Reader Mailbag: Impromptu Travel

What’s inside? Here are five word summaries of the questions answered inside this mailbag. Click on the number to skip straight to that question.

1. Co-signing with bad credit father
2. How many people read TSD?
3. Removing stains from cloth diapers
4. Percentage for emergency fund
5. Personal loan for adoption
6. Gloom, doom, and e-funds
7. Difficult job search
8. Frugality, clutter, and hoarding
9. Regular IRA versus Roth IRA
10. Which debt to pay first?

This weekend, we went to a wedding of an old friend in the middle of Wisconsin. On the way back, Sarah says, impromptu, that we should stop for the night and visit family. My work plans involved us going home, of course, so I’m writing this mailbag on the road between wireless hot spots, sitting in the front seat of a cramped Prius.

My Father is a retired teacher who started in real estate about a year before the current economic crash. He had three houses that he owned and was renting out to tenants. Once the real estate market crashed, he was unable to make a living in real estate and tried to get back into teaching, but hasn’t been able to get much more than temp sub positions.

Needless to say, he wasn’t able to keep his houses. One has gone into foreclosure already and he’s trying to negotiate with the banks on the last two, but it’s looking like he’s going to loose those as well. He has a motor home that he will be able to live in temporarily if he does loose his homes, so he wont be homeless.

Recently he asked me if I’d be wiling to co-sign a new mortgage with him. He wants to leave his area (southern California) and move to an area where the housing market is better and prices are cheaper (Arizona). Since his credit is completely obliterated by the foreclosures, he would never be able to buy any time soon. He’s looking for a small, cheap house that he can live the rest of his life in. He would make the downpayment and all mortgage payments, I would simply assume the risk. I’d love to help my dad out, but how would having two mortgages affect my credit? Would co-signing with someone who has lousy credit affect my credit? Is it even necessary to co-sign, would it be better for me to put the mortgage in my name and treat it like my dad is renting from me? If, god forbid, he were to pass away, which would it be better to have the house totally in my name, or be a co-owner? I know you’re not a real-estate expert, but I’m sure you’ve done some research on this, so any advice would be greatly appreciated!
– Matt

If you cosign, the impact on your credit will be relatively low unless your father stops paying the bills. Then, if you do not, your credit will be in the hurt locker.

If he passes away, the same is true – if you’ve signed the mortgage, then it’s now your mortgage. Better keep up the payments! Of course, if you’re not specified as an owner of the house, the only thing you lose by not paying at that point is your credit.

I am generally extremely hesitant to encourage people to cosign on any loan with family members outside of a parent cosigning a college loan for their children. So often, such arrangements end in fights and broken relationships. It’s just not worth it.

I believe you mentioned it in the past, but out of curiosity, about how many people follow your site or subscribe to it?
– Brandon

I have about 82,000 subscribers. About 28,000 of those get The Simple Dollar by email – the rest get it by their RSS reader (like Google Reader).

The site gets about 700,000 visitors per month, though that varies a fair amount from month to month.

In addition to that, I have a lot of additional readers that are hard to quantify because my site’s content is syndicated elsewhere. For example, I get a lot of readers because my site’s content is syndicated at the Christian Science Monitor, as you can see here. Those numbers are extremely difficult to quantify in any reasonable way.

As a fellow laundry soap maker and cloth diaper user, I’m wondering how you deal with the stains in newborn diapers. I’m wondering if there is an easy method that I hadn’t thought of yet.
– Christina

I turned to Sarah, the resident expert on this:

“It depends on the cloth diaper, but I have the best luck just using a mix of washing soda and Simple Green. I rarely have any trouble with stains when I use the two of them as a mix.

I use about two teaspoons of Simple Green to 1/4 cup washing soda. Usually, I put the Simple Green in a spray bottle and spray it about 12-14 times right into the washing machine when it’s filled with water, then spread the washing soda evenly on the water surface.

I usually don’t have any stains at all when I’m done. If I do, I just repeat the Simple Green and washing soda.”

So there you have it, from our resident cloth diaper washing expert.

I graduated from college last May (i.e. ’09), and am lucky enough to have a job, but I still have considerable student loans and am trying to establish a nice emergency fund. In general, I have pretty good control over my finances, but I have a question I would like your advice on. I just received a bonus at work, and recently had a birthday, so I have a little extra cash than I usually do, and am trying to distribute it effectively. About what percentage should I put towards loans and about what percentage should I put towards my emergency fund? When a person has a little extra cash like this, what percent do you recommend on a little splurge? Although I know it must be done, after getting this money, it can be a little depressing putting it all towards debt retirement and a savings account, as I have done in the past.
– Tim

If you have no emergency fund, it should probably all go towards your emergency fund. I usually recommend that a person have about two months’ worth of living expenses in their emergency fund if they’re single.

If you already have that, then I’d focus more on the debts, starting with the highest interest one.

With splurging, I don’t think it matters too much as long as you’ve thought it out and stick to a consistent policy. My wife and I don’t splurge, per se, but we do often decide on “splurges” together and save towards them and windfalls usually are used to boost that savings to some degree.

My husband and I racked up some major credit card debt several years back (about 34k). We haven’t used credit cards for nearly 2 years now, and 6 months ago we enrolled in a debt management plan through CCCS to simplify and lower our payments; it’s been tight, but we’re doing it and are determined to follow through and not accumulate any more consumer debt. My husband recently got a better-paying and secure job (I’m employed too & we make about $70k total), and our car will be paid off in about 9 months, so we are on track to improve our situation, save some money, and hopefully pay off our DMP early. We pay a very modest rent, have no cable, use prepaid cell phones and free VOIP home phone, no video games, etc. etc. etc. to keep expenses low.

That is all background to my bigger question. We have been trying for many years to have children, but are intractably infertile. I am unwilling to undergo hugely expensive IVF treatments with the risk that they might not work, and we have recently decided to move on and pursue adoption–a path we would have chosen much sooner if not for the potentially high costs, bureaucracy, etc. involved.

We have good friends who suffered from infertility themselves years ago, and took me aside about a year ago to offer to loan us money for infertility treatments or adoption, saying they didn’t want finances to be an obstacle to us having children (they are quite wealthy, and made this offer completely spontaneously). I have been hesitant to take them up on this because a) I don’t want money to distort our friendship, and b) I am hesitant to go further into debt–however long-term and low-interest it may be.

On the other hand, it will take us years to save the $20-25k needed to pay for an adoption; we would be in our forties by the time we saved enough, and we really want to be parents. The federal adoption tax credit is $13k, so we could quickly pay off a portion of the loan ($13k minus our total tax for the year, so say about $6k??). There are also some adoption grants that I would pursue that might pay $500 to a max of about $10k, but of course there are no guarantees of getting one.

I understand the major ramifications of both options (waiting & saving vs. accepting a loan); but it would be very helpful to hear your perspective. Subjectively, it feels like not being able to afford an adoption for several more years–after trying to get pregnant for 5 1/2 years already–is our punishment for making stupid financial decisions in the past. Objectively, I feel strongly that debt and finances should be treated as a practical rather than a moral matter; but the issue of having children is such an emotional one that it is very hard for me to be objective here.

– Lynn

I agree with you about the friendship thing, actually. If the friendship you have with these people is valuable at all, I wouldn’t borrow money from them.

If it’s an ongoing concern with them, you should sit down with them and simply tell them that you really, truly appreciate their offer to loan you the money, but that you’re declining it because you know the negative impact that loans can have on friendships. One only needs to read The Simple Dollar for a while to know how badly it can end, even when people have the best of intentions.

Wait. Use your adoption dream as a focus point to encourage your diligent savings. Work together to reach your dreams without disrupting friendships.

With all the gloom and doom about the poor economy and how another recession is just around the corner, do you think I should beef up my liquid savings? Possibly pulling back a bit on the retirement investments? I just don’t know what I should be doing these days money wise, other than just saving as much as I can. Sometimes I feel like a hoarder.
– Laura

First of all, I think the “doom and gloom” is usually overwrought by “newscasters” and commenters who make a very tidy profit by predicting doom and gloom. People pay attention to negative news and commentary – the ratings prove it time and time again. Rest assured, if it can be spun negatively, someone will be making a buck doing just that.

If you feel uncomfortable with your emergency fund, add to it. Don’t worry about it, either. It’s essentially a very secure investment with a low annual return – no risk, but no huge reward, either.

As for reducing retirement savings, I’d use a retirement calculator and see whether or not I was on pace for the retirement I wanted.

I’m 25 and have been living in the city I live in for 1 year, and the state I live in for about 3 years. I enjoy living in the area and have learned a lot about myself and others while living here. My only problem is that I work in a different city (and state) than I live in, and would like to change this sometime in the future — Its a lot of driving, but it does not really get to me all that much right now. I’ve been trying to apply for as many local jobs as I can, but around here the job market is pretty tight and we dont have much of an employment base outside of government money of various sorts (federal, state). While this has helped the area weather the storm, it is extremely difficult for others like myself to find a job. I’ve been thinking that the best thing I can do to find employment in my area is to get to know as many people in fields that I am interested in as possible. This is difficult, however because I have only lived here a year and am focused on paying down my debt, so I dont really go out that much, and I dont really spent that much time in the city because my commute is long and my job is out of state. I would like to get more involved in the things that are going on in my community, but I just dont know where to start. It seems like you are quite involved in your community (you’ve mentioned it briefly a few times) and I was wondering what all you do in the community, and where you think I should start. I know that a common suggestion is to head to my church and help out around there and network as much as possible, but I’m not really a religious person, so it makes me less inclined to attend church themed gatherings because I feel like they are trying to convince me to do something for them (attend their services) that I’m not positive I want to do. Do you have any suggestions for other quality networking opportunities that will also allow me to help out my city in some way? I’m interested almost everything, and I dont have a problem doing manual labor (such as clean ups) but I usually dont hear about things like that until after the fact.
– Jeff

The first person I would talk to is with a pastor at one of the local churches. Simply explain what your situation is and see if they can help. Quite often, pastors aren’t out to “recruit” you – they’re actually out there doing what Jesus says, which is to help the poor and needy. My pastor is one of the best people I’ve ever been around and she’s constantly helping random people in our community, whether they’re church members or not.

Being involved in the community is great, but it takes a very long time to build up a lot of connections in the community that can help you in such a situation. If you don’t have them built already, it’s pretty hard to just show up at community events and immediately ask for help.

Your best bet, if you want to start on that route now, is to spend your extra hours doing community volunteer work. Start with your city’s parks and recreation department – they usually have tons of things going on that could be aided by volunteer work. Use that time to start connecting with others around you.

Lately, I’ve reading quite a lot about getting rid of clutter (in blogs such as Unclutter.com), and I’ve cleaned my room pretty good, throwing away everything I considered useless. And that felt great. My room is much cleaner and much more organized than ever before.
Now here are my questions:
a. Do you like to keep your room/house/garage clean and tidy? (I mean, we all love clean, but do you actually do it?)
b. How could frugality, bulk buying, etc. live in harmony with a clean and uncluttered house?

– Matthew

It really goes in phases with us. We have three little kids and the only constant with having three children that age is that something will happen to disrupt your best laid personal plans. It’s pretty much a given. So, there are times when the house looks beautiful and everything is wonderfully organized and there are other times where it looks like a hurricane hit the house.

Our biggest drawback, really, is laundry. We do a lot of it but we still often fall behind and have to have “laundry days” to catch up.

Most of our bulk buying is with household goods like toilet paper and diapers. We store the excess in the garage on the shelves, so it’s kind of out of the way. I think if you have a good place to put your bulk purchases, it’s not hard to be organized and be a bulk buyer.

First, I’ve basically been teaching abroad for several years, which means I don’t get any extra help on saving for retirement. I started an IRA during that time under some misguided information, now at around 17k. I now know that I should have started a Roth IRA because I can’t possibly be making less than I do now. My question now is: should I roll over my IRA into a Roth IRA and incur the $1,200 in taxes (estimated by my IRA holder) for the rollover, or just open a Roth account and quit adding to the IRA? At this time, I do have about 14k in savings at the moment with 20k in student loan debt, so paying out of pocket for the rollover is doable.
– Ken

You really should take advantage of the opportunity to roll it over and just pay the taxes.

When you have a low income, you’re far better off having money in a Roth IRA than a traditional IRA because of the tax advantages. If you save adequately for retirement and anything approaching economic normalcy happens over the next few decades, you’ll pay a higher tax rate in retirement than you do now.

That means a Roth IRA wins big time. I’d roll it over.

I just graduated with my Master’s degree, and I have been offered a position with a company in Cambridge, Massachusetts. I have approximately $10,000 in my savings account, and I will be making 44,000/yr plus excellent benefits with my new position. However, I have a few budgeting questions since I will need to begin paying my loans back in November. First, what percentage of my income can I expect as take-home pay?

I have about $46,000 in school loans, including the current interest. All of these loans with the exception of the oldest and smallest loan have a fixed 6.8% interest rate. My dad also has loans taken out for my schooling. Unfortunately, these are from my first years in school, when I didn’t know enough about the loan process, even though I have always been good with personal budgeting. I believe these loans may be around $25,000 with interest in the double-digits. My dad has already told me that I don’t need to rush to start paying for these loans ahead of those in my name or my regular monthly bills, but the high interest rate and my parents’ tight financial situation, makes me think these loans should be my top priority.

Anyway, I suppose my question is where should I funnel my extra money at the end of each month and the $10,000 I currently have saved… my dad for the high-interest loans? the loans in my name? an emergency fund? Starting retirement accounts so they have many years to compound? I just don’t know how to figure out what will put my family and I in the best possible financial situation.

My final question is about consolidating the loans in my name. I know if I consolidate during the grace period, I can get a .6% rate reduction, so I plan on consolidating soon. However, since I have loans with fixed interest rates, the May treasury bill will not affect my rates, correct? I just want to make sure there is no difference between consolidating before or after July 1st for me. Do you know how I can determine if rates are going to increase or decrease in case it could affect the loans in my father’s name?
– Cara

The first thing you need is an emergency fund equal to about two months’ worth of living expenses. Make minimum payments on your debts until you have that in the bank.

The next thing you need to do is sit down and have a serious adult conversation with your father about what the expectations are about the loans. Don’t guess about it. Ask him honestly what he expects in terms of repayment. He might never expect anything. He might expect immediate payment. It’s really hard to tell.

Your conversation there should tell you what the priority is. If you need to pay him quickly, pay him first. Don’t sink that relationship. If he’s fine with delaying it, focus on the high interest loans.

Yes, if you have loans with a fixed rate, your loans won’t be affected by the May treasury rates or anything else. Only variable rate loans are affected in this way. It may be that the offered consolidation rate may change, but that’s more of a business decision by whoever’s offering the consolidation. Rates are really low right now, so it’s a good time to consolidate.

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

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