Updated on 02.11.10

Reader Mailbag: Lost, Laundry, and Long-Term Debts

Trent Hamm

You asked for it, you got it. Until further notice, there will be a second Reader Mailbag on Thursday mornings.

I’m a 23 year old single male student planning to move out of my University’s dorms. Yeah, I’m a bit too old for the dorm scene, and it’s ludicrously expensive (the only reason I’m still living here is that I took my mother’s misguided financial advice – “keep living on campus and you can get financial aid and loans to pay for it!”). Well, now I’m deep in student loan debt, extremely unhappy with where I live, and not sure where to turn next.

I’ve been going back and forth on the idea of signing a lease for a studio apartment as soon as my dorm contract expires. I’ve checked out all well-rated apartment complexes in town and found the best one; the one that would be most conducive to my studies. It’s a wonderfully manicured, quiet complex with great staff and amenities that’s in a virtually crime-free part of town. The only problem is that rent is $495/month. That doesn’t sound too terrible — until you realize that utilities, creature comforts, such as cable, and student necessities, such as internet, are not included. After some math, I computed that my monthly expenses would be roughly $745. That’s a conservative estimate for rent, car insurance, renter’s insurance, gas, food, internet, electric, water, etc, as well as school obligations that won’t be covered by loans.

The problem is that I only make about $1000 a month. So nearly three quarters of my income would be going towards simply living, which is why I’m a bit hesitant. I have a clean credit history, and to the best of my knowledge, a high credit score. I have two more years of school left to claim the Bachelor’s I’m after, so I’ll be accruing more loan debt in the meantime. What would you do in my situation? Should I look for a cheaper, albeit not as pleasing, apartment? I’ll note that my parents live 150 miles away from my campus, so moving back in with them isn’t really an option — I’d rather not make 300 mile round trips every single day of the week. Should I be on the lookout for a second job? Or should I do something completely different?
– Mike

I’d say that only spending $250 a month to cover cable, internet, renter’s insurance, car insurance, gas, electricity, water, and food combined is incredibly conservative. To put it simply, I don’t think you’ll be doing that with any sort of regularity. After all, you mentioned that rent alone is $495 a month and that all of the expenses combined were $745 a month, leaving you $250 a month for the rest of it.

I wouldn’t bank on that.

Most people that get by with that little monthly income either live in a very low income area (where rents are very low) or own an inexpensive home with low property taxes. In either case, their housing expense is well below $500 a month, and even then, they struggle with it. My grandmother had housing expenses of $100 a month, lived in a very low income area, and struggled to get by on over $1,000 a month.

You’ve pretty clearly got your mind set on moving out of the dorm, so I would suggest finding the absolute cheapest housing I could find. This might involve roommates – I certainly had them when I was in college. At one point, I lived with three other people in a tiny, tiny apartment – but the rent was certainly cheap.

All I can say for certain is that your current apartment choice won’t work with only $1,000 a month in extra money. You’re either going to have to find a less expensive apartment, give up some “extra essentials,” or get another source of income. I would probably choose a different apartment.

Currently have $190,000 left on a $211,000 mortgage. It is a fixed 30 year mortgage @ 5.875 % . Payment is $1248 per month, we are paying $1300. I ‘m turning 50 in a few weeks and would like to retire in 12 to 15 years. I read about getting 2 loans 15 year and 30 year. The reason being is when I retire, the 15 year loan would be paid off and then the 30 year loan would continue but of course at a lower monthly amount. I would of course pay the monthly amount on each plus more to get to a total of $1300. I’m just trying to get my mind around this to see if it is worthwhile.
– Ed

That plan works. I’m going to assume that your $211,000 mortgage was 80% or less than the value of your home, so you’re not worrying about PMI or other concerns that might set off a red light to a lender.

If you split the loan in half right down the middle – $95,000 in a 15 year loan and $95,000 in a 30 year loan – and locked the 30 year in at 5.5% and the 15 year at 5.0% (I’m using these numbers as an example), you would be paying $539.40 a month on the 30 year and $751.25 on the 15 year mortgage. That adds up to $1,291.65 a month for the first fifteen years and $539.40 a month for the last fifteen years.

Obviously, in this example, the total monthly payment is still under $1,300. That’s because interest rates are a bit lower now, which is another little advantage of refinancing. Your payment today would only go up about $50 a month for the first 15 years (in that example) and down drastically for the last fifteen years.

Given that, you may want to consider an even stronger split. The more money you can handle in the 15 year mortgage with ease, the better off you’ll be at the end of those fifteen years.

I took a look at funagain. Very nice site. I have been unemployed for quite a while and have a slight disability. I have some money saved and thought of a retail web business my own web business. I have gone through the steps, domain name, resale number, wholesale research, market research. Thats a tough one. I have not invested in a web site as yet or purchased inventory. Why?
I’m afraid. Your thoughts?

– Bill

It sounds like fear is the one thing holding you back.

I like the advice that one of my friends who is involved with a small business once gave me. He said, “Do you want to spend your time doing this? The answer has to be yes. Are you willing to completely lose your investment in the business? The answer has to be yes. If you have two yes’s, go for it. If you don’t, then you shouldn’t take the plunge as there’s too much risk on the table.”

Are you absolutely sure about both of those elements? Can you financially afford the risk? Is it something you truly want to do?

It sounds like I’m trying to talk you out of doing it – and maybe I am. Many people demand that others overcome their fears, but sometimes I think fear is a great indicator that we need to think about a choice more deeply than we are.

My situation, in a nutshell was like this (for many of the same reasons that you were in debt):
$17K in credit card debt, but regularly contributing to my 401k (not at a high rate, but I had about $40K saved up), some stock and options through my company, totaling about $5K give or take. No emergency fund at all. My wife and I were married in October, and we were very frugal with our plans. Including the honeymoon, ceremony and reception, we managed to pay for everything with cash from our 2008 tax return (with plenty left over). So I wanted to address the $17K and begin the turn-around to make our future a brighter and smoother one, and especially, to allow us to do some of the spontaneous things that she’d love to be able to do one day.

My solution was to take a 401k loan for the entire amount ($17K) and pay off the credit card debt entirely. I calculated that I will have saved over $19K in interest alone over the next five years, and with the 401k loan structure that I selected (the same payback that I was previously paying toward the credit cards), I will be done with that debt in three years. I’m stretched pretty thin, what with our mortgage and living expenses. Besides the mortgage and the 401k loan, I don’t have any other debt.

Now that I’m reading your site, I’m wondering if I should have started an emergency fund first. I just restructured some household services yesterday that will net us roughly $500 a year in savings, and I think I can find more savings if I try a little harder, so all that will be going directly into a savings account earmarked for the e-fund. I can also sell the stock that I have to put into the e-fund. My company has an Employee Stock Purchase Program, and right now, I’m earning an immediate 200% rate of return when we purchase (before taxes).

Whew. This is a longer email than I had hoped it would be, but I’d appreciate your opinion on my direction. Is there anything you’d suggest doing differently, or additionally?
– Nathan

Hindsight is 20/20, isn’t it?

Yes, the optimum move probably would have been to have a cash emergency fund in place. However, I wouldn’t necessarily say that a cash emergency fund was vital before your debt-fixing solution with the 401(k) loan. I’m assuming that your monthly required payments are higher now (somewhere in the ballpark of $500 a month for the 401(k) loan, by my envelope math) than they were before (somewhere around $300 for the minimum payment). However, you’re right in that over the long run, this will save you significant money.

Your best move right now is to get that cash emergency fund. You seem to be making moves to do that. As far as selling your company stock, I wouldn’t just sell it immediately to fill up your emergency fund unless you think it’s the right time to sell it for other reasons, though it’s useful to know how quickly you could get the money if you sold the stocks.

I wouldn’t sweat it too much, as long as you’re putting effort towards building an emergency fund.

Any ideas on what’s actually going on on this season of Lost so far?
– Kevin

The people off the island in 2004 are going to start “remembering” that they crashed on the island. I think virtually everyone that was on the island will show up off the island – that includes Ben and Juliet. I think the Dharma initiation photo from the ’70s, the one with Sawyer and Jack and Kate and Hurley and Jin in Dharma jumpsuits, is going to pop up again.

The people on the island confuse me more, but I’m beginning to think that the “man in black” is actually the good guy and Jacob is the main villain of the show. I know the implication has been the reverse, but I don’t think it’s going to turn out that way. For me, Claire shooting the people harassing Jin confirmed it. Of course, I could be completely wrong here.

And if you haven’t been watching Lost, neither of those paragraphs make any sense.

Currently I track my spending through an excel spreadsheet; i’m an accountant, so there are lots of tabs, tables, etc, but after years of doing it this way I’m ready to find something that will take all the work but still give me the same benefits. Do you have any recommendations for personal budget software to use? What do you use? I recently got married, so i’d like to find something that will be useful & adaptable as our life situation does (i.e. career changes, kids, buying a house, etc).

I know Microsoft Money & Quicken are both good ones that have been out there awhile, but figured you might have some insight that would help steer me in a direction i might not have thought of previously.
– Katie

For one, Microsoft Money is now defunct, so I wouldn’t consider that as an option.

I also use a spreadsheet for most of my calculations. I have a copy of Quicken, but I know that from my past history of using Money, it takes a fair amount of time to set up and I haven’t put aside that time (it’ll take me even longer, because I’ll be taking notes on it for a future Simple Dollar post).

If you were going to try such a package, I would try Quicken. Although the features of many of the online packages are impressive (Mint, et. al.), there’s an extra level of sharing your information with a third party that I don’t trust, no matter how good the features are. If I were to use one of those, I would use Wesabe, as it allows me to upload my data from my own computer without my personal information attached.

So… I’ll try Quicken if you do!

Though I’ve read many of the articles in your Retirement section, nothing I saw addresses the question of how to plan once retirement begins — that is, once the salaries stop and it becomes necessary to start drawing on retirement savings. My wife and I are now officially retired; we have pensions, I get Social Security and she will start getting it in a couple years, and we have been putting away money in retirement accounts all our working lives. Our financial advisor tells us we’ve saved enough for a comfortable (frugal!) retirement, but I’m finding it very uncomfortable to be spending that money we’ve worked so hard to save!

Do you have any thoughts about how to determine a safe amount to withdraw each year? We can almost live on the pensions and my Social Security (and expect to have our day-to-day expenses fully covered when my wife starts Social Security), but it seems stupid just to let the money lie in savings accounts and not use it on something — travel? improving the home? How would you decide how to make use of the money?
– Michael

If you spend 4% of your balance each year, assuming no growth, the balance will last 25 years. If you put all of your money into something secure that can grow at a small rate per year – even 2% – it’ll last for much longer (in this case, 35 years). If it returns 3%, it’ll last fifty three years.

If you’re worried about your retirement savings and want to make sure it will last, I would put all of the money into something conservative – a mix of bonds and cash. Then, I’d cap my annual withdrawal to 4% of the balance today. So, if you have $500,000 in the account, you can withdraw $20,000 a year from the account.

During the year, strive to spend less and build up a cash balance in your savings account. If you do that, don’t withdraw up to the 4% cap the next year – take out a little less. Each time you do that, you extend the life of your savings.

I’ve been persuaded by your posts on cloth diapers that they might be worth the trouble, but I have one hesitation: we don’t have an in-unit washer and dryer.

We currently rent a two-bedroom apartment, and for various reasons, we don’t plan on moving for the next few years. We love our apartment, our location, and our neighbors. The only downside is that we have a coin laundry in the building, and we have to go outside and down a flight of stairs to get there. We don’t usually do laundry very often, so it’s not a big deal, but I anticipate that changing with the birth of a child.

So here’s my question: Should we (a) try the cloth diapers anyway and just be glad we don’t have to drive to a laundromat, (b) buy a portable washer to make cloth diapers more convenient, or (c) skip the cloth and buy the disposables?

Other factors: I hope to have three or four kids, I like the environmental benefits of the cloth diapers, and I don’t have more than a couple hundred dollars to spend on a portable-washer solution.
– Bethany

If you’re using a coin-operated laundry service for your cloth diapers, the cloth diapers won’t wind up being a savings at all over disposables. The savings comes in when you have a washing machine and the cost-per-load drops drastically. That doesn’t mean you can’t do it for the environmental reasons, but it won’t be a cost-saver in your current situation.

If you do wind up having three or four kids, eventually a two bedroom apartment won’t cut the mustard and you’ll have to move, ideally to a place with a washing machine and dryer. When you’re there and still intend to have multiple kids, then I would look into cloth diapering as a cost-saver.

Cloth diapering is a huge savings if you intend to have multiple children and you have washing and drying services that aren’t pay-per-use. Without them, cloth diapering doesn’t save much money at all, if any.

I have 2 debts in my life right now. 192k on my home mortgage (roughly $1600 per month at 6.8%), and 32k on my student loan (roughly $215 per month at 3%). My truck is paid off and I use my credit cards as debit cards for the points and pay them off each month. For the last year I have been paying an extra $300.00 into the college loan trying to knock it down as much as possible. After looking back now, maybe I should have been putting that money towards the mortgage due to the higher interest rate. I have an emergency fund of $9000.00 and another $5000.00 in savings. I heard somewhere (probably not true) but if you make an extra mortgage payment each year you can pay off a 30 year mortgage in about 20 years. Is there any truth to that rumor, should I be putting the extra money into the mortgage, or use it for a new deck and to finish the basement to increase the home’s value?
– Ryan

Yes, that “rumor” is absolutely true. A single extra payment a year, starting at the first year of a mortgage, knocks roughly nine years off of the total mortgage. However, if you’ve missed the first year or two, the benefit is substantially less, as it’s the early payments that are the biggest help in reducing the length.

As far as increasing the home’s value, it depends entirely on whether you intend to resell it any time in the near future. If you are, the improvements you mention will help the resale value. If you’re not going to sell it for a lot of years yet, the improvements don’t have quite as much benefit (as the improvements will “wear” over the subsequent years), but they do increase your quality of living in the home.

You’re absolutely right, though, that paying off the mortgage is more urgent than paying off the student loan. The rate on your mortgage is high enough that you might want to look at refinancing, as you should be able to knock more than a percent off of the rate.

I have several bad debts. The last time I made any payments on them was in 2003. I was not able to pay several credit cards then. I am still unable to pay them. I have had to endure seven years of constant collection calls. I have been served with court papers several times also. There are judgments filed against me. I have actually paid about three of the collections off. I live in Georgia
My question is how long can this go on? Isn’t there a statue of limitations on bill collecting? I know the credit bureaus keep the information on file for seven years. But can the judgments keep renewing indefinitely?
What can I do to make it stop? I can not pay them.

– Betty

First, I would check the debt collection statute of limitations for Georgia. It looks like the statute of limitations for legal concerns is six years since the last payment or four years from the date of default (whenever it was determined that you had defaulted on the loan).

However, that doesn’t mean that collection agencies will stop calling you at the six year mark. You have a debt to them and they want to collect on it, so they’ll keep calling you. I would use a debt collection script to minimize the harassment.

I included Betty’s question because her situation is a very clear reminder of why it’s not a good idea to default on your debts. You will be harassed, have your credit nuked, and possibly have judgments against you for quite a few years after you decide to walk away. Clearly, this is reducing Betty’s quality of life significantly.

Got any questions? Ask them in the comments and I may address them in a future reader mailbag.

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  1. Laura in Atlanta says:

    RE: LOST . . .
    I’m curious as to why Desmond was on the plane, when we all know he should actually be on the island, inside the hatch *not* punching in those numbers that causes the plane to crash. Desmond is on the plane . . . but Christian’s body is not? Another interesting switch.

    Also . . . is the Sayid that is alive again, the REAL Sayid? or is he infected and has become someone different? The temple seems a place that people go to and change. Young Ben was taken there and possibly/probably dipped in the same pool to save his life after being shot. Was he ‘infected’ as a boy? I assume Claire has been to the temple and she seems changed . . . and now Sayid? Just interesting. ;-)

    I know a lot of people get frustrated with LOST (if you over analyze ANYTHING you can find holes), but I really like the show!

  2. lurker carl says:

    I’ve given up trying to predict what will happen on “Lost” because NOTHING is what it seems. Just go with the flow and enjoy the ride. I started watching the story again from season one, so many things now make sense that didn’t the first time around. I am still amazed that a rich and complex story like “Lost” is on network TV.

  3. guinness416 says:

    The notion that Smokey’s the good guy and Jacob’s the bad guy seems to be growing in popularity and I think it’s correct too. Smokey told us he wanted to “go home” or something last week, but perhaps he can’t because he has to keep Jacob from wreaking havoc.

    Sayid has obviously “become” someone different but as his body isn’t in two places at once it can’t be the same as Smokey taking over Locke’s body.

    Hurley is really irritating this series so far, hope they either stop showing him so much or do something interesting with him (um, kill him?)

    Richard of the eyeliner is one of the most intriguing characters to me, can’t wait to see what happens to him and he isn’t dead!

  4. Ellen says:

    Nathan – You mentioned you were able to pay all the wedding/honeymoon expenses out of your tax refund, with $ left over. You might want to look at your tax withholding (W-4) & adjust it to come as close to breaking even at tax time, which would increase your monthly net income. And then, of course, that extra monthly income is available to build up the emergency fund!

  5. Valerie says:

    Trent – Thanks for the extra Reader Mailbag! It’s my fave feature! I also didn’t know you were a Lost fan, so I like your commentary.

  6. Lindsay says:

    Love the extra mailbag…does seem like extra work for you Trent but we enjoy it!

  7. J says:

    @Mike — could you apply for a job as a resident advisor? I did that for a year in college and part of the compensation was that you got to stay in your own room on the floor. I actually regret only doing it one year, I should have done it as long as possible, it was a great gig.

    Keep in mind that living in the dorm puts you close to classes, professors and so on. I really liked that aspect of being able to walk everywhere I needed to go, and not having to worry about traffic. Of course, there is always the fringe benefit that it’s really easy to meet people in the dorm, too — not to mention get dates!

  8. John S says:

    Ok, first of all, STOP IT WITH THE LOST SPOILERS! I come here to read financial discourse and I’m currently only in the middle of season 3 of Lost. Could you at least move the Lost discussions (including reader comments) to a *separate* page, with the link text clearly stating that there are Lost plot spoilers? Please? Thank you!

    Secondly, in Ryan’s scenario, I think your language should have been stronger, regarding his refinancing. If he has a 192k left on a mortgage at 6.8% and a $1600 payment, then according to my math, his mortgage started in the $245k neighborhood and he is in year 13 of it. So he has just under 17 years left on the current mortgage.

    He should DEFINITELY refinance. ASAP.

    Just that step alone will reduce his monthly payments by about ~$500 (from ~$1600 to ~$1100) at 30 years, or with a 15-year refi he could knock off $130 per month and 2 years off his loan. Either one of those scenarios presents HUGE savings by itself! (Using sample rates of 5.25% and 4.5% for 30 and 15 years, respectively.)

    With his present LTV, he could even roll the $5000 cost of building the deck or basement into his new mortgage and *still* slash his monthly payments by about $100 (and knock 2 years off in the process) by moving to a 15 year mortgage.

    The impact of this deserves well more than the mild-mannered, “by-the-way”, “probably, you might want to consider this, maybe” treatment that it was given at the end of your reply to him. You should email Ryan again just to make sure that you have adequately driven that point home.

    Thirdly, regarding Mike’s scenario, I disagree that he should find a shared living situation. Yes that is the “easiest” way to save money on living expenses, but it’s also one of the biggest ways to kill your quality of life that I can think of. It all depends whether that is worth it to him. If it were me, I would look into getting a second part-time job, such as helping out with the 2010 census as you recommended a few weeks ago.

    Even if he didn’t want to do that; while I agree with you that there is NO WAY he is going to get cable, internet, food, gas, auto and renter’s insurance for $250 per month… he *would* probably be able to cover it with his full $1000, with a *little* wiggle room. Anything he earns beyond that would be spending money.

    This is certainly an option I would consider, knowing the level of spending cash I needed at age 23 was negligible as I didn’t go out much. As you state so often in your blog, you can find inexpensive ways to have fun and entertain friends indoors. Mike might as well learn that at age 23.

  9. J says:

    @John S — Those who wait years to watch a series on DVD need to understand the potential consequences of your actions. I can see not posting spoilers for a couple days, but come on — you are literally years behind and people want to talk. They aren’t spoliers any more when they are years old.

    BTW Vader is Luke’s father.

  10. matt says:

    @john: a second part time job isin’t very easy as a student in this scenario. Its probably difficult enough balancing one job and class work. While you might prefer living on your own, college has a well defined exit time, so suffering with roommates for 2 years is an easy things to do, since you have a defined time when it will end. I consider not having a roommate in college to be an unnecessary luxury, and the only kids I knew of that got their own apartment where ones still deep in mommy and daddy’s pockets, while the rest of us sucked it up. Another option is co-op housing. If you can find the right group of individuals living in a coop can be a cheap and easy thing to do. I would also have recommended looking into fraternities which are basically coop with more tradition and rules (though many will disagree), however its difficult to pledge later in your college career. Joining a fraternity (and living there)was a huge cost savings for me over living in the dorms or an apartment when I was in college.

  11. John S says:

    J, all I’m asking is that the Lost discussions be moved to a more germane venue, not that anyone refrain from having them. I don’t see how I could have reasonably anticipated that there would be Lost commentary that I would not want to see, when I punched up TSD this morning.

    I don’t think it’s an unreasonable request; naturally, Trent doesn’t have to comply, but it doesn’t hurt to ask. Sorry if I offended anyone.

  12. Nicole says:

    Don’t forget that cloth diapered kids get potty trained earlier– that’s an additional savings.

    Though if you’re really looking to saving money on diapers, look into elimination communication. Most people I know who did that had 100% potty trained kids by the first birthday.

  13. John S says:

    Matt, I don’t think Mike, at age 23, stating up front that he feels “too old for the dorm scene” is going to relish the idea of rushing a frat. Likewise, sharing an apartment or a house with a bunch of 18-to-21-year-olds is hardly different, culturally, from what he has currently, while living in the dorms. If he were happy with that, then he might as well stay put. I also think that being age 23 puts him in a different category than the apartment-renting 18-year-olds *you* knew, who were in “mommy and daddy’s pocket”. Mike makes it clear that he is paying for this himself, either with student loans or with his mysterious $1000/month income.

    Mike wouldn’t be looking at studio apartments if he didn’t have a strong preference to live alone. I would contend that this is one of the key premises of his scenario. Of course it remains his judgement call how much that is worth to him.

    On a financial note, Mike didn’t really state where he gets his $1000 per month, what his “job” currently is, nor how much free time he feels he might have to devote to a second job and what his skill set might be. Thus, we don’t have enough information to make a good decision on his behalf. He *does* mention the possibility of getting a second job. So while you might say this is unreasonable (in your view), I would counter that he brought it up, not me. So it is an option that he is at least considering. People do work two jobs in college; I would not be so quick to dismiss it as a non-option out of hand.

    When I was in college, I had a roommate for two years and moved to a single room for two years. It was well worth the extra money for me. Everyone’s value system is different.

  14. Benjamin says:

    I know its contrary to what makes sense “mathematically”, but paying off my family’s student loans early (before we ever purchased) a home, was emotionally the best thing we could have done.

    Believe me, while you may save a few hundred bucks paying mimimums on your student loans and focusing your extra income on the house, you will feel much more financially secure if you pay the student loans off!

    Don’t let them hang over your head for the next 10-15 years (or longer) like most people do. Get rid of the darn things ASAP!

    On the other hand, it sounds like you are doing quite well not to have any other debts besides your mortgage and your student loans!!

    Good work, and good luck!

  15. Ken says:

    In response to Mike – I’d be sure to get some advice from your Financial Aid office. There are some types of aid that will still cover your off campus housing situations. Though, if you’re paying $745 (conservatively) for expenses, your Room and board fees would need to be over about $3,000 for it to make financial sense to move off, never mind the financial aid or convenience you could have by living on campus.

    Yes, I work for Residence Life at a university.

  16. matt says:

    @john, which is why I mentioned a fraternity only in passing in case someone else was looking(calling it a frat is considered derogatory FYI). In my experience with co-ops they people there were usually older and more mature, and you can get your own room. So that is a viable option, most people are in college for 6 years or so these days and its not like he is 30. Like I said not having a roommate is a luxury, if you can afford it great, but I don’t think it is ever a necessity in college. I only ever slept in my room anyhow, I spent 7am until 10 or 11pm on campus, either at class or in the library/computer lab. The times when I didn’t have homework I took the opportunity to goto the sports center swimming or go play radio in the ham club shack. While having a single does have value, I still classify it as a nice to have and not a need. If you have to get a second job look into things on campus, like a teaching aide grading papers; you can usually do in in your spare time and can get about 10 hours a week or so in. Its a great way to make money in your spare time because it can be done any time, pretty much anywhere (I graded papers on the bus ride home usually)

  17. Sara A. says:

    Re: cloth diapers – what about bathtub + detergent + hot water? Especially while the baby is on milk/formula, this should not be too bad.

  18. John S says:

    Benjamin, you can deduct the interest on student loans for the first 5 years once you’re out of college. So, that is one thing to factor in when deciding which to pay off. For the first five years, you can compare the interest rates between a student loan and a mortgage, apples-to-apples. After that five-year period, the effective interest rate of the student loan is going to shoot up by 25% or 33% or whatever tax bracket you’re in.

    That said, it still makes more sense to make any “extra” payments to pay down whichever has the higher effective interest rate.

    The phenomenon you are describing (paying down the student loan even if it has the lower effective interest rate) is *purely* emotional.

    The whole point of visiting sites like this one, is to train yourself to *win* those psychological and mental mind games, and to *avoid* those emotional pitfalls. On that note, I would encourage you to re-think your position on this.

    Why should it be more emotionally satisfying to pay off one loan completely but have *more* debt as a result? In my humble opinion, *that* is what you should be analyzing. (Rather than recommending that other people take the same emotionally-driven path that *you* chose.)

    I mean, isn’t the point of reading and discussing finances on sites like TSD, to *train* yourself *not* to be emotionally driven, but to instead make better financial decisions, and to encourage others to do so?

  19. Susan D. says:

    @John S.–there is no longer a five-year limit to the student loan deduction. The deduction is subject to income limits, though; you can deduct up to $2500 in interest per year indefinitely as long as your income is under $55,000 (assuming you file as a single person).It’s prorated until your income is $70,000, when it’s no longer deductable.

  20. Krista says:

    For Mike, I’m just confused why you have to go from one extreme to the other. You say “I’ve checked out all well-rated apartment complexes in town and found the best one”.

    I think that’s categorically the wrong way to go about it. You need to figure out what you can AFFORD and then find the best option for that price.

  21. jgonzales says:

    John S, sometimes the emotional balance outweighs the “pay off the highest interest rate” because by paying off the one that gives you the most emotional baggage helps give you a better quality of life. Personally, my husband and I are paying off the smallest debt we have with what we are getting back in taxes. It’s going to only free up $75 a month & it has no interest, but paying it off will make us emotionally feel better because it’s gone and we can make the next steps in reaching our goals of living debt free.

    Remember, there are a lot of ways to pay off debt and most of the ones I’ve heard are good (spending money on the lottery, not so much ;) ). Some suggest the highest balance, others the highest interest rate, and others the one that gives you the most satisfaction to see it gone. The most important part is that you are paying down debt and getting yourself out of the mess that debt creates.

  22. Debbie M says:

    @Micheal, since you can cover virtually all your living expenses with your pension and Social Security, it sounds like all you need your savings for is an emergency fund, extra fun things plus maybe insurance in case something weird happens with your pension or Social Security. Therefore, I don’t think you need to be conservative with it at all.

    One general rule of thumb is that you can withdraw 5% from a diversified fund every year indefinitely. This is what colleges do with their funds. The problem is that some years, 5% of your fund will be a lot more than other years. But this sounds like no problem at all for you guys. In the good years, you can save up for extra fun stuff, and in the bad years, not so much.

    Another general rule of thumb is that you can withdraw 4% the first year and then increase that amount by inflation each year indefinitely. For example, if you have $250,000, you can withdraw $10,000 the first year. Then, the next year, no matter whether you now have $252,000, $280,000, or $200,000, if inflation was 3%, you now withdraw $10,300. The next year, if inflation is 5%, you now withdraw $10,815. This is risky mainly if your stocks plummet the first few years of your retirement. Since a rather large plummet has just happened, you are probably fine. And if you set the 4% at what your holdings were last March, you are almost assuredly going to be fine.

    So, you said you don’t want to feel uncomfortable spending your money. If you choose one of the two methods above and spend only that money that you have withdrawn, that should help you feel more comfortable.

    As far as feeling stupid about not spending the money–if there’s nothing more you really want, it’s not stupid not to spend the money. Maybe you should treat this money like a windfall–just let it build up for a while as you figure out what to do.

    You mention travel–is there any place you or your wife have always wanted to go? Are there interesting trips your friends or family are inviting you to join them on? If not, maybe travel’s not a good use of the money.

    You also mention improving the home. Is there anything irritating about your home? Anything that could become irritating if you got arthritis or found yourself in a wheelchair (or fill in the things that have happened to others in your family here). If not, renovation may not be for you.

    Yes, lots of people get into travel, gardening, golf, and fixing up their houses when they retire. But you don’t have to do what everyone else is doing. Do you have any classes you want to take? Any hobbies you want to try? Any skills you want to learn with the accompanying tools?

    If not now, maybe you will later, no big deal.

  23. John S says:

    Thanks for the info Susan, I was not aware it had changed.

    jgonzales, my point was, you should ask yourself WHY you get a higher emotional rush out of paying off a lower-interest debt in full, rather than paying that same amount toward part of a higher-interest debt. *That* is what I’m trying to get you to question.

    I would argue that whether you allow it to SEEM more emotionally satisfying to pay down the smaller, lower-interest loan, is entirely up to you.

    Whereas, you make it sound like that is an immutable fact that can never change. My point is that we come here and study/discuss finances so that we can learn to change our point of view (and thus change our kneejerk emotional reaction and perspective about how we view our overall debt picture.)

    The journey to fiscal enlightenment isn’t just doing “the right thing” contrary to your emotions; it involves *changing* those emotional triggers and perceptions so that you won’t be as prone to *having* emotional impulses that are contradictory to what makes financial sense.

    Once you have won that psychological game, (which you play versus yourself,) there would BE no emotionally-driven “quality of life upgrade” from paying off the lower-interest loan completely rather than paying down the higher-interest loan with those same funds.

    However, I concede that we’re all at different points along that path, and if it seemed more emotionally valid for you and your husband at the time, that’s fine. Hey, it takes all kinds.

  24. Jane says:

    I don’t agree with Trent’s advice at all that Ryan should be pre-paying the mortgage instead of the student loan. He should definitely look into to refinancing, but at the rate of pre-payment that he is talking ($300), it would take forever to prepay the mortgage. I think the benefits of paying the student loan off are much better. Once it is paid off, he will have that extra $200 a month that he can put towards the mortgage. I know the interest rate is higher on the loan, but it’s not THAT high. I think in our current day we have a skewed view of what a good mortgage rate is. 6.8% is still decent. No, it’s not 4%, but such low rates are abnormal.

    @ Nicole – I’m not convinced that cloth diaper children potty train any earlier. I have not seen that evidence at all in my circle of friends. I have a friend whose son is still in cloth diapers at 3 1/2! My son is almost 2 and shows no interest in potty training, even though he wears cloth.

    @Sara – You really shouldn’t wash cloth diapers in the tub. First off, that would be super labor intensive and also fairly gross. It would be hard to get them clean without agitation. You really need your own washer and dryer to do cloth. I had a friend who spent all this money on cloth, intending to use the apartment laundry, and she abandoned the plan immediately. It just doesn’t make sense. Oh, and if you do it, I think you need to inform the people in the building that you are doing such a thing. It might really bother them. Personally I would want to know if a tenant is washing human waste in a communal washing machine.

  25. John S says:

    Jane, that’s a good point about washing human waste in a communal laundry machine. I wonder if anyone has done research as to whether there is a “real” medical risk from such practice?

    You’d think the risks would be similar if someone in your apartment building were, for example, a sanitation engineer, or worked in a raw chicken processing plant. There are a vast number of ways that harmful bacteria could routinely get on one’s machine-washable clothes, not limited to cloth diapers.

    I know some machines have an anti-bacterial cycle, and some dryers have a UV light treatment that supposedly kill and residual germs. However, those are more high-end machines, not the sort of thing landlords usually buy.

    I’d be curious if anyone has any links to research done on this.

  26. Jane says:

    John –
    It’s not something that’s often talked about in the cloth diapering community, but I’ve often wondered about it. I use my own machine, but I still wonder how safe constant washing of diapers is. It’s not just the washer, but also the pipes, some of which are above ground. I’ve thought about pouring boiling water in there with bleach and just running an empty wash. I imagine the high efficiency washers which have their own heating source are more sanitary. But then again, I’ve read that they can develop a serious mildew problem.

    It’s a good point that it’s not only an issue of cloth diapers. A few years back I looked into owning a laundromat but realized pretty quickly how difficult it is to turn a profit. This is in large part because people routinely ruin washing machines, because they take to the laundromat items to wash that they don’t want to wash in their own machine – oil covered jeans, etc.

  27. lurker carl says:

    Bleach in the wash cycle, which should be used when washing any clothing contaminated with potentially hazardous bacteria, will kill residual bacteria. If the clothes reach 180 degrees for 5 minutes, that will kill off bacteria as well. I would rely on bleach instead of heat unless you are boiling the items before washing.

  28. triLcat says:

    @mike – doesn’t sound like a great plan to me. Sharing a 2br with one roommate is often much much cheaper (where I was looking, a studio was $350/month and a 2 br was $500/month. If you respect each other’s boundaries, that still gives you reasonable privacy, plus cable & internet splits down the middle (assuming you both want it)

  29. Sheila says:

    Bethany, get someone to give you diaper service for a year as a shower/birth present (grandparents are useful with this). When my son was a toddler, I had to take the diaper pail in a little red wagon down to the laundry area of the apartment complex. Not a lot of fun, but doable (no disposables then). I was extremely happy when my in-laws gave us diaper service for a year for my second child.

  30. jim says:

    I’m curious what Mike’s dorm costs are. $750 a month is pretty high. Most dorms don’t run that much. When I was in college I lived in the dorms the first 3 years and then moved out. I thought hat I’d save money by living on my own but I ended up spending more. I didn’t realize how good of a deal the dorms were until I actually had to pay rent, bills and feed myself.

  31. Des says:

    RE: the cloth diapers in a communal washing machine…

    This seems like “selective squeemishness”, and FZ would call it. No one wonders if the person that used the machine before them had swine flu, or chlamydia, or didn’t wash their hands after using the restroom, or has a young child that “couldn’t hold it”, or touch raw poultry then wiped their hands on the rag they’re now washing…etc.

    There are a lot more dangerous things to worry about bacteria-wise than infant diapers.

  32. Nicole says:

    Jane– Obviously the type of diapers used is not the only component that goes into potty training. If your cloth training friends do everything Dr. Sears or T. Berry Brazelton says, then they’re also waiting for “signs of readiness” that occur, on average, a little after age 3. Diaper Free Before Three (written by an MD) summarizes the scientific evidence on potty training starting in the 19th century to today. Most of the evidence on cloth diapering is correlational, but I find it to be pretty convincing (before disposables… average age for boys for being fully potty trained, 18 months… after high quality disposables, 3 years 2 months). Plus, the first step of potty training is un-diaper training, and that’s a lot easier when they can feel that they’ve peed.

  33. Catherine says:

    RE: Cloth diapers
    I agree that if you pay for both washing and drying, cloth diapers won’t be cost effective. If you still want to use them, I would try the Wonder Wash portable washing machine, or something similar. These things tend not to get good reviews for washing clothes, but I’ve heard of a number of people who liked them for diapers (I guess because as long as they’re clean, it doesn’t matter if your diapers look a little dingy). I would also invest in a diaper sprayer that attaches to your toilet. You just rinse out the poop, so none of it goes in the washer.

    I don’t understand the squeamishness of cloth diapers in communal washers– Babies poop, newborn poop is downright explosive, and you’re going to deal with washing poop out of clothes even with disposables.

    To save money on drying, use a dryer rack if you have room. Prefolds would be the most economical and easy to dry. Pockets would dry quickly, but be pricier (one-size pockets might be a good bet). Flat diapers dry the quickest, but they take up a lot of space when air drying. Prefolds should be dry in about 24 hrs, PUL covers in just a few hours.

  34. Melissa says:

    Thanks for pointing that out about Microsoft Money, Trent. I didn’t realize the product was going away and now I will be VERY interested in your analysis of Quicken!

  35. Ryan says:

    For the retired gentleman:

    I want to point out the flaw in assuming that bonds are a safe investment right now. Bonds are subject to interest rate risk. That means that when interest rates rise, the value of bonds decrease (and vice versa). In the current economy, rates are nearly zero. One could say that rates have no where to go but up. Therefore, if rates rise, as they very well could, the value of bonds will decrease.

    I am not implying that you should hold no bonds but you should not hold the majority of your portfolio in bonds if you fear that rates will rise. An alternative is TIPS (Treasury Inflation-Protected Securities). They are issued by the federal government and are protected against inflation. They work as a hedge with bonds. I recommend holding TIPS as well. They can be purchased in mutual funds or directly from the government.

    Lastly, if you hold bonds, make sure you are holding only short term bonds with short durations. This is important because if rates rise, these bonds will be able to recover more quickly and will take less of a hit than long-term bonds.

  36. Jeannette says:

    I don’t know what version of Quicken you’re referring to, Trent, but we’ve used various versions for years. Easy to set up, easy to use. Yes, you do have to make the time to input items, but if you do it each week, as we do, it’s a really easy way to keep track of things and generate many different reports.

    By contrast, excel takes much longer to set up and does not provide the options for the things we need without having to play with excel.

    To each their own. Whatever works as long as you track and review expenses.

    When we look at our quicken numbers, we very easily and quickly see where we are and if we’re off budget. (Also, it has tons of other features that we don’t even use but could be very helpful for others.)

  37. DivaJean says:

    Mike could also consider finding a home in which to be a boarder.

    My parents took in boarders from the 70’s thru the 90’s in their big 5 bedroom house. We never had more than 2 boarders at a time; they had their own bedroom, kitchen cupboards. Television was communal sharing; one vote per person. My parents had their own set if they were out voted.

    It was an inexpensive way for these grad students to live a quieter life than in the dorms. Mike should check out if there is anything similar available.

  38. Mike says:

    Wow, I wasn’t expecting so many great points of advice. Thanks, everyone! Let me try to address your inquiries specifically. In case anyone is curious, I’m going to the University of Arizona.

    Trent, you make a great point that my estimate is probably too low. Realistically, I’d be barely, if at all, scraping by rather than saving $300/month.

    J, Last academic year I did apply to be an RA, and didn’t get the position. I don’t think it would be the right position for me. Besides, as an RA, I’d still be living in the same nanny environment.

    Ken and Jim, dorm expenses here are roughly $870/month. If I had to pay for that and all my other expenses out of pocket, it would well exceed $1000/month.

    John S, you’re correct. I’d be willing to pay a bit extra for a single room, but only if I can afford it. I think you see my point of view, man.

    I work 30 hours a week (mostly on weekends) as an administrative assistant and do freelance work for a quasi-internship whenever the need arises. Fortunately, time management is one of my strong points and I often find disconcerting free time on Tuesdays, Wednesdays, and Thursdays that I’d like to make productive.

    Matt, in retrospect, I wish I had rushed when I transferred from a community college to the U at 21. But at nearly 24 years old, what fraternity would even consider me? I’m unfamiliar with Greek culture. Also, like you, I spend most of my time out and about on campus, but when I come back, I’d like to see a place I can call “home” rather than a chaotic, loud scene that makes me feel as though my life hasn’t progressed in four years. It would have been fun a few years ago, but now I’m a more serious student who only wants to focus on getting these classes out of the way and graduating.

    Krista, great point. You’re correct in this respect; clearly I still have a lot to learn regarding financial literacy.

    TriLCat, those rates are incredible. The absolute lowest studio I found was $399, and the room was in a state of disrepair. 2BRs tend to go for $600 or more. Where else would you recommend looking for apartments? I’ve tried avenues of the U’s website, apartment rating websites, craigslist, newspapers, and Google maps.

  39. Wendy says:

    Check out Moneydance. It is less bloated that quicken, and you can use it for a while before buying it.

  40. Ruth says:

    I looked into refinancing about 6 months ago, and personally I was offered interest rates WORSE than my original loan from 3 years before, despite a 50 point increase in my credit score (650 to 700) and plenty of equity.

    I think that people have unrealistic expectations about refinancing in today’s financial environment. Sure, interest rates are quite low right now. However, that’s the best interest rates for the most highly qualified borrowers. Banks are more selective right now than ever, so even though on the surface is seems that the interest rates are low, the interest rate that would be offered to a given less-than-perfect credit score may have actually gone up.

  41. cv says:

    Trent, I have a suggestion if you’re going to do two reader mailbags a week, and that’s to have one reader mailbag and one that’s more of an advice column. I get a bit bored with the “here’s my complicated personal financial situation – what should I do?” questions, but others seem to like them a lot. You could keep one day for the more wide-ranging questions – Lost, cooking, family and kids, general questions, etc. – and one for “I have $xx in student loan debt ad $yy in credit card debt and my income is $zz” questions.

    Just a thought.

  42. Bill in Houston says:

    Dorm guy,

    Do NOT move into the cheapest place possible. More often than not, even in college towns, they are in undesirable neighborhoods. Your safety is paramount.

    Here’s what to do: if you can stomach it, get a roomie. That’ll cut your expenses in half. Someone mentioned being an RA. Not a bad idea either. 23 is not too old. Hell, I got my undergrad 26 years after I graduated high school. Part of my “college years” were spent in the Navy, so I was a 25 year old sophomore for a while. Following a year in school I found a job, then another, and then another. I went back to school to finish my undergrad when I was 41 and got the degree when I was 43. I then went straight back to school and got an MBA in 19 months. Weird how things work.

    In any case, just suck it up and get the roomie, or see what you can do for free on campus.

  43. Hannah says:

    In case you didn’t know, Quicken Online is being merged into Mint and will not exist much longer. So I would start using Mint over Quicken Online. I’m not sure about Quicken desktop software, since personally I like to be able to access everything from all my work, school and home computers.

  44. Allison says:

    To Mike who needs a place to live near college:

    From where I’m sitting, the best option might be to find other folks who are about your age (25ish/ recent graduates/ young professionals) who live in a place with several bedrooms and need to someone to sublet a single bedroom. When utilities get split multiple ways, then you can save a lot.

  45. Mz Ruby says:

    @Nathan Borrowing from you 401K is risky. Sure, you have up to 5 years to pay back the loan at a reasonable interest rate, BUT…if you lose your job or if you decide to take another job elsewhere, the TOTAL loan amount is usually due in 60 days. If you cannot pay back the total amount within 60 days of termination of your employment AND you are not yet 59 1/2, you are charged a BIG penalty (10% of the total) and you owe taxes on the balance of the loan. It is never a good idea to borrow from a 401K unless you are about to become homeless or some equally disastrous event occurs. If you have an emergency fund in place, your next priority should be getting that 401K loan paid off!

  46. J says:

    @Mike — I’m guessing you know a few people at school. These are your potential roommates. Gather them up and look at the 2-3BR’s. In my experience, places rent out close to the school year dates when the places are occupied by students, so you typically will see things open up around the end of the year. It’s going to be slim pickings right now, but expect a lot of stuff around finals.

    Where I went to school the dorms were pretty open (you could come and go whenever, have guests whenever), co-ed (by side of the building) and generally most rules were just common sense that you’d expect out of any civilized human being (which is I guess why they have to be written out for undergrads to understand :) ). I didn’t really mind dorm life at all, and didn’t find it all that different from living in an apartment complex. I guess, though, that they could have some alcohol policies that would be OK for the underage and not OK for 24 year olds.

  47. Steffie says:

    For Mike who’s looking for a better place to live..my college had dorms for ‘grad students’. These were generally ‘older’ students not interested in the partying dorm scene. See if your school has that kind of building, or maybe the residency office knows of places to live that are not that expensive. But it all comes down to what will get you through the rest of your school years, if you value quiet and safety you will have to pay for that. At least there is an end date to whatever deprivation is attached.

  48. Bill OBrien says:

    re Quicken:
    Another great personal finance program is at Moneydance.com which also works on Mac/linux. Used it for over five years, like it much more than either Q or MSM

  49. Ben says:

    Person with 6.8% on his home should consider refinancing.

    Person who wants to split the mortgage in 15 yr and 30 yr it’s my understanding that you can reset a 30 yr mortgage like an ARM resets thus reducing your payments for a minimum fee saving your the refinancing costs of the method you proposed.

  50. Shevy says:

    If you have a new baby you’re going to be doing a *lot* more laundry now than ever before. Figure on a minimum of a load of baby wash every other day, not including diapers.

    Whether or not you use cloth you may still find a portable washer to be very helpful. Or you may be moving to a place that has in suite units.

    I’ve done baby laundry in the bathtub when we couldn’t afford the apartment washers (30 years ago when it cost a quarter to wash & a dime to dry!). It’s not a ton of fun, but it works. My fingers would bleed though from rubbing stains if I wasn’t careful.

    As for the idea that baby poo is some kind of biohazard, what nonsense! And it will be on a lot of the baby’s clothes, sleepers, blankets, change pads, etc. even if you use disposable diapers because of its consistency and quantity. At least with diapers you can use hot water and bleach, both of which would ruin most other baby clothes. (Just make sure you clean the washer thoroughly after using bleach so the next user doesn’t end up with bleach marks on their clothes!)

    A diaper service as a baby gift is a great idea, for many reasons.

  51. Erin says:

    In regard to the diaper question, my friend has a contraption that is attached to the toilet that has a very strong spray to get the majority of ‘waste’ off the diaper until it gets laundered. I still think cloth diapers are the way to go even with having to use a coin operated machine. The soiled diapers can go into a diaper pail in the meantime.

  52. michelle says:


    Definately go with the one roomate option…even if you find a 2BR for $600, that’s still $200 less rent per month (vs $495 on your own) plus split cable/internet etc. With that extra $300 per month or so you can make up for underestimating expenses and be able to save a bit too.

    Having one well-selected roomate is not all that bad, plus check out the room-share section on craigslist. A lot of times there will be a room in a 2BR house for rent that is comparable to the cost of an apt plus give you more space to separate from your roomate when you want your privacy. As an added bonus, most of the rented room in a house situations are done as an agreement with the owner giving you flexibility to negotiate on the rent and usually can be month to month with 30 day notice. So if you find you and your roomate are not getting along you are not stuck together for a whole semester.

    Btw…I’m currently 26 and went to Arizona State, I did the dorms freshman year, absolutely hated it, moved in a shared house (4 ppl) sophmore year again not my style, had one roomate for the past 3 years (not always the same one)it was manageable and allowed me to save a lot of money. I got a better job, and just a few months ago moved into my own 1BR in Scottsdale. I’m not gonna lie, as a young professional I love living alone and will never go back to roomates as long as I can afford it, but I’m glad I made due as long as possible for financial reasons and can now live alone compfortably and securely.

  53. Evita says:

    Re: Quicken
    I am also considering the purchase of a personal finance software, but the reviews for Quicken are so negative. Scary! Is there any worthwhile package that is freeware or shareware?

  54. spaces says:

    Bethany — I think it would be worth it for you to try prefolds & covers. Prefolds are extremely cheap and they will last through multiple children. They are also super easy to use, especially for a newborn. I’d suggest about 18-24 newborn prefolds plus 4-6 covers. You can save a lot of money by getting the covers used at places like diaperswappers. This will let you have some of the benefits of cloth diapering w/o having to deal with the laundry issues required by some of the more expensive cloth diapers.

  55. Miguel says:

    Hi there Trent (and everyone else)! I hope my question doesn’t get lost in all these comments! :)

    I’ll be moving to the USA (I’m from Portugal) during the next Summer (probably around the middle of August), since I will start my PhD in September.

    I’ll be moving to the DC Metro Area, since my University (GMU) will be located in Arlington.

    Can you give me any advice on looking for small apartments?! Any there any websites specifically designed for students (especially foreign ones)?

    If I can afford it, I’ll try to live without roommates, do you think that this is achievable with a scholarship of around 2000 USD per month? (the euro has been dropping lately so I guess by summer this is the amount it will be worth…)

    Besides that, can you give me advices (financial or otherwise) regarding living in the USA for someone who has never even visited it?!


  56. almost there says:

    Evita, #53. I have been using Quicken ever since it came out and have no complaints. In the book Die Broke, the author boasted using an early version and this guy had money coming out his …ears. If you just use it for basic tracking of where your assets are it does fine. Each revision is bigger and better, but one can get by on an older version. I am being notified by them to convert to the latest since Quicken 2007 which I have will no longer have support for downloads of finincial institution data. But I don’t use that feature so can stick with what I have forever. I tried Mint, but couldn’t download my CU info.

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