Reader Mailbag: John Wooden

This past weekend, one of my heroes passed away. I’ll memorialize him with five of my favorite quotes from him.

“Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.”

“You can’t let praise or criticism get to you. It’s a weakness to get caught up in either one.”

“If you’re not making mistakes, then you’re not doing anything. I’m positive that a doer makes mistakes.”

“Do not let what you cannot do interfere with what you can do.”

and my personal favorite…

“If you don’t have time to do it right, when will you have time to do it over?”

I applied for a credit card with a zero % introductory rate in order to transfer the balance of another credit card with a higher rate (14.4%). Now that I have the new card, I noticed the introductory rate is only for 7 months and then the interest rates goes up to over 20%! Plus, the new card doesn’t even have enough available credit to transfer the full amount of the old card. What should I do? I assume I should just keep the old card and plug away at it. (I also plan to call and see if I can get an interest rate reduction.) But what should I do with the new card? Cancel it? I haven’t activated it yet.
– Kay

If I were you, I’d transfer an amount that you’re absolutely sure you can pay off in seven months, cut up the card, and never actually use it – just pay off debt with it. Since you’ve already opened the line of credit, it’s not going to make much difference at all in terms of your credit rating.

So, let’s say your minimum payment on your first card is $80 a month and you’ve been paying $200 a month to pay it down. That means you’re paying $120 a month extra. Transfer $600 to the new card, then each month, make the $80 minimum payment to the old card and a $120 payment to the new one.

What does that save you? It’ll only save you about $20, but that’s better than nothing, especially if you can use your bank to automate the bill payment.

Your summer reading list is insane! How do you manage to read so much?
– Evan

Three simple things.

One, I make sure I have a book with me everywhere I go. I usually just keep the book I’m reading near me throughout the day, but I also have a “backup” or two laying around here or there. I have a novel in the car, for example, just for these opportunities.

Two, when I’m idling for a little bit (like when I’m trying to coax the baby to sleep), I read. I don’t watch television. I don’t surf the internet. I read a book.

Three, I actually read fairly slowly and at the end of each paragraph, I mentally ask myself if I’m sure what I needed to pick up from that paragraph. I used to read much “faster” before I started doing this, but I was constantly backtracking and I often missed big chunks of what the book was about. In the end, I would get through a book at about the same speed I do now, but I get a lot more out of them now – my enjoyment factor is way, way up.

I’m a 26 year-old computer developer and am looking for some advice from you and your readers on mid-term savings ideas. I’m going to be taking a 2-year international assignment to China and my wife and I are trying to figure out what to do with some of our mid-range savings. We renovated a house over the past 3 years and are about to sell it and make roughly $30k. We have no debt other than the house. I have a vehicle provided by my employer (and will once I get back also) and we’re probably going to just let our family borrow our other truck while we’re gone so no major changes there. We have worked pretty hard to save up another $25k in my 401(k) and a Roth IRA. We’ve also got another $10k in general savings. With my international assignment I’m expecting to save anywhere from $40-$100k while I’m overseas. We don’t have kids (although we’re planning on it at some point soon) and are kind of thinking we might just try to pay for our next house with mostly cash. My question is what should I do with this amount of money over the next 2-3 years. Savings rates and CDs have such low interest rates and in that short a time-frame, I’m not very confident in the stock market either. I would consider a rental property but we’ll have no good way to manage it while out of the country. Thanks in advance for any suggestions you and your readers may have.
– Joe

Keep it in a high-interest savings account, one that you’ll be able to access from over there, and wait. If interest rates start to go up, you might want to rate hop a bit.

You’re right, though, there’s nothing out there paying good interest without taking on some risk. That’s because the Federal Reserve wants investors to be dumping their money into stocks and things like this that can spur the economy along much more directly. When the economy is humming along, interest rates go up and such stable investments look much better.

Still, I don’t think it’s worth the risk of putting money in the stock market right now unless you’re okay losing a good portion of it in exchange for a good probability of turning a profit. If you’re banking on that cash, then it’s not a good move.

I am curious how you budget for periodic charges that happen throughout the year. For instance, once a year, I pay for my car tags. Twice a year my daughter has soccer registration. Once a year we have our furnace serviced. I am thinking of adding up all of the charges for a year, divide the number by 12, and that is how much I need to try and set aside each month. I would like you input about what you do in your situation.
– Robyn

That’s exactly how we do it

Well, almost exactly. I tend to “front load” the year. Think of it this way: divide that amount by 6 or so, then make that payment each month for the first six months of the year.

Why do it that way? Those extra payments don’t come in evenly throughout the year. Sometimes, they come in bunches, and if they come in bunches early in the year, you don’t have enough saved up.

Aside from that, you’ve got the right idea.

I’m an avid reader. and I came across this article today on yahoo. For some reason I immediatly thought of you! I was curious as to what you would think of it. Not just as a way to save money but also as a way to network and meet new people!
– Ruth

That’s an extremely good idea. It’s one of those things that demonstrates the power of a local community.

In the end, it’s just formalizing how a healthy neighborhood works. If I help my neighbor watch his kids a few times for an hour or two, he helps another neighbor mow their grass, and then that neighbor helps me with snowblowing in the winter, we all save money. A time bank just makes it more formal, which makes it easier for people to join.

I’m all in favor of stuff like this because it simply saves people money.

What would be your advice to new bloggers when it comes to finding their voice for their blog?
– Gina

Write a lot. Nothing else solves issues of writing voice like writing a lot.

When you do that, pay attention to what people react to. Read the comments. Read the emails readers send to you. You’ll begin to figure out what things you write that readers like – and which things they don’t like. Use those clues to figure out what you should emulate and what you shouldn’t.

Over time, what will happen is that you’ll find it natural to write in a way that appeals to whatever readers you happen to have collected – and then you’ll find it easy to collect more readers like them.

My fiance and I are due to be married next February. We’ve consolidated our checking accounts, I’m about to buy a house (a duplex), and I just paid off all of my consumer debt (today! yay!). However, my fiance has a sizeable amount of debt, we both have car loans. I’m currently in re-payment of my student loans while he won’t have to begin payment until he graduates. I plan on going to law school in the fall of 2011.

We’ve worked out a plan for snowballing our debt payments and figure that we’ll have his consumer debt and both of our cars paid off in a little over two years. All the while, we will be saving (I hope) around $200/month for a rainy day.

In the meantime, I have roughly $5,000 in savings for emergency situations. I put it into a HSBC online savings account because, at the time, it earned something like 3% or 4% interest, much better than what I was getting at my credit union; also, it was out of reach (sort of) so I wouldn’t touch it unless I really, really needed it.

Currently, however, I’m only earning about 1% on my savings. I can’t help but feel that I can get a better return on my savings in the meantime. I’ve been thinking about maybe getting savings bonds, or perhaps a CD, but CD interest rates don’t really seem worth it to me. I don’t want to be too risky because I may feasibly need it for – you know – emergencies.

Any insight you could provide as to where I could invest it would be helpful!
– Melissa

As I mentioned above, interest rates are low right now across the board on savings accounts and CDs. There’s just nothing that can be done about it other than sit on cash and wait.

Why are they so low? The banks have no incentive to make the rates any higher because they can pretty much get as much cash as they need for about 3% interest whenever they like, so they can’t afford to pay out anywhere close to that while also ponying up for FDIC insurance.

If I were you, I’d just sit on the cash for now. You’re better off having it for emergencies even just earning 1% or so than having it at risk or having it tied up to just earn 2% or so.

Ha! I loved the “Life’s too short to drive a used car.”

I concur and have never purchased anything but a new car for the last two decades. I keep them until they start to fall apart though! I don’t finance and always buy a cost effective car that I can pay cash for. I currently drive a 2009 Honda Fit. I love it. I am very good at living within my means and would never drive a status car. But I do have a hefty commute and having reliable transportation is not negotiable for me.
– Aaron

You listed two things that new car buyers rarely do.

One, they rarely keep them until they start to fall apart. Proof? Go to your local dealership and look at how many 2004 to 2008 used cars – perfectly drivable for a lot of miles – are just sitting out there on the lot.

Two, they rarely pay cash for them. 73% of all new car purchases are financed, according to this article.

You’re basically buying new because you’re willing to pay extra to get those early reliable miles – the first 80,000 are usually the most trouble-free. That’s worth a premium to many people.

Aside from that, you’re buying how a typical late model used buyer buys cars, and that’s the way to do it, in my opinion.

Things are very stable at our house as we at paying down the mortgage and watching our net worth grow. I try to keep up with whats going on financially but I recently had a suprise in the credit card/credit report world. During the last few years its been hard to keep up with what the credit card and banking industry is doing. There is more detail to the backstory but the simple story is that I have a personal credit card that has a $15K credit limit. I only charge a few hundred a month and pay it off but this is my main card. I recently pulled my credit report and noticed that the card had the date and highest usage listed but the credit limit was blank. This made my debt to credit ratio upside down even though its not (600/0 is different than 600/15,000). Talk about skewing my credit score! I assumed this was a reporting error and called the credit card company requesting that they report my credit limit. The customer service representative confirmed that I have a $15K credit limit and that she would put in a note to have my information reported to the credit agencies. The kicker is that a few days later I got a letter in the mail saying that my credit card does not have a credit limit but is actually an open credit access line and an actual value is not reported to the bureaus. Say what?!?! Since when is a national bank credit card (with mastercard logo) with a specified credit limit actually an open access line? What do I do about my credit report that shows 600/0? Luckily I’m not trying to get any loans asap but its very frustrating to see that my should be almost perfect credit report is mud. (the mortgage loan is in my husbands name so it doesn’t show up and just like Cindy today our ‘joint’ credit card doesn’t show up. I recently had another card (my oldest card) with a $18K credit line closed on me by the bank due to inactivity which messed everything up and made me a very grumpy customer). So have you heard about other cards making credit limits actually credit access and not reporting the information? Is there a way around this or something else I can do to beef up my credit report?
– Patty

I’ve heard of that, but it’s usually pretty rare and only happens to people with very good credit.

I wouldn’t worry about it affecting your credit score. Instead of showing up as a credit card, it now looks more like a very small home equity loan to the score calculators. If you don’t have any missed payments or anything, your credit score is probably very good.

If you really want to check, you certainly can get a peek at your credit score, but with a credit report like that, I wouldn’t worry a bit.

My family needs an intervention. I’m 24, live on my own in Boston and am doing okay about saving, paying off my student loans ($700+ a month) and adjusting to adult life. I am a marketing writer and make $53,000 annually before taxes. I contribute to 401k, have about $12,000 emergency fund and have great credit. I have no credit card debt. The problem is my dad. He constantly assured us in high school that we would be able to go to the college of our choice – finances would not be a problem, and refused to speak to us about the situation. Even now he won’t talk about it.

Here is a breakdown of my student loan debt (below). The 2 PLUS loans, I write my dad a check for those loans and he pays the bill each month (In good faith – I can’t even check the loan balances). The website for our lender is very confusing because there are multiple loans (for myself, and my 2 sisters). Should I transfer the loans (for my student debt) under my dad’s name to my name? My dad is facing the possibility of prison sentence this coming fall. I have looked into the liability for PLUS loans and my dad keeps reassuring me that if he dies I will not have debt (he is only 56 years old). I am not sure the liability if he is in prison. I realize it is my education and I am liable for the loans – but I am not sure the best course of action to take financially. I am financially independent of my parents, live on my own, and do not need their assistance.

I have 2 Plus Loans Under my dad’s name that I pay him each month- and he makes payments to the leader, Nelnet:

Lender: Road Island Student Loan Authority, Loan Type: Consolidation, Monthly Payment: $294.64, Interest Subsidy: Unsubsidized, Current Principal Balance: $49,710.25, Interest Rate: 4.875 Fixed

Lender: Road Island Student Loan Authority, Loan Type: PLUS, Monthly Payment: $178.09, Interest Subsidy: Unsubsidized, Current Principal Balance: $13,319.89, Interest Rate: 7.500 Fixed

I have also have two government loans in my name (Federal Direct and Perkins that total $225 per month that I pay)… the balances remaining are $2000 ($50/month) and $15k ($175/month).

One sister is in college currently. I am advising her to move home and transfer to a local state school as a commuter student so she is able to work and still graduate with minimal bills. My other sister graduated 1 year ago and has a student balance of about $95k. My Dad told her this week that her payments will be a whopping $1,400 a month (she makes $40k a year in her job, lives with my parents, and has a $250/ monthly car payment, no credit card debt). Should she put her loans under her name? My dad has not been making payments on her PLUS loans so she has a lot of capitalized interest from the last 2-5 years.
– Anna

The absolute first thing you should do is check your credit report. Head over to the FTC’s website at http://www.annualcreditreport.com and find out for sure what loans are outstanding and in your name, because it isn’t clear to me which of the above loans you are liable for.

Any debts that you are responsible for currently repaying should appear on your credit report. If they do not, they’re probably debts that are in your father’s name and thus it is his responsibily to repay them, not yours, unless you choose to take on that debt for some other personal reason.

If you see a loan on there that you don’t have access to, then you need to seek out that loan and get full control over the maintenance and repayment of that loan. Do not leave such loans in someone else’s hands, no matter how much you trust them. Bad things can happen and you don’t need those bad events to have the secondary effect of wrecking your credit.

It sounds like – I’m not 100% sure on this – you have a personal arrangement with your father to pay him for the amount he owes each month on a loan he took out, the money from which was used to pay for your education. If that is the case, then your only obligation is the personal one to your father. The ethical and moral thing to do is to continue paying him, but it doesn’t appear that anything involving those loans will affect your credit.

Your sister is in the same boat. It appears as though she has a personal arrangement to pay your father each month for an amount equal to what he would be paying each month on that loan. With the amounts being discussed, however, you may want to consult a lawyer, because she would be giving him an amount each year that would exceed the gift tax (which means that taxes would have to be paid on that money).

Situations like this demonstrate why it’s very risky to mix familial and personal relationships and debt. It usually ends up poorly. If I choose to borrow money to pay for a child’s education, I’m going to borrow the money and then I’m going to give that money to my child for their education. There will be no lender-borrower relationship overshadowing our parent-child relationship.

Do you ever get depressed reading endless stories of people whose lives are in really deep trouble?
– Ellen

Not really, because I know that if someone has reached the point where they’re writing a question to me, they’re seeking a better answer for their situation.

I think society sends some pretty awful messages about money and completely distorts peoples’ senses of entitlement and wants versus needs. However, I already knew that before I started this site.

If anything, questions like that make me happier, because I see that people are trying to take control of their own situation instead of just blaming others and throwing their money at whatever’s new.

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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