not going to consider it.” If he really gets hundreds of questions per week, it should be no problem to exclude the ones that don’t meet that criterion, and it would give people the incentive to edit themselves down to a reasonable length.

  34. ReQ5, I started working full time before I graduated and one semester I paid off about half of one credit card with my student loan disbursement. It gave me the breathing room I needed and one of my biggest regrets is that I didn’t do it the semester before (I just didn’t think of it). Would have saved myself a lot of pain.

    Since I make $40K per year for the forseeable future and have $100K or so in student loan debt (a PhD, and I love my job, it’s secure, and I am confident I will pay everything back so I’m not too worried) the credit card was crushing me. Using loans to pay off part of it bought me an extra year of not having to make payments on that portion at all, paying off the remaining much quicker since so much more of my payment went to principle, and now that I am graduated and paying it back the monthly payment is much, much lower.

  35. I didn’t read all the replies so sorry if someone covered this.

    Re Q3 – As you only need the laptop for uni work etc, you shouldn’t need a brand new laptop as it will primarily be used for word processing would be my guess (Unless your a visual arts/animation major), look around for ex-govt resellers or take a look across ebay, you should be able to pick a 3-5 yr old laptop for anywhere from 50-100 Pounds, try to grab something with a core2 duo processor and is tested as working.

    once it’s delivered dump a copy of ubuntu onto it (linux user friendly OS) and then grab openoffice it’s free and will open .doc files and save them etc. It’ll also let you continue to research on the web etc

    Yes it’s not optimal and requires a little legwork but I remember from my uni days I tended to be time rich and money poor.

    Gluck with your studies, Oh as a side note I purchase all my laptops in the above manner for myself and my wife (although I am downunder)as neither of us are heavy gamers (the only reason you really need a new laptop)

    S01

  36. SO1- there are other reason people need new laptops/computers. People in graphic design, or who edit video, make animation, use Poser or Maya…basically many digital artists, need to have a machine that can handle the latest Adobe Master’s Creative Suite. (I have never played a computer game, but hubby loves Civilization). I recommend Mac desktop computers, as my last one lasted 11 years, and I only had to retire as it is no longer compatible with one single browser that is still compatible with almost all web sites. (Finding stock images, sounds and footage online is an essential for me.) It is still in service for my son with an early version of Garage Band. Never had virus protection, never got a single virus. Ever. Not one problem or service call, ever. Best bang for my buck, by a mile.

  37. Just FYI: I finished my degree one year ago at a large university. It wasn’t always possible to get access to a computer when demand was high. Perhaps it’s the same at Ally’s school.

  38. Regarding risk you should know that having your savings in a savings account is not risk free, considering it most likely earn less than inflation you are just instead of asking how to have as low risk as possible you should balance risk. Think about it….

  39. “What I see in your story is a bunch of expenses that are completely unnecessary for a debt-burdened college student. Go down to your local secondhand shop or thrift shop and buy some cheap shoes and whatever clothes you can find. Don’t buy them new. Use the computer resources of your campus instead of buying yourself a new laptop.

    If your reaction to this response was, “Well, that’s no help!” then you’re not really willing to dig yourself out of the situation you’re in for want of stuff.”

    This is a good point, but unfair. In the UK, we don’t have the huge supermarket-style thrift stores you have in the US. I have size UK 9 feet and have NEVER found shoes to fit me at a charity shop – and if you live in a poor area it is very difficult to get good quality clothing second-hand as there’s nowhere in the locale that sells it new. Many people would throw out their boots once they needed resoling – Ally is trying to save money.

    It sounds to me like she isn’t buying new clothes for the fun of it, but because she needs them. I would rather suggest that she bought a better-quality jumper second-hand (eBay, or Oxfam) than one from, say, Primark (which is a bargain basement store designed for clothing to be worn only while fashionable – many thrift stores here cannot resell it due to the cheap initial selling cost and poor quality).

  40. Also: Ally, does your university offer hardship loans? I applied for and got one when a student when illness prevented me from working.

    USians – in the UK, we have a state, means-tested loan. We don’t have access to student loans other than this – the rest has to come from private finance. I believe in the US the situation is a little different.

  41. “I was unable to get a job for the whole of 2010 due to being so depressed and the £1645 of tuition fees that I didn’t have to pay as I’d left after just the first term I spent on travelling, bills, food, books and lots of random junk that was very unnecessary…” Ally, when you’re in a financial hole, STOP DIGGING. Go to a thrift shop for clothes, resole your boots. Drop out of school for a year and work to earn money and clear your debts. The problem with “I was too depressed to work for 2010..” is that your Father is still dead, you’ve lost a year of your productive life, and having run yourself into deeper debt, especially for things you say you didn’t need, you’re now poverty stricken also. A BLUNT answer from Trent was required. All the doving and cooing over “Poor Ally” in the comments won’t help, “Get a job, buy used clothing, stop spending on on nonessentials.” will help if Ally does it! Right now Ally is spending on nonessentials and moaning because the money is gone. A jumper’s a sweater, right? YOU’VE ONLY GOT ONE SWEATER? Give us a break Ally, get a job, stop wasteful spending, and pay off your debt.

  42. I’m with Trent on Q3.

    Heck, I’ll do him one better and suggest that if Q3 is really having that much money trouble, she should reconsider whether she should be going to school right now in the first place.

    Yeah, I went there.

    Taking a semester or two off–or dropping down to part-time at least–might be just the thing to cut/reduce the tuition bill and allow more time for earning money. That will allow her to build up a cash cushion and get out in front of her finances instead of letting her poor cash flow drive her to suboptimal consumer choices.

    Education might be a “need” in this day and age. But education on the exact terms you want (timetable and school) is, let’s face it, a luxury.

    JJ

  43. #41 Gillian said: “in the UK, we have a state, means-tested loan. We don’t have access to student loans other than this – the rest has to come from private finance. I believe in the US the situation is a little different.”

    We have government subsidized student loans and private student loans. To get the government subsidized loans you have to have financial need so they are means tested here too. Most people have some financial need since college is so expensive. The private student loans are available to almost anyone but those are more like a personal bank loan with higher interest and less favorable terms in general.

  44. I know I’m late to the party, but I wanted to add to respond to the doctor in residency. As others have pointed out, you should be fine, but you are wise to be careful now. Live more like a resident than an attending for a few more years until the loans are aid off. It is very easy to get caught up in spending after residency, especially after being overworked and underpaid during med school/ residency, and delaying gratification.

  45. “Taking a semester or two off–or dropping down to part-time at least–might be just the thing to cut/reduce the tuition bill and allow more time for earning money.”

    You can’t do this in the UK. You pay fees even if part-time (and not all courses allow this) and it’s not viable at most universities to take a year off without dropping out o the course.

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