Reader Mailbag: Father’s Day

What’s inside? Here are five word summaries of the questions dealt with in today’s Reader Mailbag. Click on the number to hop down to the question.
1. Blogging as steady income?
2. Selling rental for debt repayment
3. Drowning in student loan debt
4. Fed up with overreaching charity
5. Should I join the Army?
6. Save money or prepay mortgage?
7. Paying for law school
8. Earning more from my savings
9. Time limits on debt repayment
10. Which health care plan?
11. Should I replace my car?
12. Renting versus selling a house

Father’s Day was a rainy day, but my kids got me two things that enabled us to hang out inside all day and have fun – the card game Dominion: Alchemy and the video game Batman: Arkham Asylum. We spent most of the day playing games and doing art projects and playing “pile on Dad” in the living room. In other words, it was pretty much a great Father’s Day.

I own a printing / desktop publishing and work from home. I earn just enough to “get by” when I combine the income from the business with my Social Security benefits. I still have a mortgage on my home and want to payit off soon. I have no other debts other than the regular household costs.

I have been writing for about a year – just in my computer – not a blog. I write short items about how people can and should earn extra money and always have an encouraging “story” to connect to the article.

These stories are always true because living almost 70 years I have met many interesting people from all walks of life. I love talking with (interviewing) people about their life’s work or just their jobs as well as their families and their history. It truly interests me and people open up to me more than they realize.

My question to you is this: Could this type of informational writing connected with some encouragement make a good blog that would net me a good income? I value your feedback and would like you to be very honest in your answer.
– Alice

You have the most important thing in place for blogging success – a backlog of good content.

However, there are several things that have to come together to make it work. First and foremost is that good content, meaning that it either has to be new information or it has to be known information presented from an interesting angle. You also have to be able to consistently produce it on a regular schedule, like clockwork. If you suddenly find that you can’t come up with anything and don’t post for a while, your audience will evaporate.

You also have to be able to put forth some significant effort in marketing your writing. You can write the greatest stuff in the world, but if no one knows about it, no one will visit it.

Even if you manage to pull off all of that, there’s still some luck to it. Will the editor of a popular blog even see your stuff? If they do, will they happen to like it enough to link to it? It’s never a guarantee.

I think it’s a mistake to go into blogging with an expectation of earning an income. Almost all blogs never get to that point and it takes a ton of work and more than a little luck to get to that point. If you do reach that point, it can be a very flexible type of work, but it has its own demands, too.

If you want to write and it seems enjoyable, go for it anyway. If you’re just doing it as an effort to try to make cash, you’ll probably find disappointment.

I am just entering my final semester of graduate school where I will end up with an MFA in creative writing. I paid for my first year of school with proceeds I had saved from the sale of a business a couple of years ago…but this second year has been financed with financial aid student loans. I will be $21,000 in debt with 75% of it in subsidized loans and 25% non-subsidized when I graduate. My income is relatively low although I’ve been bumping it up recently and working my buns off to do so.

I own a rental property in Phoenix which used to be my home. I moved to Prescott, AZ nearly 2 years ago and chose to rent it out rather than sell it as the market had crashed and price dropped substantially. I bought it with divorce proceeds in ’06 for $253,000 and currently owe $88,000. The house is only worth around $140,000 at this time. I have a tenant, property manager and positive cash flow, but the tenant is occasionally flaky, paying late, etc. I just had to put a $4,000 air conditioner in it. Ouch. I didn’t have the money to cover it, but coincidentally, my student loan accidentally funded for $4,000 more than I’d asked for (I’ve only requested exact tuition costs but the paperwork got mixed up this time).

My question is this: should I sell the rental property to pay off the student loan and put the rest in the bank for retirement? (BTW, I’m 53 years old and have no other retirement plan) I feel I should, because no telling when the market will turn around and I HATE being in debt. I am currently struggling financially even without my student loan payments although I paid cash for my current modest home with my old business proceeds, as well. My friends and family think I’m crazy to even consider selling the rental house but I think they’re not in touch with the current economic reality.

Could you please offer your advice?
– Susan

Given your entire picture, I’d sell the house and use it to repay your mortgage, your student loan debts and put the rest away for retirement. The fact that your cash flow situation sounds pretty tight strongly encourages this advice.

Many people would point at the positive cash flow of the home, but what I actually see is that it makes your cash flow really unstable on a month-over-month basis. If you didn’t have the cash to pay for that repair, you don’t have the savings or the monthly cash flow to make it work.

You’re in a precarious financial position and the rental house is adding more risk to an already unstable structure. Your best bet is to sell and stabilize, especially given you don’t have any retirement savings.

I am 27, recently married (about 30 days now!), and live in the Northwest. My wife graduated from law school almost 2 years ago with $160,000 in student loan debt (some fixed, some variable), entered in to a bad local job market for lawyers, and wasn’t able to find a lawyer position. To get some experience, she did some pro bono work related to helping people/families/children with domestic violence, drugs, or prostitution problems (she is a do-gooder, and never would have made corporate lawyer moolah anyway!). Long story made short, she has become disillusioned with our law system and she no longer wants to be a lawyer.

She has a steady non-law job not making lots of money, but is able to cover her current loan costs (the full payments have not kicked in yet – they increase every two years), save a tiny bit for savings / retirement, and has some leftovers which get contributed to our other bills. I also have a (currently) steady job and, after covering the rest of the bills, am also able to add a bit to savings / retirement.

I am very frugal and try to be resourceful / thoughtful about every purchase, no matter the price tag. I’ve written up a budget, and have a fairly firm handle on where all the numbers stand. My wife gets a little overwhelmed about budgeting and tracking and planning (I admittedly need to lighten up on my paranoia about the future – there’s probably a healthy balance out there, somewhere… someday!). She is coming on board more and more, especially with the idea of planning for children.

We want to have kids, and we want a house, and a comfortable retirement, etc, etc! We are not big spenders, and while we do have a few monthly extras (like Netflix, cable, a few restaurant dates), we otherwise don’t have too much room to cut back. I also have around $12,000 left on my student loan balance… and I’m currently working through a short sale due to purchasing a home elsewhere a few years ago and then moving for a different job.

I’m just at a loss for a good strategy on how to tackle this mountain of debt and balance with goals of still having a life with children, a house, and other things we want to achieve. I’m afraid I’ll be going gray stressing over this each single day. I know it will take hard work and sacrificing. Generally, I am pretty positive guy but I just shake my head in disbelief and I’m incredibly overwhelmed! I think part of me feels that already, at 27, we may have junked up the ability to achieve a lot of our hopes and dreams.
– Jeremy

The problem you’re having is the problem a lot of people our age have: we want everything but we don’t have the resources to pay for it.

Many people solve that problem by taking on an absurd amount of debt, an amount that they’ll spend most of their life repaying. It’ll cause them to walk a financial tightrope for most of the rest of their lives, making it impossible to do anything but work at whatever job will pay the most, at the complete mercy of their boss.

I prefer the other solution. Put off some of those “needs” until you’re a little older. You don’t need the new car and the new house and the kids immediately. Live cheap when you’re in your twenties and early thirties and channel everything into your career and freeing yourself from your student loan debt.

It’s a decision most of us have to make at some point. I think many people dive into the first choice without reflecting on the consequences – but I think that solution sometimes ends in miserable lives. You have an opportunity right now to figure out which path you want to take.

I feel vicious.

Yet another story in my local news about some minor artist, with no health care, no emergency funds, no planning, who now has stage 4 [whatever] and whose friends are rallying to raise support (cash) for just this artist alone, who has personally racked up $1 million in medical bills or somesuch. And seeks $2 million.

How is this not a ransom demand?

I sacrificed for 25 years and now I’m the [bad guy] because I will not contribute? Yeah, med ins rates [are terrible], unless you get a high deductible and a HSA like I did. Sorry, but $2 million could do a load of good. Or just save you and you alone. And forgive me, but for that kind of money, could we please see some PROOF of your alleged condition? Maybe this just falls under the general category of charity, but when some friend wants me to go to “a concert” that is actually a local fundraiser to bail out minor local celeb [insert name here], I feel taken aback. This is no longer an entertainment expense, it’s a charity expense. But if I take pause, I’m the [bad guy].
– Jan

I agree with you. I guess that makes me a bad guy, too.

I’m all for charitable giving, but I want to know where my charity is going. If someone has a huge goal and is requesting money, I won’t give any money until I can see the books or have someone I trust see the books. If you don’t, you’re begging to get scammed. I have no idea whether the situation you describe is a scam or not, but the signs you mention are identical to many scams.

I don’t see any problem with supporting this artist if you’re a patron of the arts, but not everyone has to be a patron of the arts. Be a patron of what you value most. It might be education. It might be children’s health. It might be any number of things. Don’t let social pressure ever dictate what you should do with your charitable giving.

I’m 22 years old and living at home. I’ve been reading your blog for about a year now and I’m almost out of credit card debt. I don’t have a lot of money to my name right now, but most of my current income (two part time jobs that add up to about 30 hours a week) is being saved for different goals, including an emergency fund.

I’ve been going to school on and off for a long time and have accumulated a large amount of general education credits and, unfortunately, student loan debt. I’ve finally decided that I want to pursue a career as a veterinary technician, however, the program I’m looking at is pretty rigorous and I know I would want to stop working or work very, very little while going to school, so that would be two and a half years without income.

A friend of mine who was formerly in the army pointed out that there is a career option with the military that is pretty much the equivalent to a veterinary technician. If I were to sign a contract for two years with the army I would be paid a decent salary (or at least more than I’m making now with room to make more), trained, and I would have a ton of hands on experience in my field. Once my contract ended I could stay with the army and continue to reap the benefits of being employed by the military, or I could go back to school for free, along with aid for living expenses, and get my veterinary technician certification, which would allow me to more easily get a job as a civilian and get paid more.

Another big plus to this is my health and dental would be covered for free as well, and I don’t currently have health insurance.

I guess I’m just writing to ask what your thoughts are of this plan or just of the army in general. Is there something you know about it that I might be overlooking that would make this not such a great idea?
– Janna

I think it’s a reasonable plan. I assume you know more about the specifics of your field than I do, but it sounds as though you’d get equivalent training in the army as you would in your field of choice.

Obviously, you have to outweigh the pluses and the minuses in your case. Being in the armed forces as an enlsted soldier eats up a number of years of your life – and that life can be very difficult mentally and physically.

If you’re prepared for that, I think you should go for it.

I found myself reading through some old posts regarding extra mortgage payments vs. other investments. The specific article I’m referring to is “Should I Prepay On My Home Loan Or Put It Into Savings?” June 2, 2007. Interest rates then for online savings were in the 4-5% range and now they seem to be no more than 2%. I wonder if this advice is still sound. Also it is unclear if the interest earned had already been taxed or not. Another interesting consideration would be if one was paying PMI would it be in their best interest to at least make extra payments until they own 20% of the home and the PMI can be taken off of the mortgage payment (I think I put down around 10% last year).
– Rob

My basic philosophy is that you should simply compare the interest rate you can get in a savings account to the interest rate you’re paying on your mortgage. If you have a healthy emergency fund and you want a very stable investment, you should simply choose which of those two has a higher interest rate and channel your money there.

Right now, interest rates on savings accounts are really, really low, so you should probably just channel your money into your mortgage if you want a stable return on your money (compared to paying the full thirty years of your mortgage).

If you have PMI, you should use your effective interest rate on your mortgage (with the PMI included) in this calculation. When the PMI is gone, that might change your situation.

About me: I am 24 and am a second-year AmeriCorps volunteer. After taxes I earn about $795 per month. I have an education award from my first term of $4725 to use to pay off my student loans ($5000) and will be receiving a second ed-award of $5225 when I finish my current term in November. I have an additional $1400 in credit card debt (paid down about $2000 over the past year) and I own a ’93 Honda Civic that is paid off. I currently automatically deposit $50 every two weeks into savings and I pay about $200 per month to my credit card.

I’m married, and together with my husband, we have $1,400 in savings.

My husband’s financial history is slightly more flawed than mine. He earns about $1,100 per month after taxes. He has about $65K in federal student loan debt (that is currently in default), another $30K in medical debt, and two evictions on his credit history. He had more credit card debt, but it dropped off his credit report so he never paid it.

My husband has been accepted to law school in the fall but as of right now, we have no way to pay for it. He isn’t qualified for financial aid because of his defaulted loans and he can’t borrow from the federal government for the same reason.

I guess I just don’t know what to do. Even if he didn’t attend law school, we are still swimming in debt and have no means to pay it off until one or both of us gets a decent salary, and in this economy, who knows how long that will be.

Where do we even begin?
– Nicole

Well, if he can’t pay for law school and can’t get loans to cover it, then he’s probably not going to law school. He can try for scholarships and grants, but if he doesn’t have the cash, law school isn’t going to happen.

The first thing I would do is look up my credit report from the federal government. See what’s on there. If you have a pile of bad things – defaults, late payments, and so on – you really don’t have much of a credit score to damage. If that’s the case, try negotiating with your creditors right away. Point out that you have very little income and very poor credit when you negotiate. To put it simply, you’re a giant risk to them and any amount they can recover from you will be a boon – they may be very happy to negotiate.

Your goal is to do everything you can to minimize and consolidate your debt down to manageable numbers. This way, you’ll actually be in a position where you can pay it off, because it doesn’t sound like you can do that right now.

I am a 27 year old in the US Army, deployed, and married with a 3 year old daughter. I come from a family that has NO sense of finances. I was raised on food stamps and unemployment which I guess led me to want to learn how to balance a budget to prevent the situation from ever becoming my own. I’ve helped my parents pay their mortgage on more than one occasion and often buy school clothes, supplies, etc for my 3 younger siblings. Enough with the bio, I have some questions (I fully understand if you do not have the time to reply, I know you get a lot of mail).

At the end of my deployment I will be able to pay off all of the debt my wife and I currently carry (her student loan and our car) and will have a nice little emergency fund in place as well as a down payment on a home. At this point we are looking at our options for mostly safe investments; ie CDs, high yield savings accounts, etc. And we haven’t really seen anything that fits.

We currently bank with USAA, ING, and our local credit union back home in Oregon. ING currently offers CDs with a lower rate than their savings or checking accounts (why would someone choose a CD from them right now?) I guess I’m curious if the best I can expect right now is to earn $11 a year on a $1,000 investment (ING savings, %1.10 APY). I know that every dollar counts and can make a difference in the long run but now that I’m in a situation to save it seems like there has to be a more high interest solution.
– Chris

There isn’t a more high interest solution unless you’re willing to take on some risk. The banks have low interest rates right now because they can borrow money from the federal reserve risk free for just a little more than what they pay out to you. It makes no business sense for them to offer much more than 1.5 to 2% right now.

If you find that you want a higer return than what those investments offer, you have to take on some risk by buying things like bonds or stocks or real estate. You can balance that risk by putting half of the money in a savings account and the other half into something more risky – half is at a stable +1% and the other half varies depending on how much risk you take, so even if it’s down 20%, you’re only losing 10%, but if it’s up 20%, you’re gaining 11%.

That might be your best route. That’s more or less what we do.

My husband and I have been together for four years. When he was in the Air Force around eight years ago, he wasn’t very responsible with his money. We’ve already paid off a car that was re-po’ed, and we occasionally get calls from collectors stating that he owes them money. The most recent collection call is from a phone company bill from April, 2002. This is the first time I’ve heard of this debt (I have been managing his credit/financial stuff for most of our relationship). The statute of limitations for NE is 6 years, as well as CO (where we live now). We are currently waiting for documentation of validation for the debt. It does not show up on his credit report right now, either. The collector could not assure us that if we paid it, that it would not show up on his report, and thus damaging his credit. So my question to you is, if we pay this collection account (in full), what are the chances that it would show up on his credit report? And if it does, would it be a negative item? Is it even worth it to pay it ($100)?
– Jenny

What you have is a debt collector swinging for the fences, hoping to cash in on an ancient debt that they bought for a penny on the dollar. For them, they figure that the small amount of time and effort they’re investing in you, there’s a small chance you might pay off some or all of the debt, netting them a huge return.

Should you ignore it? In terms of legal impact, they can’t do much. What they can do is harass you to an extent – mostly, they’ll be annoying.

My suggestion is to just let it ride and see what happens. If they start harassing you a lot, contact a lawyer and get good representation if it’s a large debt, or judge for yourself whether paying it off is worth eliminating the harassment.

I graduated from college a month ago, and a week later I married my high-school sweetheart (we dated for six years, but waited until after college to marry). I was able to secure an excellent full-time, temporary job in my former college’s IT Department; my wife got a part-time, temporary job. I have received several offers, and accepted a permanent position which pays extremely well and has full benefits. The job starts on July 1, and I need to determine what health insurance package to accept. We can choose either an HMO or a POS, and there are pros/cons to each. My wife is extremely risk-averse, and would prefer the package with the highest premiums, while I have a much higher risk tolerance. On average, she and I both need to go to the doctor for prescription drugs once or twice a year. We are not anticipating children any time soon (although surprises happen, I hear). She has a disease/condition called PCOS which is treatable but not curable, and does require certain prescription drugs. What criteria should I be using to evaluate the two plans? The HMO has higher premiums but lower copays/deductibles, and requires you to stay in-network. The POS has higher copays, but has lower premiums and allows for some out-of-network coverage. I want to pick what’s best for our family, but am unsure how to assess my options. Any guidance you could provide would be appreciated. Thanks!
– Zach

The thing I usually tell people to look at for their health insurance is how they handle truly severe situations.

Compare the two plans for a situation where one of you is hospitalized for a few months recovering from a serious ailment. Which one comes through for you in that situation?

My general belief is that if you can afford it at all, you should always get the best health care plan available to you, and the best way to judge that is in terms of when you’ll need it most.

The transmission on our 2001 Honda Odyssey (120,000 miles) just went yesterday. I estimate it will cost about $4-5,000 to get it replaced. The minivan is only worth around $7-8,000. We have four children under 6, so need a minivan, and have been discussing upgrading to a full-size van in case we have any more. I think that we could probably get what we are looking for for around $12-14,000. We currently have about that much in our emergency fund. I think (hope!) that my job is fairly stable. What do you think? Spend the money on repairing our current car or wipe out our emergency fund and use that money to upgrade now, which we were anticipating having to do in the next couple of years anyway.
– Trevor

I wouldn’t wipe your emergency fund for it. That puts you too much at risk for other emergencies, which would go on credit at a much, much higher interest rate than any car loans.

If I were you, I’d get a lower-cost car, something in the $6,000 to $8,000 range. Pay for it in cash, then start saving for what you really want while driving that into the ground over the next few years.

If you insist on getting that $12,000 car, pay only about $7,000 or so in cash as a down payment and get a loan for the rest, then pay off that loan quickly.

I recently got engaged this past May and we plan a small wedding this coming September. We both own houses. I purchased my house in January of 2006 and she purchased her house in August of 2009. (If only I’d been a year sooner!!!) She qualified for the $8,000 tax credit and after receiving it applied it to some of her high interest debt. (paid off her car and a chunk of her student loans with the highest interest). She has very little equity in her house. No more than 6-7k. It’s a small house and in a great area that we could rent the house fairly easily. My house is much larger and we’d have plenty of space. However, if we rent her house, the $8,000 tax credit will need to be paid back. We’d pay the 8k and move on with our lives in hopes that we find good renters, deal with the upkeep etc. Because we convert it to a business we could write off the expenses so that would certainly help with some of the rental house costs. I on the other hand have $33,000 in equity. The housing market in Indianapolis is fairly flat. My house is one of the more expensive houses in the neighborhood and is one of the few houses with a finished basement so it could either sell quickly or people might think it’s overpriced. I paid $169,900 and could probably sell it for $175,000 but it might be months before I could sell it and we’d pay commissions to sell it. We basically have $8,000 that we know we would pay back/lose (however you want to look at it). It would be nice to only have one house but we are both responsible people and if we had to rent a house, we could. We’d maintain it and keep it up as if we lived in it. Obviously, we don’t want to make any rash decisions because if we decide to try to sell my house, we’ll need to basically leave her house unrented in order to not pay back the $8,000. My question is, should I try to sell my house and set a firm date and if it doesn’t sell, just rent her house. Or just keep them both, pay back the 8k and turn one into a rental? Selling her house to me is out of the question because we’d have to pay back the 8k, and pay all the commissions.
– Ryan

You need to do a little market research. Could you actually rent the house in the area? Is there a lot of demand for rentals? What sort of income could you expect? How much work would the house need to be a good rental? Would you directly handle maintenance or hire a property manager – and how much would that cost? Would you do the advertising for the rental yourself – and how much would that cost? What about generating a legally binding lease for the renter? What is the tax impact of holding onto both homes versus selling one of them? How much extra property tax will you have to pay?

You also have to think about the human element. What do you two want to be doing? Where do you want to be living?

There is no answer to the bigger question until you have a firm grip on those smaller questions, because they will make or break any plans that you have.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag. However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.