Reader Mailbag: Weekend Switcheroo

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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. Car trade-in question
2. Preparing for marriage
3. Used car buyer’s remorse
4. Credit score questions
5. Child cost question
6. College savings question
7. Handling house sale profit
8. Preserving digital records
9. Switching insurance companies
10. Baby sleep tricks

Because of the influx of family members visiting this past week, I made the decision to essentially move my weekend to Wednesday and Thursday to accomodate them. I didn’t mind this at first because the weather forecast for the weekend looked awful at the time.

However, it’s now late Saturday afternoon as I begin to assemble this mailbag and the weather outside is gorgeous. I can hear the kids playing in the yard with their friends from the neighborhood and I can smell the sweet fresh air.

Q1: Car trade-in question
My husband and I (foolishly) bought a new car in 2009 with no down-payment and no pre-approved loan with from our credit union (also foolish). The car cost $16,995. We ended up paying roughly $20,000 for it through the dealership’s loan office. *shakes head* Talk about rookie mistakes. I kick myself for this one regularly. We currently owe $15,726 on it, and KBB.com says it’s worth $12,775 trade-in value (it’s in Good, but probably not Excellent condition, although we have taken very good care of it). Considering we’re underwater on it for $3,000, I’m trying to figure out what our options are. Our monthly payments are $376 right now, and the interest rate is 8.5%. I would love to get a used car that the trade-in would completely pay for, so we’d only have to deal with the $3,000 excess. Is something like that even possible?

I know you’re not a financial adviser, and I’m not necessarily looking for specific advice (although if you had some, and were willing to take the time to give it, I would be extremely grateful). Mostly I’m just looking for places to start looking. There’s a lot of information out there on the web, and while I’m more financially savvy than some (mostly through mistakes I’ve made and the lessons I’ve learned from them), I could still use a guiding hand.
- Megan

If you’re underwater by $3,000, you have to come up with that money just to break even on selling the car for cash. In other words, if you can find someone to actually write you a check for $12,775 for the car right now, you’ll still have to come up with just shy of $3,000 to pay off the debt, leaving you with no vehicle but, thankfully, no debt.

The only way a car has trade value is if it’s worth more than is owed on it. Otherwise, selling the car only serves to eliminate the outstanding debt on the car. You won’t even be able to sell the car unless you’re able to come up with the cash to make up the differences.

If you want to get rid of this car loan, your only option is to buckle down, save every dime you can, and wait until you have enough saved up to make up the difference between the value of the car and what you owe on it. At that point, your best bet is a private sale via Craigslist or eBay Motors.

Q2: Preparing for marriage
I am 27 and I have been in a bad financial situation for several years, but thanks to some personal reflection and your website, I have been turning things around in the past few months. I have previously never had a savings account (I know), but I have saved almost $1,500 at this point.

Here is the situation. I make about $40,000 a year but I live in a city with a high cost of living. However, my rent is very cheap and I drive a beater car and mostly use public transit. Most of my money goes to savings and paying down student loans. I have two government loans that total about $25,000 and I am up to date on these payments.

My biggest issue is a credit card that was charged off at almost $7,000 in 2008. Long story short, I was a recent college graduate and back at home and my mother (who is also very bad with finances) had just lost her job. Neither one of us had any savings and we ended up using the credit card to pay rent and for basic living expenses. Long story short, I moved away for a job, and I trusted my mom (who had access to both of our checking accounts) to continue paying the balance on the card. This was my mistake. After reviwing my credit report, I realized that my mom never paid on the bill and never told me and the account was charged off. I am really at a loss as to what to do about this. The statute of limitations on my debt is seven years in my state, but that is still a long time to wait. I would really like to pay the debt off completely, even though it will still be on my CR but I definitely don’t have $7,000. I have also considered using Consumer Credit Counseling Services and possibly settling the debt. I just want to improve my credit, but I don’t know how to do that. I have considered getting a secured credit card to pay for gas to help rebuild my credit. But I am extremely wary of credit cards.

I am in a very serious relationship, and I am pretty sure my boyfriend is going to be proposing within the year. I really want to get things in shape so my mistakes don’t affect him. Thoughts on how to do this?
- Eileen

In your situation, a secured card is a good first step to take. You might be eligible for a low credit limit unsecured card if your credit is otherwise strong – all you can do is apply. I don’t know how bad the rest of your credit report is, so I’m uncertain whether or not that move will work.

If you do choose to repay the debt, it will become “fresh” on your credit report. In the short term, it will make your credit score worse, as it places more emphasis on current debts than older ones. Mostly, time is the best cure for credit mistakes like this.

Your best route with regards to the relationship is openness. Don’t be afraid to talk about this situation with him. If he’s a man worth marrying, he’ll understand and be at your side regardless.

Q3: Used car buyer’s remorse
I recently purchased (less than a week ago) a 2009 Volkswagen GTI for $23,000 + taxes, etc. I did some research while I was at the dealership and the car seemed to be well priced for the make of the car and all of its options. This is the car I’ve been drooling over for some time and mine is loaded with leather, heated seats, turbo, etc. The catch is that these are all the things that my personal finance/minimalist journey in recent months has helped me to realize that I don’t really need. I can say with certainty this car in itself does not make me happy. When I was at the dealership, however, I quickly forgot about my self-established target price ($10-$12k) and apparently threw caution to the wind for what I “wanted”.

The car is very nice and is the best I have ever owned in my life but I can’t seem to settle with the idea of the payments I’ve gotten myself into.. nearly $400/mo. Fortunately, I can make them and still have some extra to save (still have student loans and mortgage) but I can’t keep thinking that this is such a frivolous waste. If I took the $25,000 (after tax, title fees) and bought myself a $10,000 car and put the rest toward debt or saved, I could still accomplish my goal of a reliable vehicle. Everyone else says “Everyone has payments. It’s not that big of a deal”.

Question is: I do think it is a big deal; are there any options now?
- Sarah

“Everyone has payments. It’s not that big of a deal.” Really? I haven’t had a car payment in literally years, yet we have two fairly new cars (the oldest one is seven years old). Everyone who enjoys debt has car payments, perhaps, but not everyone has car payments. Statements like that let people justify their own debts.

I agree that a $10K car will meet your needs quite well and you’ll find yourself with lower payments to boot, allowing you to save the difference for other things.

Unfortunately, you probably don’t have a lot of options now. Likely, you’re either underwater or just barely above water on your car, so if you were to sell it, you’d mostly just pay off your debt on it. You’re probably going to have to live with your purchase for the time being.

Q4: Credit score questions
my husband and I are on the road to fixing our financial state (yay!) and I have a question about using a credit card to help raise my credit score. My husband has a credit card that he pretty much kept maxed out ($2000.00, though they lowered his credit limit to $600 the second we paid it off). We just paid it off a couple of months ago and he currently uses it sporadically (a few very small charges a month), which we then pay in full. Currently I don’t have a credit card, so I’m thinking of trying to get a card to use for my regular monthly purchases (say, at Target), which again, I would pay in full each month. It would only be used for things I need to buy and have the cash for anyway. Since my credit score is low, I assume I’m going to have a hard time getting a card, maybe I’ll have to get a secured card to start, but either way I figure my limit will be low. My question is if I charge close to the limit, and pay it off right away is this ok? My understanding is that while I’ll get good “points” for not carrying a balance and paying on time, but what about the debt to credit ratio? For a time (even if it’s only a week or two) the card would be almost maxed out before I pay the bill. That cycle would continue each month. Is it such a short window where the card is “maxed out” that the debt to credit ratio won’t hurt me in the end? I just want to raise my score and establish good credit, but I’m confused on this point.

- Nicole

If you pay off your balance in full each month, it’s fine to use the card until it approaches the credit limit. For example, if you have a card with a $500 limit and you fill it up with $450 in groceries and gas, then pay the thing off in full, it won’t have an adverse affect on your credit.

What likely happened with your husband’s card is that he kept it close to the maximum for so long, giving him a poor debt-to-credit ratio and driving his credit score downward. As soon as the balance was gone, the credit card issuer likely re-evaluated him, saw his low credit score, and adjusted his limit accordingly.

If you just focus on paying off the card in full each month, you’ll be fine using that card with an eye on improving your credit score.

In Nicole’s long email, she actually had two more questions worth addressing.

Q5: Child cost question
We are probably 9 – 12 months away from even trying to get pregnant and in that time I have a concrete plan to save up the necessary “start up” money needed (I’ve done lots of research and thinking about the basics of what we’ll need for a baby). We’ll be the first of our family/friends to have kids, so no second hand furniture or baby gear will be handed down to us, though I know we’ll receive some gifts from our generous family. Even taking gifts and some second hand purchases into account, the start up costs are high! As I said, I do have a savings plan begun for these beginning expenses, but how do I determine what the child care costs will be once the child arrives? It’s easy to say they’re “expensive”, but how does one figure out how to financially fit a child into their family? One child expense calculator suggested we’d need an extra $1500.00 to cover just ONE child! This seems crazy to me – I know we’ll need to spend more if we begin a family, but I can’t seem to get a reasonable handle on how much. If everything goes according to plan, I plan on breastfeeding and cloth diapering, so some money will be saved there. Also, I plan on staying home (financially it wouldn’t make sense for me to pay for day care so I could work, it’d be a wash, though I probably will work extremely part time – when my husband was able to be home with our child). I have no problem looking for second hand clothes/toys/books at thrift stores and the like (though I’m sure some things will be purchased new). I imagine our utilities will increase at least a bit with an extra person. There are doctor co pays and higher insurance to consider. But does all this add up to an extra $1500/month?? I know you can’t give me a magic figure, and obviously costs change as the child grows, but do you have any insight into a reasonable figure I can expect? Or a better way to formulate the projected costs on my own? Am I missing some key element that ups the monthly costs?

- Nicole

$1,500 for startup costs? That’s really unnecessary. All you really need for a newborn baby are clothes, a place for the baby to sleep, diapers, and feeding equipment. Toys aren’t necessary, nor is an ultra-expensive crib or the tons of other things that marketers try to convince newborn babies that they need.

When the baby comes home, make sure you have a simple bassinet or crib, several changes of clothes (which you can get very inexpensively at a children’s clothing consignment store), whatever you need for feedings (depending on whether you’re breastfeeding, using formula, pumping, etc.), and some diapers (cloth diapers are far cheaper over the long run, but they require some work and have a startup cost). You really don’t need much else.

For the first year or so, your upkeep costs will mostly revolve around clothes (which you can get for cheap at consignment), child care, diapers (if you’re using disposables), and formula (if you’re not breastfeeding). Babies really don’t need that much, and child care is the biggest part of the equation by far.

Q6: College savings question
I’m curious about college savings. We’d like to put money into a college savings plan, though I’m planning on making sure our retirement is fully funded first. While I’d like to be able to help our future children with their college expenses, I’m of the mindset that if they have to pay for some of it as well, it’ll make them more responsible and conscious of how they spend their time there. Also, I feel that our retirement must come first. My question is bout how much to shoot for when saving. I’ve recently heard that by the time my potential child goes to college, the costs for an undergraduate degree will be around $250,000. Crazy! I can’t imagine being able to save that much, much less half that, with all of the other expenses we’ll have. In your opinion are these figures just crazy, something to scare us all into saving? Also, do you have a percentage that you think is reasonable to shoot for? Say, 50% of college expenses? 25%? Assuming we’re fully funding our retirement, we have an emergency fund and all our bills are paid, the money we have left over will have to be split among college savings and “fun” money. I think that’s where I’m getting tripped up. We can’t do it all, so do I forgo, say, saving for a short family vacation in order to put extra into the college savings plan?

- Nicole

I think the figure you’re looking at assumes four years at a rather expensive school. It’s not looking at the cost of four years at your state school or two years at a state school with two years at a community college on the front end of it.

Still, it will be expensive. A college degree from a four year school, earned without any scholarships, is a pricy proposition, no matter how you slice it, and it’s not going to get cheaper unless politicians change how they value higher education. I’m of the belief that the best thing we can be funding for our future isn’t the military or paying off the debt, but great education at all levels that reduces classroom sizes and increases teacher quality at the lower levels while reducing the economic burden at higher levels.

My wife and I are planning on paying for roughly one third of our children’s education at that level. If they get a scholarship that covers all of it, the money will “trickle down” to a younger sibling (after covering books and other necessities).

Q7: Handling house sale profit
My husband and I are attempting to do a short sale on a new house, and we offered 290,000. We owe approximately 80,000 on our current house. When we sell the current house, I would expect to get around 225,000. We also have two rental properties. One is paid off and is worth about 200,000. We still owe around 190,000 on the second one and the mortgage is 15 years at 6%. Combined we make approx. 150,000 per year and that is with me working part-time. I will most likely go back to working full time in a year or so once our kids get a little older.

Our offer on the new house is not contingent on selling our current house. We have about 80,000 saved up in cash. If the short sale goes through, we are thinking that we will use that cash to pay off our current house and get a mortgage for the 290,000 we would be paying for the new house. Our new house mortgage would be for 15 years and about 3-4% interest rate. The dilemma is what to do with the profit from selling our current house. I think we should put that entire amount on the new house mortgage. We value financial security and my reasoning is that since it is our home, we should take care of that debt first, as compared to the rental property debt. My husband thinks we should put that money toward the mortgage of the second rental property since the interest rate is so high. Our general goal is to have all of our properties paid off in about 8-10 years when my husband retires.
- Bonnie

I agree with you in that putting most of, if not all of, the profit from your house sale towards your next mortgage is a good idea. It’ll reduce your monthly payments or make it easy for you to get into a 15 year mortgage without exorbitant payments.

The only exceptions I can think of is if you have nothing set aside for an emergency fund (in which case you should take some of the profit and build one) or if you have other outstanding debts that are at a higher interest rate than your mortgage (in which case you’re treating this mortgage as a home equity loan at a very low interest rate).

If neither of these are true, I’d dump it all into your mortgage.

Q8: Preserving digital records
I was just curious, as you’ve scanned most of your records and disposed of the originals, how are you planning to preserve the digital records past your current computer? As someone else with an old clunker of a computer and incompatible software with more recent developments of technology, I would be curious to find out how you plan on keeping your digital files for the required 7 years.

- Mary

I store all of the documents on the hard drive of our primary family workstation. Every day, that hard drive is backed up to an external hard drive that is attached by USB.

Once every month or so, I back up a copy of all documents on that external drive to a pair of DVDs (right now, the documents I want to save fit on two DVDs) and I store those off-site, which will help in the event of a house fire.

I considered using a backup service like Carbonite, but the security made me uncomfortable. I don’t like sharing my data with third parties unless I absolutely have to.

Q9: Switching insurance companies
My wife and I currently have a question about who should manage our supplementary investments. We like to keep things simple so we decided to do all of our investments outside of work through State Farm because we carry insurance through them. We have no relationship with our agent and don’t really feel connected or updated with what our accounts are doing. However, a very good friend recently moved over to a different insurance/investment company and I am considering being one of his clients. I would much rather my commissions go to someone I know and make regular contact with than a stranger.

- Brad

If you prefer having someone manage your investments (something I’m not convinced is necessary for anyone except for the excessively rich) and you feel more comfortable with someone you have a personal relationship with, there’s no reason not to move the investments.

I manage my investments myself. I don’t feel that an adviser gains me anything too significant for my own money.

If you’ve decided to make that move, talk to your new adviser. He (or she) should be able to help you move the investments over quite easily.

Q10: Baby sleep tricks
How do you consistently get a newborn baby to sleep? Our baby was born last month and I haven’t had a good night of sleep since!

- Bob

The first trick I use is to hold the baby close while rocking in a chair (or bouncing the baby gently while standing) and whisper in his or her ear. I just make a “whooossh… whooossh…” sound in time with my heartbeat. This seems to always calm babies during their first two months or so of life.

Another trick I often used is to use my finger as a pacifier. I’ll clean my hands well, then allow the baby to suck or gnaw on my pinky. This usually worked well, particularly when they’re just starting to cut teeth.

I would often sing a very repetitive song to the baby while rocking the baby, like “99 Bottles of Beer on the Wall.” The repetitive rhythm often seemed comforting to them.

Sometimes, though, nothing at all works. Don’t ever get angry at the baby. If you find yourself reaching your limit, don’t be afraid to lay the baby down in his or her crib, then go into another room for a while. The baby won’t have any problems if they’re not old enough to crawl or pull themselves up and you’ll get a breather for a while. This is vital for your sanity – don’t feel bad about it.

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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53 thoughts on “Reader Mailbag: Weekend Switcheroo

  1. Q4: I don’t think this answer is correct. As I understand it, if you have a card with a $1000 limit and you charge $800, that shows up on your credit report as an $800 balance, and an 80% debt to credit ratio, regardless of whether you pay off the balance in full at the end of the month. Think of your credit report as a snapshot of your financial situation, not the full (moving) picture.

    To be safe, it’s best to never let your balance rise above 20-30% of your credit limit. You can make more than one payment during the month if you need to (that is, charge $200 during the first half of the month, then pay it off, then charge another $200 during the second half of the month, then pay it off).

  2. Q3 – too bad you chose to write to Trent & wait for a reply instead of checking options more quickly. Most states have ‘buyers remorse’ laws that allow you to back out of major purchases, but the time limitations are very restrictive. You might try talking to the dealer (the manager or owner, not a salesman) – you might luck out & find them willing to take this car back (minus some fees) and sell you another. [This would benefit them by having retained a customer who's happy with her treatment, rather than an unhappy former customer who let herself get talked into being upsold.]

    And, no, not everyone has payments. We don’t have any car or house payments (all paid off in full years ago).

  3. Q6: With Trent’s mention of politicians, I wonder how long it will take before somebody says “Get your government hands off my state school tuition!”

  4. Q10 – I think it’s unusual for a one month old to sleep through the night – they wet themselves or get hungry. One option is for the parents to work out an alternate schedule as to who gets up.

    But Trent’s correct – some babies take a long time to learn to sleep for more than a few hours at a time. (My child, not to scare you, took almost a year.)

    Another idea I found somewhat helpful for those that wake repeatedly in the night & can’t get themselves soothed back to sleep, is to keep the lights off & simply hold & rock the baby gently – keep the night time stimuli minimal [I think the idea is to bore them enough that they figure it's better to sleep through it :)] Plus, you don’t get yourself fully waked up either.

    Once the baby gets older, if still waking at night, try limiting the late afternoon naptime, or move bedtime a little later than you might for a good sleeper.

  5. Q5 I’d guess that $1500 figure is the monthly cost of paid childcare in most metro areas; sounds like this isn’t applicable to you (though your lost income amount might be equivalent).

    Q10 I found Harvey Karp’s “Happiest Baby on the Block” book helpful both for tips and for helping me understand what newborns are experiencing as they join our world and grow. While I don’t question the sentiment behind Trent’s advice not to get angry at the baby, honestly, it’s fine to get angry at the baby — not desirable, but OK (and natural/normal in some circumstances). The key is knowing how to deal with that feeling, which might include putting the baby in a safe place (e.g. crib) and walking away for awhile, and/or seeking help e.g. logistical, from a partner or grandparent, or for your and/or the baby’s health, e.g. for post-partum depression (you) or GERD (the baby), if needed. Mostly, though, just know this stuff is really hard but gets better. Hang in there and insofar as possible be gentle and patient with yourself.

  6. Just like the last time this came up, I dont’ see why it matters that the car owner (Q1) is
    “under water.”

    is something *wrong* with the car? You could own it for another 10, 15, 20 years.

  7. Q10 – Your baby is not going to sleep all night. Really, 4-5 hours is all you should expect from a newborn, and that’s if you’re lucky. If they sleep more than that, well, you’re super lucky, but I would plan on less for the first 3 months. That’s just how babies are. If it’s really an issue, try co-sleeping, if you’re breastfeeding, the baby won’t wake up less, but feeding will be easier, so he/she won’t get so frantic and will go to sleep a lot faster, and you’ll go to sleep a lot faster too. If that’s not for you (and it’s not for everyone), definitely keep the lights very low during night time feeding, and don’t let the baby get frantic. Try putting a bassinet in your room, next to the bed, so you can hear your baby quickly, feed quickly, and get them back down. Try swaddling really tightly too. Swaddling was the one thing that worked with my colicy baby.

    Try reading, “The Happiest Baby on the Block”. It’s a good resource for dealing with a colicy baby. But don’t think you’re going to get 8 hours of sleep. That’s unrealistic and could be very dangerous to try and force a newborn onto that kind of schedule. All new parents go without sleep, and this will pass.

  8. valleycat1–As a former car salesman (a job I hated and left rather quickly) I can assure you that “buyer’s remorse” laws are a myth. They don’t exist, at least not for cars. Anyone who relies on them being there is in for a rude shock.

  9. Also, no car dealer is going to take back a car–even minus some fees–because the purchaser has come to regret the decision. Car dealers are very hard-nosed businesspeople who do not have time to waste on sympathy for the confused.

    Also, the minute a car is driven off the lot it becomes used car, and is subject to a very different set of laws and conditions that govern its resale.

  10. Normal newborns don’t sleep through the night. Some research suggests that this is protective against SIDS.
    I second Michelle’s (7) suggestions. Deep breaths, short naps during the day for yourself if you can manage it, and remember that this too shall pass. “The days are long, the years are short.”

  11. #5- $1500 for startup for a baby is LOW. I have a 4.5 yo and a 10mo.

    Breast pump- $400. My baby had trauma at birth and couldn’t transfer milk. His injuries took 3 months to heal.
    Bottles, nipples, brush for feeding him those 3 months: $50.
    Clothes- I shop rummage sales and thrift stores, but even so, my 10mo wears size 24 months and weighs 28#. He’s blown through newborn, 0-3, 3-6, 6-9, 9-12, 12, and 18 month sizes.
    Carseat- $100-400. Must have. Can’t take baby home without it.
    Diapers- expect to go through 12 daily with a newborn. If you use cloth, you’ll want 2 dozen so you can get through 1.5 days before doing your laundry. Even buying secondhand, 2 dozen prefolds plus three covers in the newborn size, plus three covers for infant will set you back $100 or more. Triple that if you buy new.
    Crib and crib mattress- $200+
    Infant carrier- you’ll likely want a front pack, or a sling, or a wrap, or a stroller or even more than one of these.
    Insurance- giving birth is not inexpensive. Even with good insurance (I work in government), we paid $2000 for my ob’s fee / prenatal care / hospital fee / newborn care for a vaginal delivery and no anesthesia. Add another $500 if you have an epidural.
    Childcare- I live in a city of 1 million and pay $175 weekly for infant childcare and this is LOW.

    Good luck!

  12. Andrew is right on. The dealer will not take the car back. The car is owned by the owner and the bank now. The dealer has nothing to do with it now!

  13. Q2: Another incorrect answer. Trent, do you do any research at all for these mailbags?

    Eileen, both you and Trent are confusing the statute of limitations with the timeline of credit reporting.

    A charged-off debt is (or is supposed to be, by law) removed from your credit report seven years after the account went delinquent – regardless of what state you live in and whether or not you later settle the debt or pay it off in full. There is no “restarting the clock” on those seven years. A charged-off debt listed on your credit report as “paid in full” or “paid as agreed” looks a whole lot better than one that is listed as unresolved.

    The statute of limitations, on the other hand, varies by state (in your state it just happens to also be seven years) and refers to the time after which you can no longer be successfully sued for the debt. This is the clock that can be restarted, although what type of activity restarts it also varies by state. And even if the debt goes past the statute of limitations, the collection agency may still try to sue you (so you’d have to show up in court to demonstrate that they can no longer legally collect), or they can contact you (if they have your contact information, which it sounds like they don’t) to try to intimidate you into paying.

    Long story short, just because the debt is charged off doesn’t mean you don’t owe it, or that you’re better off hiding from it. Most of the articles I can find on resolving charged-off debts assume that you have the money to pay the debt in full, or at least make a reasonable offer. In your case (you owe $7000, but you only have $1500), I’m not sure what the best course of action is. Meeting with a reputable credit counselor may be a good idea. Liz Weston recommends the National Foundation for Credit Counseling.

    As for how to keep this from affecting your soon-to-be fiance, bear in mind that the effect is fairly limited to begin with. Even after you get married, you’ll each have your own credit report and your own credit score. Accounts of yours (that are not and never were in his name) have no effect on his credit, and vice versa.

    I agree with Trent, though, that you should be up-front and honest and not try to hide this from him. As far as financial mistakes go, yours is fairly small potatoes. And it sounds like you’re doing a good job of getting yourself back on track. You have nothing to be ashamed of. I wish you good luck.

  14. On the 2009 car, if you can come up with the money in the near future to close the loan-value gap, and the car’s in good shape, you might come out ahead by refinancing rather than selling.

    I recently got an offer from my bank to refinance a car which advertised a much lower rate that the 8.5% quoted above. (I didn’t pursue it, because my car is paid off, but it may be something to look into.)

    Another possibility, if you have sufficient home equity, is to take out a home equity loan and use it to pay off the car loan. (And then pay it off as you were paying off the car loan.)

    You’ll typically pay a lot less in interest this way (especially after tax), if you’re comfortable with using your home as collateral. (Be sure to still pay the loan off as quickly as you can; being underwater on your home can be quite a bit more problematic than being underwater on your car.)

  15. Q5- adding a child to upgrade health insurance from self and spouse, to family coverage, can be anywhere from 175-400/month.

    Depending on where you live (way north?), your heating bill can go very high to keep the house warm for a newborn.

  16. Re: baby

    I agree that no NEWBORN will sleep more than a few hours at a time. Their little tummies just don’t stay full long enough. But when they are a little older…

    I liked the book “the No Cry Sleep Solution”, since I refuse to let my baby cry it out. Lots of good ideas in there.

    Try introducing a lovie (ours is a soft blue blanket) that is only used at sleep time. Baby recognizes that when he has the lovie, it’s time to sleep.

    Routine, routine, routine! (ours is bath, book, bottle, bed) This has helped more than anything.

    My magic soothing trick is to take your hand and light as a feather, slowly stroke down the baby’s forehead and eyes. It encourages him to shut his eyes, and sometimes it will put him right to sleep.

    Get some coffee and soldier on, the sleepless nights won’t last forever!

  17. At Q1 and Q3. I bought two new cars shortly after getting married. We had payments for four years per vehicle. I then traded in the one car and bought another one new with a five year loan. We kept both cars for 14+ years and really it was only in the last few years of ownership that they started having significant issues. Could we have done better? Maybe, but on the other hand I think we got our money out of them.

    There is so much freaking out about buying new vehicles (and Holy Mother of Mercy don’t even talk about leasing) from every personal finance blog that it’s easy to feel guilty about it. If you are hurting right now, then sure you need to figure out a way to unload the vehicles for the least amount of pain.

    But if you can afford the payments without crippling your other goals, you also need to consider if you’re doing more harm to yourself than good if you unload now. $3 – 4K in loses is just about a year’s worth of car payments. Then another $1000 sunk into the next vehicle in taxes, inspections, possible repairs, and registrations not to mention time, etc. You’re looking at $4-5K to gain back about $10K (i.e. $4-5K savings).

    But also consider where you will be in four years. With the current vehicles, four years old, still plenty of life in them. Or with a 10+ year old vehicle, with some life yet in them. You need to take a hard look at the numbers and how you treat your vehicles, expected milage, etc. to see if you can live with the much older vehicle.

    You may find that if you commit to keeping the vehicle for a longer time (say 10 years min) rather than just considering short term remorse it may put you in a better position down the road.

  18. Q3. I am 55 years old, and have never made a car payment. My dad, an adult during the Great Depression never financed any purchase excepting his home, and he taught us that principle. I recently shared this information with my fairly affluent in-laws, who are pretty frugal and even they were shocked that I’ve never financed a car.

    Q5. As is usually the case, it all depends. But if your child and you are both healthy, breastfeeding, in addition to its myriad health benefits for your child, is both cheap and easy. My mother breastfed my three siblings and me in the mid 50s and mid 60s when it was VERY unfashionable. [She did a lot of "nutty" unfashionable things, like reading to us from the time we came home from the hospital. In my case Mom DID know best!] She said she breastfed because she was lazy — no bottles to wash and prepare, no need to heat bottles since breast milk is already at the ideal temperature, no need to tote a bunch of gear with her. When the baby needed to be fed at night, Dad would get up, change the baby and then bring the baby to mom. After feeding, Dad would burp the baby and put him or her back to bed. Mom said she rarely got out of bed for a routine night feeding!

    As for other “stuff” you “need” for a child — again, as with most things in life, what people conventionally do has little to do with need. There are plenty of used baby clothing and equipment. And you’ll likely find little of the equipment is actually needed. Most of it is just stuff Madison Avenue convinces anxious new parents they just HAVE to have!

  19. Q5 Our fifth child, a surprise, was born just a few months ago. We thought we were done after 4 and got rid of almost all of our baby gear years ago. (kept the pack and play and high chair for company). We have been able to acquire everything we need for this child (clothing, car seat, crib and mattress, stroller, pacifers, breast pump,maternity clothes, excersaucer, baby bathtub, a couple of toys, baby sling, and 4 months of disposable diapers and wipes so far ) for just over $400.

    We acquired what we needed mostly through garage sales and thrift stores, We also put the word out to family and friends that we needed to start over in this area and were given a number of things freely. Being experienced parents give us an advantage because we could whittle the baby list down to just what we knew we would use.

    Most of our expenses have been disposable diapers. We used cloth with the first 4 ( a great investment if you want to have multiple children) but this time around we’ve joined Amazon mom and have been ordering cases from there, for now at least. One last expense has been copays and vaccinations, which have cost us $220 in the first 3 months.

  20. Forgot to add that I breastfeed and do not need childcare as I am at home, so we have none of those expenses.

  21. Re #5: Kids aren’t as expensive as all the marketers want you to believe. You do have to spend some money, but the biggest regular/monthly expense at first (for us at least) was the medical bills/insurance – going from “employee+spouse” to “employee+family” and quite a few copays for early doc visits.

    Almost everything you need you can buy used. The only exception I’d make is a carseat… that should probably be new. I don’t know why #11 Jessica thinks anyone needs a $400 carseat though… that’s insane! She’s right about birth expense though… we’re having kid #2 soon and it’s setting us back several thousand dollars. #1 we were lucky and insurance paid for everything… but that wasn’t standard then and definitely isn’t now!

    Also… this may vary, but our friends and family have been very generous in terms of shower gifts and some continued gifts. We’ve probably only had to buy 30% of our daughter’s wardrobe – people (especially grandparents!) love buying baby clothes!

  22. Q3 Sarah : If you feel that car payment is too much then its too much. You could try to sell the car for the $23k you paid for it. Wouldn’t hurt to try. Maybe you can break even or close.

    Q4 : I also think Trent is wrong on this. I use my credit cards regularly and pay them off in full every month. Yet the month to month balance shows on my credit report and is noted as a negative impact for my credit. If you have a low limit and spend most of it then that may hit you hard on your credit score. One way that might mitigate that is to make payments to your credit card as you incur charges. For example if you buy something on Tuesday then pay the bill later that day rather than wait for the monthly statement.

    Q5 Nicole said : “But does all this add up to an extra $1500/month??”

    Looks like Nicole found a generic calculator that added up to $1500 per month. Not just $1500 start up costs. $1500 month is very high, but people could hit that much with childcare costs in higher cost areas. There is no single ‘right’ answer for how much a child costs. Situations vary greatly and some people spend a lot more than other people.

    Q6 Nicole : $250k does seem like a lot. But if you add up the cost of 4 years of college today then its easy to hit $100k for a public school. 20 years from now it could easily double or triple so $250k is realistic. However keep in mind that 20 years from now inflation will made a big difference as well. Adjusting for 3% inflation over 20 years that $250k figure is like $140k in today’s dollars. Still pretty expensive but not quite the same sticker shock. Plus there is a lot of financial aid available and loans. You won’t necessarily have to pay the full bill and few people do.

    Q7 Bonnie: I understand you wanting to prioritize your home first. But paying down a 3-4% loan isn’t a high priority. If you pay down the 3% instead of the 6% then that will cost you around 3% of $200k each year or $6,000 extra interest per year. $6000 a year is a lot of money. Your concern is if you get into a bad financial problem and can’t pay your mortgages. Smart to be looking out for that risk. But how likely is it really? If worst comes to worse couldn’t you sell a couple properties at a discount rate to dump them quickly? Are either of you in risk of losing your jobs? What if you pay off the rental and then figure on moving into the rental as a backup plan if worse comes to worse? Maybe you don’t prefer to move into that rental but it is just an emergency backup plan. Seems worth saving $6000 a year don’t you think?? Maybe you could pay off your rental then get HELOCs on the rentals to be used in case of emergency? That could let you shift your home mortgage to the rentals if need be.

    Q9 Brad: I would not have an insurance company handle my investments. Find yourself a flat fee certified financial planner if you need someone to manage your money. Insurance companies just like to sell insurance products with big fat sales comissions.

  23. Q4 – Johanna and jim are correct, Trent is 100% wrong on this answer. The balance that appears on your CBR is the balance as of the day your bank reported it – and there really isn’t a way to know what day that will be. So, if your limit is $500 and you charge $450, even if you pay it in full, there is a good chance it will show as 90% utilization.

    The sheer volume of incorrect google-able answers Trent posts here would be comical if it weren’t so sad. Seriously, who keeps asking Trent these questions? You’d get more accurate results from the You Tube comment section.

  24. Kristine makes a good point that : “adding a child to upgrade health insurance from self and spouse, to family coverage, can be anywhere from 175-400/month.”

    The extra cost for your insurance premiums can be hefty and something you shouldn’t over look. The exact cost will vary greatly though. Kristine cites $175-$400/month. My employer covers a large percent of the extra costs so for us adding a child is only $0 to $85/month more.

    Also make sure to consider extra out of pocket medical costs for co-pay, co-insurance and deductibles.
    You will definitely have some routine doctor visits for a newborn and if you have a deductible you may have to pay all or most of that out of pocket.

  25. “I haven’t had a car payment in literally years”

    Umm, didn’t you *finance* your Prius? Do you not make your payments on that?

  26. I seem to remember him saying he financed the Prius as well. Which is it? Did you have a car loan or not? He may have paid it off already but he definatly has had a car loan recently. Trent, credibility is easy to lose and hard to gain.

  27. He bought the Prius in early 2009, and he paid off the loan in full shortly thereafter. I don’t remember when exactly that was, but if it was before May 23, 2009, then yes, that’s “literally years” that he hasn’t had a car payment. :)

  28. 1 & 3 –
    If you don’t want the cars and they’re too much of payments for you, I’d sell them…even at a loss. Better having a loan of $6K ($3K you were underwater for and $3K for old car that gets you from point A to point B) than a loan of $20K.

  29. @Q5 It really depends, but it would be pretty easy for startup costs to be around $1500. A decent crib (be it new or used), mattress (I insisted on new, some say either is fine, some even insist on used due to “outgassing”), and car seat (new only! one accident renders it unsafe) is most of that right off the bat. There are startup/capital costs to cloth diapers. And depending on your insurance, you could spend anywhere from zero to thousands of dollars in out of pocket costs for the birth and infant health care.

    As for ongoing costs – $1500 per month could be just the day care or lost wages if you become a stay-at-home parent (you have to pick one or the other, unless you were already a house-spouse). There’s also other costs, some of which are bigger than others.

  30. @Q5: watch out with used cribs. There was a huge recall of cribs in recent years. And I second the recommendation to buy a new car seat. They expire after something like 5 or 6 years, so even if you get a hand-me-down from someone you know has not been in an accident, it may be too old to be safe.

    By far the greatest expense for my kids in the early years was medical expenses. You go to the doctor a lot in the first year for well visits, and if your child happens to get sick, you’ll go even more. My kids have both had ER visits and hospital admissions for illness as well. Of course, you never know what your costs will be, but I think it would be a huge mistake to assume it won’t cost much to have a baby.

  31. Q10 – A one-month-old baby won’t be sleeping through the night yet. Try “The Baby Whisperer” for insight as to what you can do to help your baby. By far the biggest help for me was working on the routine during the day (not schedule but a routine – as in what happens next) and within 2-3 months my babies were sleeping 8 hours at night. Also, recognizing sleep cues helped me with putting my baby down awake and letting her go to sleep by herself with no crying. It can be done! Good luck!

  32. I chime in with those who have never had a car payment. I have never, nor will ever, buy a car I cannot pay for in cash.

  33. Q5 – From (bitter) personal experience, I advise budgeting as though you are going to use formula and disposable diapers, even if you aren’t planning to use them.

    That way, if breastfeeding does not work out as smoothly as you hope it will, you have that money already available to spend on the lactation consultant, hospital-grade breast pump rental, herbal supplements, etc. to get your milk supply to where it needs to be.

    Not to mention the disposable diapers you will probably use because trying to breastfeed a reluctant baby every 2 hours, then pump for 10-20 minutes doesn’t leave a lot of time to get laundry done – and there’s going to be a lot of laundry, even without adding cloth diapers to the mix.

    Not trying to scare you – just that I planned on breastfeeding and cloth diapering, and was devastated when despite spending all that time and effort, was never able to make enough milk for any of my kids.

    Q10: Newborns need to eat every 2-3 hours. In fact, with my first one, a preemie, I was told to set my alarm and make sure to wake him up to eat if he did not wake on his own. (They did let me stretch it out to 4 hours at night.)

    It’s only for the first couple of months that it’s that frequent; it should lengthen out to only be 1 or at most 2 night feedings by the time she’s 3-4 months. And some babies start to sleep through the night that early, but a lot don’t. None of mine slept well for the first year of their lives. Well, the baby still might, I guess, but he’s 6 months old now, and we were still up 4 times between midnight and 6 last night.

    Also, you probably will get

  34. Q10: Forget the sleep for a while… not only does a newborn need to eat during the night , but as our babies got older, they would wake in the night and cry as they were teething. By around a year, they’d sleep through the night except for a few days here and there as a tooth broke through.

    Breastfeeding made it easier (nothing to prepare), and I kept the baby in a basinette right next to me, along with a basket of diapering stuff, so there was no walking around needed.

    Enjoy the sweet moments in the quiet of the night. It has its charm, even if the days are a little sleepy.

  35. Sarah at Q3 – I think this is one you’ll just have to chalk up to the school of hard knocks. You’ll probably take a big hit now by selling this car and buying a less expensive one, and only you can know whether paying your “learning fee” up front (by selling the car now) or over time (by keeping it and paying it off) will be less painful. At least it looks like you got a good interest rate.

    One piece of advice: If you decide to keep the car, decide now to keep it a LONG time, and treat it accordingly. Drive it gently, get regular oil changes and a good mechanic. Figure on something like 15-18 years or 250,000 miles, whichever comes first. Having a car you really like makes this easier. And keeping a car a long time cures a lot of mistakes in the original purchase.

  36. Q5: Trent completely forgot to mention a carseat – these should always be purchased new, unless the hand-me-down is less than 6 years old, and from someone you would literally trust with your child’s life. If a carseat has been in a single accident, even a minor one, it is no longer safe.

    My personal estimate for “startup” costs:
    $200 for cloth diapers
    $50 for 6 months’ worth of clothes, mostly bought at consignment, with one or two new outfits
    $150 for a carseat
    $200 for an inexpensive crib and mattress from IKEA, plus 2 sheets and 2 waterproof mattress covers
    $50 for a changing pad and 2 changing pad covers from Target (just place on any flat surface of the right height – we use an old dresser)
    $50 for a bouncy seat – necessary for a parent home alone with the child to also get a shower.

    Total startup: $700

    NOTE: Also plan to spend more on eating out the first few weeks – sleep is hard to come by, as is time to cook. We’re planning an extra $100/month into our food budget the first two months to accommodate those inevitable “I’m starving, I want to eat now and all my stockpiled food is still frozen!” takeout meals.

    Your increased costs per month for the first 3 years (my son is 3):
    If you use formula: add $15/week to your grocery budget
    If you use disposable diapers: add $15/week
    Clothes: $50/quarter, so a little over $15/month
    Toys: Nothing the first year (believe me, you will get enough in gifts!), then maybe $50/year after that, split between Christmas, Easter and the kid’s birthday.
    Activities: I’m a SAHM, and we have a Y family membership (gift from my parents). There, classes are $25 for 6 weeks’ worth, and I sign my son up for one class per week (swim, gym, etc.). This is not a necessary cost, but it has helped immensely with my reserved son’s social development.

    I would estimate that having a small child in our household increased our monthly living costs by about $50/month, if you remove daycare, formula, and diapers from the equation. $1500 seems completely out of line, unless they’re including the cost of daycare. I do one load of laundry per week just for my son, and I think his appetite adds maybe $20/month to my grocery budget. I just spent about $50 on brand new clothes for the summer at Meijer (boy’s clothes are notoriously hard to find at consignment stores – they’re harder on their clothes than girls, and they generally don’t own as many- I’ve had better luck at Meijer).

    Q10: Seriously? No one warned this new dad to not expect a full night’s sleep for about 6 months? Someone in this family’s life seriously dropped the ball. Expecting a 4- or 5-week-old baby to sleep through the night is completely ridiculous – our son was considered a “good” sleeper, and we didn’t have those blissful 1-feeding nights until around month 4, and he certainly wasn’t sleeping a solid 8-10 hours until closer to 8 months!

  37. Nicole at Q5, if you don’t mind used, you might try Freecycle for some of your start-up items for the baby, if it exists in your area.

  38. On insurance – the OP should check on her insurance coverage for birth. Our insurance covers birth 100%, and I will pay a single copay of $10 for all my prenatal care. I didn’t bother to include any of this in my original comment because it wasn’t relevant for us.

    Also, we don’t directly pay premiums for our health insurance (it’s considered to be rolled into DH’s salary), so adding a child will not cost extra for us. For the record, DH works for a public university – great benefits, not spectacular salary. :-)

  39. Andrew,

    I took back a car that I purchased. Actually, my husband did it because I was so humiliated. He was too, but he was willing to do it and I was so thankful. It had only been 48 hours, and I didn’t purchase another car to replace the car I was returning. I had, however, purchased a car from that dealer before, as had my father. This was more than 15 years ago, but I don’t believe any laws have changed since then.

  40. Hmm.. did I get cut off, or did I really just quit in the middle of a sentence? I REALLY need more sleep.

    Anyway,

    #10, you probably will get angry at the baby – lack of sleep will do that to you. Trent gave good advice on what to do when that happens – make sure the kid is safe, and just walk away and breathe until you’ve calmed down.

    But don’t add guilt over the negative emotions you’re feeling to everything else that’s going on at this stressful time.

    It’s okay to not feel 100% positive and excited and in love with your baby all the time – although if you’re feeling much more negative than positive, you might want to look into getting some help.

    Dads don’t get the hormonal baby blues, but they can certainly suffer from depression caused by an overwhelming change that they were not adequately prepared for. And that’s not some kind of criticism of you – no one is really prepared for how much of a change having a kid makes to your life. It’s one of those things where you make the best plans you can make, and then just go with the flow once the real thing begins.

  41. We have a brand new 6 month old at home, and Engineer Mom’s calculations sound about right to me. Although her health insurance sounds like a wonderful deal, I don’t know if too many people have similar benefits. I’d say throughout my wife’s pregnancy up to today, about 15 months, we probably paid around $3000 related to having the child. That includes an increased schedule of ultrasounds and a couple unplanned trips to maternity triage. On the plus side, all our preventative care (or well visits) is 100% covered.

  42. Q2-If you decide to pay off your debt, call the company to see if they still own the debt or figure out which collection agency they sold it to. Then start negotiating. I would start at 10%, or $700. Once charged off, these companies know only a certain percentage will pay this money back and will be happy to settle. Once you agree on an amount to pay back, and I wouldn’t pay more than 50% of it, make them fax you an agreement stating that the debt will be changed on your credit report to paid in full, or paid as agreed. That way it won’t show that you didn’t settle the debt. Source: brother is a mortgage broker and helped me with my credit report 3 years ago.

  43. Andrew – If not laws, some dealers have a buyers remorse and I have exercised it. AutoNation does this and they are the parent of hundreds of dealers they bought up. you have 3 days and the car can’t be driven more than 100 miles. One car I brought back, no fees involved. Another time i used the clause to get $500 back after I saw the car I bought being advertised for less online. I showed them the ad and they redid my contract. Love AutoNation!

  44. Q2 – Johanna – I believe you might be wrong about the clock restarting. I’ve read multiple articles warning people against predatory collection agency phone calls. Sometimes they will threaten to sue for a very old debt and once you pay it, it goes back on your credit report. Some people think, “Great, I can pay $100 for that old hospital bill,” but then wind up with a damaged credit score.

  45. @Shannon: It’s true that what is required by law is not always what happens, particularly when you’re dealing with debt collectors. That’s why you’re absolutely right, in comment 42, that before you pay any money to a debt collector, it’s a good idea to get an agreement, in writing, about how this will appear on your credit report.

  46. Thanks for the tips on necessary finances for a baby. My wife and I are probably going to have one in the next 2-3 years, so this is probably most applicable to us right now.

    Thanks Trent!

  47. I want to chime in on planning formula costs into your baby fund. I planned to breastfeed my daughter and was devestated that I didn’t make enough milk for her. That disappointment was made worse now that I had to buy formula and hadn’t budgeted for that and bottles, nipples, etc. So, plan for formula just to be on the safe side. You can get some great deals on formula through Craigslist, but you really have to look and constantly check the site. I bought a lot of my daughter’s things used off of Craigslist so we were able to save a lot of money that way…

  48. Julie and Shannon–I’m happy it worked out for you. I was perhaps wrong about dealers not always taking cars back.

    However, there really are no “buyer’s remorse” LAWS out there. The government will not intervene in such cases.

    Thanks for the good news, though!

  49. One can get more for a car than the trade in value if they sell it to a private party. Trade in is dealer wholesale value and is a lowball price. Look at KBB and see the difference. Private party is way higher than trade in value. Do the math and price your car right and it will sell.

  50. Re: Baby Expenses: My husband was still a full-time student with a very part-time job (about 8 hours a week) when we found out we were expecting. When I first walked into Babys R Us, I wanted to cry at the thought of purchasing everything, as we were on a shoe-string budget. I’d say that the crib, car seat (ours was $150 brand new, and he still uses it, as it is good up to 50 lbs.), blankets, sheets, clothes, shampoo, diapers – these are essentials. Cloth diapers didn’t work for us and I couldn’t make enough milk to breast feed, so he was also on formula from day one, but had GERD, so then had to have special, expensive formula up to 6 mos. of age. I also found a great bath chair that worked wonderfully for us from the beginning. I think that Engineer Mom is right on, except for one thing: when we first brought him home, I didn’t have a bouncy chair for him. It would have been nice, and we did end up getting him one. But for the first few days when I had to shower while my husband was at school, I just put blankets in the bottom of a clothes basket and dragged him into the bathroom with me. That way, I could peek out at him while I was showering. :) We also bought a Baby Bjorn carrier on ebay at about 1/3 of the store cost. But if I were to do it again, I would buy some fabric and make a moby wrap – there are several videos on youtube showing how to make and wrap a moby,

    Re: Baby sleeping: Co-sleeping was the method that worked for us, but that isn’t for everybody. Even then, though, he didn’t sleep through the night until he was about a year old. He just wasn’t as fussy when he got up, and it was easier to get him back to sleep.

  51. Guess I was extremely blessed. Both of my children, a daughter and a son, were sleeping all night within just over a month.

    My daughter started waking up for her 2 a.m. feeding at 3-3:30 a.m. The doctor told me to just delay feeding her for another few minutes or so. It worked like a charm. And she was definitely not underfed. Also, luckily, my daughter did not do a lot of fussing in the wait. I was ready and did the same thing when my son came along.

  52. Q3 Why don’t you try to make additional payments on the principal and pay it off early. It sounds like you LOVE your car but you just feel guily over how much it costs and your monthly payment. You can also re-finance like stated above or try to sell it. I would keep it since you said it’s the nicest car you have had and hope to use it for the next 5, 10 years and enjoy it. If your going to make a 23000 commitment, you might as well own it for a long time.

  53. Regarding baby sleep, I don’t have children but I was the first born (bottle fed) and my mother says i slept through the night (at least 6 hours) at the end of the first week. She thought babies were a breeze. 18 months later my brother was born and he was the complete opposite. Fussy, wouldn’t sleep, a tad orange! He was breastfed. My niece seemed to take a month or so but she loved to be swaddled.

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