Questions About Switching Careers, Calculating Debts, Separating Credit Histories and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Switching careers
2. Sporadic loan interest payment calculator
3. Why credit unions?
4. Separating spouse’s credit history
5. Rebalancing a Roth IRA
6. Best place for student loans?
7. Saving safely for next house
8. Lump sum for old pension
9. Blogs and trademarks
10. At a career crossroads
11. Good credit, no income
12. The size of student loans

As readers know quite well, I’m a fan of games of all kinds. I love board games and card games and storytelling games and role playing games. I just love the experience of sitting around the table with other people playing a game of some kind.

One of my favorite times for gaming is the proverbial “rainy day,” where you might have plans to do something outside that are being quashed by rain. So, instead, you’re inside with some people and looking for something to do together. I loved rainy days for this reason when I was a kid and I still do.

The games I like best during a rainy day are relatively simple ones, ones that I can teach to almost anyone in a few minutes and use minimal components. That’s why card games work so well – you can play a lot of games with a deck of cards and most of them can be taught quickly.

Lately, I’ve been on a tear of playing Dutch blitz. It’s a cardgame you can play with four decks of playing cards as long as the decks have different backs. It’s basically multiplayer solitaire, except you’re trying to do it as quickly as possible because the stacks above – the ones where you pile up cards of the same suit in order – are shared among all players. It plays really quickly and turns into one of those games you can play over and over. I highly recommend it. (There is a company that sells a packaged game of Dutch blitz cards that work great for the game, too.)

If you’re bored this summer on a rainy day, try playing Dutch blitz. All you need are the aces through tens from four different decks of cards with different backs.

Q1: Switching careers

My husband and I combined make ~10,200/month after taxes. We have health insurance through the military and I have health insurance through teaching.

We have $34,000 in student loans (some at 6.6% interest and others at 2.8%) and we owe $17k (0.09% interest rate) on a car. We don’t have any other debt. We currently toss all of our extra income towards extra payments on the student loans. Our mortgage is $1900 each month. We have $30,000 in liquid savings between emergency account, travel, home improvements and slush.

We are saving $1800/month in 3 different accounts to beef up travel, home improvements and slush. I have a retirement account through the school. Husband will retire with military benefits in 8 years. We also contribute to retirement accounts but are not maxing them out because we are focusing on paying down debt.

I want to start a business that would take me away from teaching. It’s a good idea and I think it will do really well but we will be losing my income from teaching ($3400/month)

We live in a little marine town with a lot of wealthy retirees and summer tourists. My idea is to start a pet boutique with upscale products in the downtown area. This will require a significant startup cost to acquire inventory, a retail space, retail space design, website design, etc.

I’ve never worked in retail. I’m incredibly bored/sick of teaching and I’m ready for something new. I’m not vested yet so I would lose all of my retirement contributions from the school if I quit (I’ll be vested in February of 2018)

Do you have any suggestions for starting this business? Should I quit my job and go for it? Should I wait until 2018 and then switch careers?
– Tamara

My honest suggestion for you would be to work through a proper business plan for this idea. You should really work through all of the potential pitfalls of your business idea, make sure that you know exactly what you need to do, have all of the zoning and licensing you need in place, the financing you’ll need, and so on before jumping fully on board with this. Honestly, it’ll probably take until 2018 to have a plan in place that will really make all of this click.

If I were you, I’d start by visiting the library and finding some books on writing a good business plan, then go through that whole process. Spend your spare time writing a great business plan for your business. Have trusted people read it and give you some feedback on it.

Having a plan in place that has all of the key areas considered and covered is going to go a long way toward helping you secure a business loan for this endeavor to cover the startup costs.

If you really bear down on this plan and make it so good that building the business itself is just a matter of following the plan step-by-step, it will probably take you a year or so to get that plan ready. Doing so will not only go a long way toward ensuring that your business is successful, it’ll also eat up most of the time that you should wait until actually embarking on this plan.

Q2: Sporadic loan interest payment calculator

I borrowed money from my brother in 5 equal $1500 consecutive monthly loans about 9 years ago. We agreed on a 6% interest rate. I didn’t start repaying for several years and the repayments were on a sporadic basis (not monthly and not the same amount). It would be like having a credit card with 5 equal charges in 5 months and then not making a payment for several years. Is there a calculator to figure out how much interest has accumulated with this type of payment plan?
– Daniel

There isn’t a specific calculator I know of that will handle something like this. However, if you make the assumption that interest is compounded annually at the end of the year, then you can do it really easy.

You’d start off by saying, at the end of 2007 (which is when the loan apparently started), I owed you $7,500. I made $0 in payments at the end of the year, which leaves a final balance of $7,500. That balance earns 6% interest, so the new balance is $7,950 (you just multiply that final pre-interest balance by 1.06).

In 2008, your starting balance is then $7,950. You didn’t make any payments that year, so the final balance before interest is, again, $7,950. Multiply that by 1.06 and you have the final balance after interest, $8,427.

Do that for each year. The previous year’s final balance after interest is added in is the starting balance for the next year. Subtract any payments you made during that year, then multiply that result by 1.06 to see what the final balance is after earning a 6% interest rate.

If you want to treat the interest as occurring that the start of the year, multiply the balance by 1.06 first, then subtract any payments made.

You can do all of this in a simple table in just a few minutes.

However, if you’re trying to calculate it month by month, it gets a bit trickier. You have to have twelve times as many rows in your table and you’re going to be multiplying by 1.005 rather than 1.06 (since 6% interest annually is 0.5% interest monthly).

I guess the first thing I’d do is sit down with your brother and make sure you’re on the same page with compounding. Does compounding annually at the end of the year work for both of you? If so, the calculations will take you just a few minutes on a piece of paper.

Q3: Why credit unions?

I recently read a suggestion of yours, which I’ve seen come up before, stating that a reader should seek out a local credit union. In my best Seinfeld voice, I ask: what’s the deal with credit unions? I sort of understand them, and am intrigued by their higher rates of return on things like savings accounts and CDs, but any time I do some research in order to find one for myself, I usually find that I don’t qualify. For instance, some serve only teachers, while others only accept members from certain cities, etc. How do I find one for a plain old guy like myself?
– Jeremy

A credit union is a member-owned financial cooperative, usually organized as a nonprofit to offer banking services to its members. Usually, membership is restricted in some fashion as you mention, but many credit unions will serve a specific town or a specific county.

Because profit is usually not their goal, credit unions tend to offer better savings rates and tend to offer accounts to people in somewhat more marginal credit situations.

To see what credit unions are near you, check out this list from the NCUA.

Q4: Separating spouse’s credit history

Is there a way to get your individual credit score without your spouse linked to it? Have been living apart from my husband for 7yrs and have been doing a great job on paying on time and renting but looks like my credit score is low due to my husbands late payments and overcharging. Anything I can do?
– Lana

The best way to separate your spouse’s credit history from your own is to not put both of your names on debts. When you put both of your names down when taking out a loan, that loan is going to appear on both credit reports. Then, if your husband doesn’t make a payment on that loan, it’s going to affect your report.

If you’re not sure why your credit score is low, you should go to the FTC’s website and get your free credit report at annualcreditreport.com. That will tell you exactly what factors are making up your credit score so you can track down the problems.

It is very possible that your husband has used your information to sign up for credit cards and other things in the last several years and then not made payments on them. That’s why it’s vital that you check out your credit report and see what’s on there.

Q5: Rebalancing a Roth IRA

I’m not pleased with my returns in my Roth IRA through Vanguard (100% in the STAR fund) that I opened about two years ago. I had very low risk tolerance since it was my first investment account, even though I was only 26 at the time (now 28). I would like to rebalance, but the process is overwhelming and every time I sit down to do it I end up getting cold feet and walking away. I’d like to go with one of Vanguard’s age-defined distributions (it would likely put me at about 90% stocks). Do you trust those portfolios? I know you are a fan of Vanguard and I feel like I’d get instant diversification, but not as much control. On the flip side, I don’t really know what to do with control anyway, and I’m losing potential return by staying in my current portfolio. Should I go for it?
– Kevin

The Vanguard STAR fund is a strange fund. It’s actually a mix of various stock index funds and bond index funds, among other things, with a mix of domestic and international stocks. It’s meant to be a “one stop” investment for all of that stuff. Given how all of those things have performed in the last two years, I’m not surprised you’re unsatisfied with it. The international stock funds have been weighting down the domestic stocks and even the bonds.

I’m not a fan of Vanguard STAR for anyone under the age of about 50 or anyone with investment goals more than about seven years away, both of which describe you. All of those people should have less in bonds and more in domestic stocks at the very least, in my opinion.

If you’re unsure what you’re doing here, I think that a Target Retirement Fund is probably the right choice for you. If I were in your shoes, I’d move the entire balance over to the Vanguard Target Retirement 2060 fund, as well as my contributions. I think that fund would meet what you’re looking for more than Vanguard STAR would.

Q6: Best place for student loans?

I’m just curious if you knew whether it would be cheaper to get a student loan from a place like Sallie Mae, or a bank, like Wells Fargo?
– Kelly

Honestly, with a student loan, I’d follow the rates above all else. Get a quote from both of these institutions – and others – and get the loan that offers you the best interest rate.

Ideally, you’re probably going to want a fixed rate loan. Given how low interest rates are right now and have been for a while, they pretty much have nowhere to go but up, so a variable rate loan could potentially bite you.

So, in your shoes, I’d just compare a bunch of fixed rate loan offerings from lots of different places. Go with the one that offers the lowest rates on the term that works for you.

Q7: Saving safely for next house

So, if we decide to pay off our current mortagage and save for a larger down payment for the future home. where should our money be as far as risky investments vs. safe? Right now my emergency funds are in stocks (Roth IRA and regular stock investments, ESPP) and checking and savings accounts. 60% is in the market. My down payment is in CD’s and savings account. So for me that makes sense for a few reasons. To me I am in a stable situation where I would not need all the emergency money if something were to happen. I would only need a portion of it within the first 4-6 months of emergency. not sure how long saving for the downpayment will take but it s certainly in < 5 years and that is safe. i suppose it is just semantocs really. if something were to happen (I lose my job and the market crashes) the down payment would be there as a stop-gap to hope to recoup the losses on the emergency fund. And of course when we do buy the new house we would have to liquid the emergency fund a bit to sleep soundly. In fact I want to do a bit of that as I (If) make gains in the emergency fund.
– Jim

If you’re looking at a timeframe of less than five years for any savings goal, then a savings account is probably the best place to save. In a savings account, you’re not at risk of losing any of your savings, the account is insured up to $250,000, you can pull the money out whenever you want, and you’re still going to earn at least a little interest along the way.

You can put some of it in CDs as you go as long as you’re sure about the term of the CD. Having to withdraw a CD early undoes all of the additional interest benefit and more, so before you convert some of your down payment savings to a CD, be sure that’s really what you want to do.

I think that having your emergency fund in stocks is a bad idea for similar reasons. The time when you are more likely to need it – during a job loss, for instance – coincides with periods where the stock market is down. Take a look at 2008, for instance, where many people lost their jobs at the end of a 40% downturn in stocks. I would not have my emergency fund in there – if you want to invest in there, feel free, but it shouldn’t be part of your emergency fund.

Q8: Lump sum for old pension

I recieved a letter from a company I worked for 15 years ago regarding a a pension I have. Because the sum is under 5000 dollars they are offering a lump sum cash it in option. I understand there is a 20 percent penalty + tax if i do so. I am also interested in a 401k or IRA plan. I have to make a decision by july but I am not sure which one is best. I have no money for my retirement at the moment. Any help in this matter would be greatly appreciated.
– Fred

If I were in your shoes, the first step I’d immediately take is finding a company that you would like to manage your traditional (pre-tax) IRA (I recommend Vanguard; your mileage may vary) and asking them how exactly to go about rolling this pension money straight into that account.

I don’t know the specifics of what’s happening here, but I do know that a plan manager should be able to walk you through the steps of figuring out exactly what’s being offered by your previous pension plan and whether that can be rolled directly into an IRA without any tax consequences for you.

Even if there are tax consequences, I’d still view this as money that’s set aside for retirement and try to avoid touching it. If you do have to pay taxes on it, though, I’d consider opening up a Roth IRA with the money instead.

Q9: Blogs and trademarks

What are your thoughts on registering a blog name? The question about copyright this week got me thinking.
– John

I assume you’re talking about trademark registration. As soon as you start your blog and you’re not using a name that someone else is using, you have common law trademark rights, meaning that if someone else tried to trademark that name later, you could demonstrate that your blog operated before that trademark claim.

The reason for trademark registration is that it gives your future trademark claims much more strength. If you register a trademark and then no one makes a counterclaim for five years (this usually doesn’t happen unless you’re doing something very fishy), it becomes very, very strong.

It’s probably useful to get a full trademark, but it’s more important to do a trademark search before you ever start your blog to make sure you’re not using a name someone else has trademarked. Make sure you’re not stepping on someone else’s toes before you start.

Q10: At a career crossroads

My 9 to 5 career has been going well for several years. I’ve steadily gained experience, responsibilities, leadership, a respected resume of completed projects, and genuinely enjoy my job most of the time. No significant complaints! The only thing that I want more out of life is to work for myself, somewhere down the line. I have already identified that if I were to do so, it would ironically enough not be in my current field. In my industry, the barriers to entry are high and also carries a high degree of legal liability, things which do not appeal to me if I were to own a business.

My alternative pursuit has been to teach myself and gain expertise in a hobby about which I am very passionate and enjoy heavily, more so than my 9 to 5. My “plan” has been to blog in order to establish that expertise, with the goal of attracting paying clients for a service-based side business. I have already received very positive feedback on my work, although no paying clients yet. The plan is to keep pursuing that passion, working at it, and just seeing if it takes off at all. With a fairly high satisfaction level in my current career, I’m in no rush. If I started making decent money with a side business in 3-5 years I would be happy.

Now, the rub. At work, I have received very strong indications that I will be asked to step up into a role with much higher responsibility. With that, I know would come higher pay (at least sooner rather than later) and probably at least some more time commitment and possibly higher stress levels. I have no doubt that I will embrace this role and I have high confidence in my ability to delegate and get results from my team. I’ve surprised myself already with how well I might perform, although I do know that I haven’t been truly tested yet.

So, my question is how I handle this potential side business? I am far enough along into testing the waters that I know that, if successful, it could be a highly satisfying side business. If it is wildly successful, maybe I find myself making a choice in the future. At worst, I lose all time and energy to dedicate to continuing the pursuit of that ultimate dream of being my own boss and spending much more time with something I truly love doing. I take this as a good problem to have as it’s not a bad worst case scenario, but wonder if you can offer any advice. I still don’t want that worst case scenario to happen.
– Kevin

If I were you, I’d keep on your current path for now. Do not count your chickens before they hatch. Keep developing this side business just as you are and don’t change a thing.

Eventually, you may or may not be promoted at work. If you are, just take the promotion in hand and, for the moment, keep working on your side business, just as you always have.

One of two things may eventually happen, regardless of whether you get the promotion or not. One, your side business will grow to the point where it interferes with your main job. Two, your responsibilities at work will grow to the point where it interferes with your side gig.

When you’ve reached the point where you’re having to regularly choose between your job and your side gig, you’re going to have to make a decision. Either you cap the growth of your side gig and make your main job the priority, or you step away from your main job and make the side gig the center of your professional life.

I can’t tell you which is the right call, except to say that for me and for everyone else I’ve known that’s reached that point, there was a feeling in your gut that told us the right way to go. Mine told me to follow the side gig and every single day I’m glad that I did.

Q11: Good credit, no income

A question – what would you recommend for someone who has good credit, but has no income at the moment? My plan was to upgrade to a better car to begin driving for uber and start taking classes so that next year I can start a different career. Unfortunately, I don’t have any income at the moment, so securing a loan may be difficult despite my good credit – and finding a cosigner is not likely, either.
– Gregory

Many student loan companies will still offer a student loan to people who have good credit even without income because they kind of assume that people in school will have minimal income and the federal government gives student loan providers a lot of nice guarantees to boot.

If you’re able to get into the degree program you want, I wouldn’t worry too much about getting a student loan provided that you really do have good credit. Cosigners are mostly needed for people who have no credit (the situation I was in when I was in school) or bad credit. Income is much less of an issue.

In other words, I think your plan is fine, even without a cosigner, if your credit really is good.

Q12: The size of student loans

I read your article about student loans and found it really helpful. I recently was accepted to Oxford full time MBA program and am debating on whether to use my personal savings to cover school and living expenses or take our a student loan. My husband and I have been able to save some money since we’ve been married (8 yrs). We were thinking about buying a home and starting a family, but I wanted to do an MBA before that. There are obvious pros and cons about going one way or the other, so just wondering if you could provide any advice. Will greatly appreciate it! Thank you!!!
– Janice

Even given your stable situation, I’d probably lean toward a low-interest student loan, and here’s why.

Let’s say something goes horribly awry in your life at some point during the MBA process or shortly thereafter. If you’ve spent all of your savings, you’re going to be in a tough spot unless you find employment immediately – and if you can’t, you’re really, really going to be in a tough spot.

On the other hand, if you have a low interest student loan, you can simply continue the forbearance on that loan or just make a few payments with the savings that you already have. There’s no need to panic in this situation.

In other words, I think that paying out of pocket increases personal risk for the benefit of saving on interest, whereas getting the loan decreases personal risk at the cost of more interest. Unless you have a ton of money set aside – which it doesn’t sound like you have – I would choose the path with less personal risk, even if it costs more over the long run, because if that bad situation happens, you could wind up in a real pickle without any savings.

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

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