Reader Mailbag #85

Each Monday, The Simple Dollar opens up the reader mailbags and answers ten to twenty simple questions offered up by the readers on personal finance topics and many other things. Got a question? Ask it in the comments. You might also enjoy the archive of earlier reader mailbags.

I especially like the fact that your website has minimal ads. However, I’ve noticed for the past few days that Crate and Barrel has advertisements on your home page. I live in the Atlanta area so I don’t know if the ads are specific to regional differences/popularity, etc. I was surprised to see the Crate and Barrel ad on your website. I think while the quality of what they sell is much better than average, the prices are astronomical. I have a good job, money in the bank, but I could not afford even, what I consider their knick knacks, unless they are on clearance. Also, I would imagine that many of your other readers might feel the same way. Anyway, this is just my perspective. I’m wondering if you’ve heard from anyone else on this?
– Tasneem

The good is the enemy of the perfect.

If I accepted only ads that absolutely, unequivocally met my definition of a perfectly ethical, great customer value organization, I wouldn’t have any ads on the site and The Simple Dollar would cease to function.

That’s not a good solution.

Instead, I just try to focus on a few key things. Is the company reputable? Are they producing a product of reasonable quality that’s at least worthy of consideration for use or purchase? If it passes these litmus tests, I’ll happily place the ad, even if it’s not something I would always purchase for myself.

Crate and Barrel have good items. Many of them are pretty highly priced. You might be able to find equivalent items elsewhere. But if you buy an item there, I don’t think you’d get ripped off – you’d be getting a good item. To me, that’s enough – they’re in the conversation when considering a particular type of purchase and they’re not scamming you.

Sure, I’d be a bigger fan if their prices were lower. But if I designed my “perfect” company from a consumer perspective – high quality items, environmentally sound, very low prices – the company couldn’t afford to stay in business. They wouldn’t turn a profit.

In the end, the perfect is the enemy of the good, and Crate and Barrel (and similar shops) are good enough, even if they don’t represent the best possible bargain out there.

Going into my senior year in college, I had minor surgery. I assumed that my mom and dad (divorced) would handle the medical bills the way they always had. A year later, in grad school, I started getting collections calls. I called my parents and found out that they had been fighting over the bills, which were in my name, and nothing had been paid. If I had known, I would have taken out more money in student loans to pay the hospital. I paid settlements to the two agencies that contacted me. I am now out of grad school, ran a free credit report from annualcreditreport, and see that I have a third account in collections that I never knew about. I’m pretty sure it’s my debt and not an error (my medical insurance was an 80/20 plan and I pieced together that our share was about $5000).

My question now is: do I contact them and try to work out a settlement for this last $1200 or do I wait for the debt to disappear from my report in 2 years? I have some ability to repay but I hate the thought of parting with money that I worked so hard to save and the hospital (which did an excellent job!) doesn’t get any of it.
– Kelli

The ethical thing to do is to always repay our debts. If you borrowed money from someone, it’s the right thing to do to pay it back.

Things get hazier in the real world, though, and it sounds like you’re in a mess. My suggestion here is to contact the holder of the debt and negotiate. Ask them what they would take to have the debt marked as paid on your credit report.

The real world is sometimes a sticky place. This sounds like it could be very close to a “he said, she said” kind of battle. In those cases, everyone involved is better off if someone just steps up and solves it – the mature person in the mix. It sounds like here, Kelli, that’s you.

Along those same lines…

I’m curious if you’re familiar with do-it-yourself credit repair, particularly for low dollar delinquencies (less than $500). I’ve read that with collection agencies you can write “pay to delete” letters where you agree to pay the entire amount in exchange for them removing it from your credit reports. Have you or any readers had success in removing negative items from your credit report?
– Christine

Let’s be clear: paying someone to remove accurate info from your credit report is illegal. It constitutes fraud.

Now, it’s always a good idea, if you owe money to a collection agency, to negotiate with them. What kind of payment will they accept in exchange for marking the debt as paid?

This is completely ethical and legal – it’s a negotiation between two parties over a debt. When you come to such an agreement and your report is updated, it won’t undo a long period of delinquent payment, but it will begin to immediately heal your credit history and credit score. And, as time passes and the debt fades into your past, your credit score and history will greatly improve over time.

Either way, you need to address this. An open wound like this on your credit report is doing you no favors at all.

I don’t understand the Idiocracy theory. If you have children, you have to devote a lot of resources (time and money) to raising them – resources that you could otherwise use to influence other people to take up your cause. On the other hand, if your cause is such that the only way you can persuade someone to take it up is to brainwash them with it from birth, then what kind of cause is that?
– Johanna

Look at it through demographics, Johanna. Statistics from the Russell Sage Foundation indicate that the more financial success a family has, the less likely they are to have children. Instead, they devote their time to developing skills, pushing forward causes, and growing their knowledge.

Sage’s statistics show that the poorest quintile of America – the group that has, on the whole, the worst set of behaviors for financial and professional success (I’m not saying they can’t succeed, I’m merely saying that the results of their efforts is the worst) – has, on average, 10% more children than the richest quintile.

So, let’s do the math on this. Let’s say you have five couples, one in each quintile. The couple in the lowest quintile produces 2.0 children, while the couple in the highest quintile produces 1.8 children. Thus, the number of people that would define the lowest quintile today will grow in the next generation, while the highest quintile will shrink. Some of the people with the traits of the lowest quintile will now find themselves in the next highest quintile simply because of sheer numbers. Thus, all higher quintiles – in other words, all of society – see a slight reduction in traits that gear towards success.

Over many generations, you see a large reduction in the traits of people that made up the highest quintile and an increase in the traits of people that made up the lowest quintile, whether those traits come from nature or from nurture. If this gap in child bearing continues, the behavioral and cultural norms of the lowest income people will become the cultural and behavioral norms of all of society.

Is that a good thing, a bad thing, or an indifferent thing? It’s something that could be endlessly debated. However, the effect itself is clearly happening – whether or not you can trace that back to cultural and social changes is another question altogether.

My belief is that, from the pure perspective of diversity, it’s a bad thing and that people who are successful in life can do their part to help the world by having children of their own and raising them with the care and compassion they show in other aspects of their lives, the aspects that brought them success.

Has Sarah ever commented on any of your articles just to keep you on your toes?
– Mol

Sarah (my wife) usually “comments” to me face to face about my articles. Usually, her comments revolve around some of the choices I make to protect privacy – I’ll leave out details about people, change their first names, or somehow alter them in an inconsequential way to protect their privacy.

Sometimes, she’ll get really aggravated with commenters, who read one article and immediately leave a flaming comment about a decision we puzzled over for months. I usually remind her that (a) these people are likely trolls and (b) if they’re not, they don’t have the full view or the time invested in studying our situation. A single post cannot possibly reveal all facets of a complex choice.

Every once in a while, she’ll harangue me for an inaccuracy somewhere, usually related to my juxtaposing elements of a remembered situation. “That never happened like that!” she’ll tell me, and then she’ll inform me how she remembers it. Likely, the actual story is somewhere in the middle – or maybe I’m right, or maybe she’s right. To me, it’s inconsequential – the important part of it is always the positive outcome.

I recently graduated college and have 2 student loans to pay off:
Loan 1: about $4,000 left on it with a 6.8% rate
Loan 2, Part 1: about $3,000 left with a 6.8% rate
Loan 2, Part 2: about $7,000 with a 4% rate
Loan 2, Part 3: about $6,000 with a 5.3% rate
The kicker on loan 2: I was ‘automatically selected’ to pay off both part 2 and 3 before I can even start paying off part 1 (with the crazy high rate).

I have asked around and done a bit of research on my own. Really the only thing that I keep coming back to is Ramsey’s idea of paying off the smallest loan first, while still making minimum payments on the other loan (so I don’t default). I have already built up an emergency fund and am trying to decide how to tackle these loans that would be the most profitable in the long run.
– AReynolds

Loan #1 should go first regardless of how you calculate it.

The way I calculate segmented loans like loan #2 is by figuring out the average interest rate. Just multiply the interest rate of each segment by the amount of that segment, add the totals of each segment together, then divide by the cash total of the loan. In this case, the average rate is 6.0125%. Over time, it’ll inch upwards, as the balance of the first segment will go up faster than the second and third, but the rate will never equal the rate of the first one.

I’d just think of loan #2 as a single loan with an interest rate of 6.0125%. That means you’re choosing between a loan with $4.000 on it at 6.8% or a loan with $16,000 on it at 6.0125%. Almost every method under the sun for debt repayment will tell you to go with the $4,000 loan first.

How much does it cost a company to maintain the record of your debt? Given that they have to pay someone to call you, have to pay for postage to contact you with documents, and any other costs they have to soak to keep your debt on file, at what point would it become less than worthwhile to keep your debt on the books?

To use an extreme case, suppose I had an outstanding balance of $.01 in debt, and maintained it at that level, it would be more cost-effective for the company to write that off than collect, wouldn’t it?
– prufock

Companies that have sensible bookkeeping procedures usually do forgive tiny amounts due. Bills for $0.01 are largely a thing of the past as companies have realized that there is a cost to bill a customer and that forgiving the remaining amount is the best route if the balance is lower than the cost of billing.

What’s that cost of billing? It largely determines on the internals of a company. I’ve received bills for $4 in the last few years, but I can’t recall anything lower.

From my back-of-the-envelope chicken scratches, I would guess that for most companies, billing amounts under a dollar or two are probably better off left unbilled. Instead, they often just sit there and are added to larger bills if a customer has a new charge in the future.

At the same time, though, it’s usually a good move for a company to issue a refund or a payment for any amount, even if it’s just $0.01. The cheapest way to do that is usually to just treat it like any other payment and issue a check. While it might be cheaper for them to just hold it and apply it as a credit to your next bill, it’s often not allowed – and they’re far better off following the rules to the letter.

If you were forced into a short-term debt situation right now, would you rather borrow money from a friend or a family member or go into credit card debt?
– Andy

I’d rather get into credit card debt if those were my only choices.

I very rarely see a situation that involves a family loan that doesn’t end up with hard feelings or resentment on one side of the coin or another. If this is just a short term debt small enough to be put on a credit card, I’d rather pay a hundred dollars in finance charges than jeopardize a valuable family relationship.

To me, the value in my life isn’t measured in dollars and cents. It’s measured in people. The risk I would add to such a relationship is worth the extra money a credit card debt would cost me.

What is a typical work day like for you?
– DeLa

I wake up around 6 AM and usually check my email. My office is right next door to the kids’ bedroom, so I hear them when they begin to awaken, usually around 6:30.

After that, it’s time for getting dressed, brushing hair, eating breakfast, a bit of horseplay, getting shoes on, getting any winter clothes on, and getting out the door to daycare. I’m usually more interested in just spending good time with the kids, so this isn’t rushed in any way unless I have something URGENT for work. Most days, my workday proper doesn’t start until 8:45 AM.

I usually spend the morning in three separate hourlong focus sessions, where I turn off the phone and focus on an article. I’ll usually try to finish a good draft in that timeframe. Between the sessions, I’ll take a break or do things like approve comments.

After that comes lunch and often another hourlong focus session. Then I’ll spend time editing the posts and setting them up for public display. I then usually do a big email session. After that, I’ll usually work on some other large project – a book manuscript, a post for my personal site, or something along those lines.

That gets me to about 3:30 in the afternoon, at which point I wind things down for the day. I’ll usually keep working on whatever the biggest “fire” is until my wife and kids arrive home around five.

About two days a week or so, I’ll spend the afternoon out and about. Sometimes, I’ll do something like grocery shopping with my notepad open to jot down ideas. Other times, I’ll go out to lunch with someone. Sometimes, I’ll spend an afternoon at the library.

To continue that train of thought…

If you work at home alone all day, how do you combat loneliness?
– Emerson

I don’t feel loneliness if I can consistently get myself into a creative zone – and most days, I can. It’s the days when I can’t that are the trickiest.

On those days, I usually go do something social. I’ll go eat lunch with someone I know. I’ll go to a coffee shop and work. I’ll try to pencil in an interview with someone. I’ve even sat in on a class at a local university.

There are always people doing something out and about in the community and it’s not hard to meet up with them. I’ve found that, for me, that’s enough.

Got any questions? Ask them in the comments and I’ll use them in future mailbags.

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