Updated on 06.05.14

Reader Mailbag: Rainy Season

Trent Hamm

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to five word summaries. Click on the number to jump straight down to the question.
1. Climbing the car ladder
2. Apolitical
3. Upside down car loan
4. Military debt
5. Basic will question
6. Mortgage or not?
7. Health care costs
8. Buying silver
9. I’m almost 30, what’s next?
10. Career and life crossroads

My children have had their last four soccer games cancelled on account of rain. Our basement water pump has kicked on every few minutes for days. Our front yard is like mud.

Winter is over. Spring is here.

Q1: Climbing the car ladder
One of the oft-touted pieces of personal finance advice I hear is to avoid financing a car if at all possible. The idea is that one should buy a car within their means and set aside a “car payment” in savings every month so that when the car dies, they will have more to replace it.

But I’ve recently found myself in a situation where I realized that only works in theory. I finished school last year and since then have been working an entry-level job. I live in Indiana, so cost of living isn’t particularly high, but I make just shy of $24,000/year before taxes. I had about $3,000 set aside hoping not to need to buy a car for awhile yet, but life happened and I needed to purchase one pretty urgently.

I started looking for cars in the sub-$3,000 range, and what I started to discover is that none of the cars available in that price range could reasonably be expected to last the 20 months it would take me to save even to replace them if I can really only save $150/month. Almost all of them are mid-to-late ’90s models with 190,000+ miles on them, and not Hondas or Toyotas or other makes that regularly see 250k. Even if they did make it that long, they wouldn’t do so without repairs, which would push the date back even farther.

So how is one to mount the “car ladder” and start using cars till they die while saving for their replacements when the bottom of the ladder is so shaky? Is there a hidden caveat to the guideline? “Until you have $5,000 saved, ride a bicycle. Not only will you eventually be able to afford safe, functional cars, but you’ll keep your medical bills in check so you can save faster!”
– Lindsay

Quite often, this advice is given with the assumption that you already have a car in your possession and that these cars lead into a “trade-in train” where you trade in your old car and pay the difference with cash.

For some people, yes, a bicycle is an option. For others, buying a low-end car with a loan is the best way to start out. Then, set a monthly “car payment” that’s a bit higher than your real payments.

Let’s say you get a car with $150 per month payments to the bank. Decide that your monthly “car payment” is going to be $180. Use the first $150 of that payment to make your real car payment, then put the next $30 into savings. When your car is paid off, keep making the “car payments” and put the full $180 per month into savings. If you stick with that, you’ll be slowly upgrading your car with each trade-in and never having to actually pay interest on a car loan.

Q2: Apolitical
The one thing that I am constantly impressed with is your ability to exercise your capacity for delivering frank advice with an apolitical stance. So much of the media we consume is highly political on one side of the spectrum or the other, and I find myself more receptive to your ideas because they are carefully refined to reach everybody. Kudos, sir! Is this a conscious effort on your part? Do you comb through your posts in an attempt to be more diplomatic? I am always struggling to be more diplomatic in how I speak to those who may not agree with me, and I’d be interested in hearing your thoughts about it.

– Veronica

It’s indeed a conscious effort on my part. On the rare occasions when I’ve not done it, I’ve regretted it.

The truth is that the advice on this site works for everyone, rich or poor, conservative or liberal. Surrounding the advice with political talk might entertain some, but it’s likely to drive a lot of other people away for no real reason.

It also helps that I’m politically a moderate. I don’t trust either major party, though, because everything they claim to stand for and promise to people never actually happens when these people get to Washington.

Q3: Upside down car loan
I have a 2007 Toyota Camry 50,000 miles good condition, runs terrific. Problem being my car loan is $366.00 and it is killing me. Yes i know i am what they call upside down. How do i get rid of it, the loan is with wells fargo I have had it for a yr and a half.

– Sue

If you’re upside down – meaning that the car is worth less than the remaining balance on your loan – your only options are to allow it to be repossessed, to keep paying on the loan, or to sell it and make up the difference out of pocket.

Since I don’t have a full picture of your finances, it’s hard to say which option is the best for you. Given that you bought a used Camry and are paying $366 a month, I’m going to guess that you either have just a three year loan or you have poor credit. If you do already have poor credit, the repossession won’t be as painful to your credit as it might be otherwise.

My best advice is to simply try to stick with it and pay it off unless you can easily find a buyer for it.

Q4: Military debt
I know someone who has quite a bit of student loan debt and who will soon be leaving for boot camp for the U.S. Army one semester short of graduation. I’ve looked for information concerning what types of loans and how much the government will refund those who join the military but have always come across conflicting information. What all can you tell me about student loan repayment for those joining?

– Jamie

The big thing to note is that many types of student loans receive some repayment assistance from the military. This can actually be a very beneficial program.

It’s important to note, though, that this program doesn’t work with all types of student loans. Some loan types, particularly private ones, are excluded from this offer.

On the flip side, some specific loans interact well with military service. You’ll want to inquire about each of the loans your friend has.

Q5: Basic will question
I have a question in regard to making a Will that I would like some advice on. My husband is 90 years of age and I am in my early 80’s. At present time we know we should have a will but have kept putting it off. We do not drive any longer and family are not close by so do not know of any lawyers in our area. I have read that you can make out a will online that would be valid in what ever state you live in. We are in Florida. What can you advise us about doing it this way?

– Joyce

There are many online services that will help you prepare a will, such as Legal Zoom. I highly recommend either using a lawyer directly for will preparation or using a service such as Legal Zoom. I have heard of too many questionable experiences from do-it-yourself will kits.

If you have a local lawyer you trust, I recommend using them. The process of creating a will is very simple and you shouldn’t be charged significantly for it.

It sounds like your will should be a fairly straightforward document. Good luck.

Q6: Mortgage or not?
I’m 39, and I purchased my home with cash. I’m thinking of taking out a $200K mortgage and investing that over a 25 year period since I have very little in retirement funds. At my age, my financial adviser thinks its a good idea because I’ll still have equity in my house, and it will basically force me to save money for retirement by buying some money at a relatively cheap rate. Would you agree this is a good idea?

– Glenn

This is not a good idea at all unless you want to introduce a lot of risk into your life. You’re basically giving yourself a mortgage, which constrains your monthly cash flow for a very long time, in exchange for an investment that may or may not retain its value. If you somehow magically got a mortgage that charged a 0% interest rate, it might be worthwhile, but considering you’re going to be paying 4% or more interest constantly on this debt just to invest it in something that’s going to have to either be risky or highly illiquid to beat that rate, I wouldn’t do it.

Assuming that your advisor works on commission, he has a lot to gain by you doing this. If you invest $200,000 and he gets a 1% commission, he’s pocketing $2,000 for your risk.

Instead of taking out a mortgage and handing that interest (and most if not all of your gains) right back to a bank, make a “mortgage payment” every month straight into whatever investment you have in mind.

Q7: Health care costs
I have a question about how best to handle health care costs. Here’s the situation: I’m employed at a high-paying ($90,000/yr) job that I absolutely love and will not consider leaving. My wife is just beginning a career as a novelist, which means she is self-employed and has very little income. We both obtain health insurance through my employer. It is excellent health insurance, but it costs us $500/month in premiums. Believe it or not, that is the cheapest family plan my company offers.

We both have chronic health conditions that require weekly outpatient visits and several expensive medications. Even though we are paying fairly low co-pays on those, it all adds up. I put 10% of my pay into a health FSA, which we use for the co-pays. Then, add to that the things that a flex account won’t cover anymore – transportation to and from appointments, ingredients for special diets, etc. We also spend a lot of money dealing with flare-ups. For example, if we’ve gone out for the evening, we sometimes need to take a taxi home because public transportation isn’t an option during a flare-up. Or we require some housekeeping or cooking assistance, because both of us are sick at the same time and there is no one available to maintain the household. We have very few family or friends in the area, so we generally need to pay for the help that we require.

I realize that we are very blessed to have my income and insurance. I get that there are families with worse health conditions and fewer resources. Still, all of these costs added together reach nearly 40% of my salary. That makes it very difficult for us to save money for other important goals, like buying a house.

We seem to have too much income to qualify for social services programs that are designed to help people with medical costs. Are there any other options you can think of for reducing our health care costs?
– Ron

There are no social services that exist for people in your situation. In the eyes of most social services, your income protects you.

In the past, such situations have been aided by family, but the family as a structure isn’t as strong as it once was and many people are left in your situation.

Your best bet would be to try to build relationships with others in the area who have similar conditions as your own. Are there any groups for people with your condition? Quite often, the support you can give to each other can make an enormous financial difference for all of you.

Q8: Buying silver
I would like to buy some silver boullions since the value of the dollar is going down so is it a good idea? And how do I go about it? I am handicapped and starting to feel insecure about the economy.

– Sylvia

It’s not a bad idea to have a small amount of your assets in precious metals if they make you feel secure. However, the current prices of gold and silver give all the signs of being an investment bubble (oversaturation of buyers, for one), so I would never invest all my money in it.

Your best bet is to shop around, both online and locally. If you’re going to buy online, make sure you’re buying from a reputable business, even if it costs you a bit more. If you reach a point where you feel uncomfortable at all with a particular seller, back out and go elsewhere.

I’ve had success buying from a local shop, to tell the truth. They offer competitive prices and the ability to carefully inspect what you purchase.

Q9: I’m almost 30, what’s next?
I’m about a year out from my 30th birthday and it’s dawned on me that I need to make some changes. I am currently in a job I do not like and living in a town I have outgrown.

I would like to relocate to the San Francisco Bay Area for both personal and career reasons. I need to prepare my finances before making this move. I have the normal twenty-something debts: car, a few credit cards, a small personal loan, cell phone, cable, etc.

I know that most of these will need to be paid off before I make any sort of move. However, San Francisco is much more expensive than where I’m currently living. I’m giving myself a year to get my finances in order. How much do you recommend I save prior to moving?

Also, I’m looking to jump into a different career field. I’m currently working in insurance and burnt out after nearly 10 years. I have 14 years of strong work experience but no degree. I’m currently going to school while working both a full-time and part-time job. Can you suggest some ways to highlight my strengths so the lack of degree isn’t an issue?
– Chelsea

Quite often, a degree is used as a limiter for job applications. They’ll state that having some degree is a minimum to apply in order to reduce the number of applicants.

The truth, though, is that if you can get your resume in the door, they’re going to care more about the skills you offer and the experience you have than anything. Highlight those things when you construct a resume. Spend time wording them so that they’re as strong as possible without being false.

As for how much to save prior to moving, it depends heavily on whether you have a job in hand when you move. If you do, I’d have at least one month of living expenses in hand (plus deposits) before going. If you don’t have a job, I wouldn’t go without three months of living expenses (plus deposits).

Q10: Career and life crossroads
I left my job last November, where I was working at a large corporation as a financial analyst and just flat out hated the work and the company. I have since taken a job at a small family business that is currently being run by my one of my bestfriends. She recently left her own career to take over as the General Manager to help save her family business which is really struggling financially. I took this job originally to just make some extra money and help her out with her workload as I interview for other positions, but there is now an opportunity for me to take over as the Director of Finance. This would be a nice opportunity for me but also a huge challenge and risk considering the financial condition of the company. I would have to take a much lower salary than I am accustomed to, just because of the company’s financial condition. In just a couple of months working there I have found that the small business atmosphere is very appealing to me and being able to turn around this company would be a huge accomplishment!

I also just received an offer for another financial analyst type position at a large company. This is a very strong and stable company and the salary offer was considerably higher. What would you do? What things would you think about when making this decision?

I feel like I am at a huge crossroads in my career/life and any advice would help.
– Mike

If I were you, I’d go for the Director of Finance position at the small company.

For one, you’re happy there, it seems. For two, it offers you much more of an opportunity to make your mark. For three, that type of position is going to look a lot better on a resume later on than being an anonymous analyst in a large company.

It probably does come with more risk, but you’re happy there and with great risk comes great reward. You have an opportunity there that you won’t have at the other company.

Got any questions? Email them to me or leave them in the comments and I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive hundreds of questions per week, so I may not necessarily be able to answer yours.

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  1. Kristen says:

    Q7: It sounds like you are not in a position for your wife to be self-employed and not bringing in much money. If she could go back to work, even part time, it would be a quick and relatively easy way to add more padding to your bank account and allow you to afford some of the services you mention.

  2. Nick says:

    On Q1, if you take out a small loan for a starter car, it makes more sense to put any extra into paying off the loan rather than putting it aside in a “Car fund”. You’ll save money on interest and pay off the loan faster.

    After it’s paid off, start saving the same amount in a car fund.

  3. valleycat1 says:

    I agree with Nick on Q1.

    Q10 – I’m not at all surprised Trent gave the advice to stick with the smaller company, as that would be his personal preference. These are the issues I’d consider if I were trying to make this decision: In general, try to envision where you want your career headed, and which job might take you there more quickly. More specifically:

    Smaller company: 1) You’ve been with the smaller company awhile, and say their financial position is not good – so you need to carefully assess to the best of your ability before accepting the job whether it has good prospects to “turn around” in this economy under your and your BF’s new guidance; 2) how will being a permanent employee affect your relationship with your friend, and how would it be affected if you are not able to turn things around? 3) Would you be able to pay all your bills & feel comfortable financially if you accept the lower pay? Are the prospects that your pay would increase when things start looking better? 4) Do you & your friend already agree on how the business’s problems might be resolved, and if not, are you able to be frank with each other and work well together to find the right path? 5) Will you enjoy the challenge of long hours, total responsibility, limited benefits, etc. that come with this career track?

    Corporate job – 1) is their corporate culture different from that of your prior employer, enough that you think you could be happy there? Or do you see this as another short-term obligation you’re considering just for the money? 2) Is the position you would be taking something you want to be doing for awhile? 3) Are there advancement opportunities at this job that you would qualify for and would be interested in? 4) what is the added value of additional benefits, work hours, etc. that might be an added incentive here? There is some added pressure in a job where you’re the only one in your position vs. being one of several who can cover if you get ill, take an extended vacation, or whatever.

  4. Adam P says:

    To Q10, Trent writes “that type of position is going to look a lot better on a resume later on than being an anonymous analyst in a large company.”

    I don’t really agree with this line, even though I agree you should take the job that makes you happiest as long as you can still make ends meet and save for retirement/long term savins properly.

    A job you got at a tiny start up company owned by your friend will not look better on a resume than one at a giant fortune 500 firm unless that company takes off. As an accountant, I worked in a small firm before I moved to Deloitte & Touche, and I can assure you that working at D&T has gotten my resume into many more interview piles than the small 3 partner firm I started with that no one has heard of.

    But Trent’s advice is sound on taking the job that makes you happiest!

    Side note, is anyone else getting stuck in “comment awaiting moderation” all the time lately?

  5. Johanna says:

    Q2: As I’ve said before, “Both sides are equally wrong, and everybody should get together and come to a compromise” *is* a political stance. “Middle of the road” is a place on the political spectrum – not above or apart from the spectrum.

    I don’t really care whether you talk about politics or not. But when you talk about politics in the same breath as you declare that you’re above talking about politics, that’s kind of irksome.

  6. Ann says:

    Climbing the Car Ladder, I was working abroad until February and came back to the States. Back in the States, I was living in a rural area and I needed a car immediately to get to interviews. I was briefly staying with my parents until I found a job and my dad was helping me shop for a car, because I know nothing about cars. I wanted to spend -$12,000. I was going to put down $3,000 for a down payment and had already saved up $3,000 to cover my first year of payments, because I had no idea how long it would take me to land a new job. For my >$12,000 car I had a lot of safety requirements (due to a horrible accident I was in during 6th grade) like anti-lock breaks, curtain airbags, cruise control, powerlocks and windows. I was having difficulty finding cars that met these requirements for under $12,000 without severe damage or a questionable car history and no warranties. So my dad convinced me to look at new cars–Hondas, Toyota, Ford. And at Honda, I qualified for a .9% loan and ended up purchasing a 2011 Honda Fit at a great price (it’s is a lovely, versatile little car that fits my kayking, cycling, often moving lifestyle and gets great gas milage). Over the life of my loan, I’ll pay less than $450 on interest, even if I let the loan last the full 5 years. Plus I have a 7 year warranty. Since I’m a one car family, single and know nothing about cars or car repairs… even though I am frugal and wanted to spend under $12,000, this was really the best option for me, even though it was initially more expensive. I expect this car to last me at least 10 years, so after I finish my car payments (probably before the end of my 5 year loan), I’ll start to save the money I was putting towards the car payments, into a new car fund.

    Investigate all your options and see what interest rates you qualify for from your local bank and also at the dealers. I think the dealers finance department has a pretty bad reputation, but I carefully read my contract and there were no concerns, plus a .9% interest rate was much better than the 1.99% my bank offered.

  7. Johanna says:

    Q7: Don’t kid yourself that your wife will ever bring in much income from her “career as a novelist.” If it’s a big strain on your household finances for her to be without income, she needs to get a regular job. She can write her novels on the side.

    As for how to reduce your expenses, it’s hard to offer any suggestions without knowing more about your illnesses and what you need to do to treat them. When you go out, is there anything you can take with you to help you deal with a flare-up? Can you go out less often, or to places closer to home? When you’re both sick, can you leave certain housekeeping tasks undone for a few days? If you kept a supply of prepared meals in the freezer (or convenience foods in the pantry), would that help? Since you don’t own your home, could you move to a different location to reduce your overall transportation costs?

  8. Mary says:

    @Q1 – I struggle with that too. I have a 16 year old car at 152k miles, which isn’t bad, but I cannot drive outside the city I live in due to risk of it breaking down. I want a more reliable car so badly. I put away $50 a month to an emergency savings though, at least. I’m hoping this summer when I start an internship, to bank as much money as I can into my savings, after bills, in saving for a car. In hopes of keeping my car to last as much as possible, instead of keeping this year’s tax return in savings, I bought a moped brand new. Not sure if that was a smart move, but I know I just have to ride my moped as much as I can this summer, then survive one more Wisconsin winter driving my car, then I should be home free and ready to buy my next car. All the while saving as much money as I can. Hopefully.

    Good luck – from one person in the same boat to another. =)

  9. Mary says:

    *that’s $50 a paycheck, rather.

  10. PF says:

    Q1: My paid-with-cash car was piece of junk. It cost me $4800 in repairs in a 14 month period. I realized a car loan would be less than that, so I ditched it and bought a car with a loan. I got a car that just came off a lease, so it was about 4 years old. My car is so reliable and will far outlast the loan, so I’ll start dumping the payments into the car fund when I pay it off this year. I’ve spent very little on repairs and haven’t spent my life at the mechanics. I live 30 miles away from work, so reliability is huge. Shop around for a car loan. Remember that you’ll have to have higher limits of insurance with a car loan, so take that into account as well.

  11. Interested Reader says:

    @Q5 – My suggestion would be to contact your local Senior Center and see if they have any classes, advice, or services for writing a will. I know the Senior Center that as near me (when I lived in Florida) was always having workshops or classes about taxes, wills and other things.

    Florida also has a Senior Legal Hotline 1-888-895-7873 I don’t know if they would have information about wills but it might be a good place to start.

  12. Ann says:

    I agree with poster #10 about also considering car insurance costs when car shopping. I meant to mention in my first comment above that my car insurance on my new car was only $350 for six months, which is less than I’ve ever paid and will go down when the car is paid off.

  13. Lesley says:

    I also bought a new Fit at .9% apr. Over the last 4 years I paid about $6,500 in repairs–continually wiping out my meager savings and upping my credit card balance. When I was presented with an estimate of $2100 for the next set of repairs, I just couldn’t do it anymore. I got new because I couldn’t find used with a warranty in my price range. I’m also planning to keep my car until it falls apart, so hopefully I can buy the next one with cash. I’ve already managed to pay off my credit card and save up some cash, even with the new car payment. For me, so worth it.

  14. Lesley says:

    I should note the Fit is the new car–the one with the repairs was a 13 yr old cavalier.

  15. Chuck says:

    Q1 – Lindsay: It should be easily possible to find a $3000 car that will last 2 years or more. Look for a 1999 Honda Civic, or similar.

  16. Riki says:

    These comments really demonstrate that there’s no one-size-fits-all solution to personal finance. There are lots of “rules” that Trent (and other PF guys) live by:
    – you MUST have 20% down to buy a house
    – you must NEVER finance a car
    – credit cards are bad and should be avoided forever.
    Well, they just don’t work for everybody. Financial responsibility is about weighing all the options and spending consciously.

    On a related note — I financed my first car and as of May I will make my last car payment! It does feel pretty good to pay it off.

  17. Carole says:

    Re: 5 I had a neighbor in a similar situation. She was elderly and didn’t drive. She called a lawyer and asked him to make a house call. He did. I suppose it cost her more. She called a minister and his wife to come in and witness it after the confidential part was done. A couple of neighbors would work just as well. In her case she wanted to change the will and didn’t want her family to know.

  18. Sharon says:

    About the lawyer…call the legal hotline for names to look at, ask at church or around a retirement community.
    And Carole is right on the money. I can’t imagine there isn’t a host of lawyers in Florida who cater to the elderly and will make house calls.
    Be prepared with an outline of what you want the will to say and as much background as you can about the heirs and charities you will be naming.
    I think the lawyer would arrive with a laptop and on of those wee little printers and finish it there.
    And if you MUST go into the office you can take public transportation one way and a taxi home if money is tight and you physically can’t make it both ways in a taxi.

  19. Sharon says:

    and of course I meant “both ways on public transport.”

  20. Pnut says:

    q5’s answer: “shouldn’t be charged significantly” by a lawyer for a will – I wonder what that means. I know what I paid but I have 2 small kids. To me I wouldn’t call it insignificant.

  21. JS says:

    Q7, piggybacking on Johanna’s suggestions: If your wife must have her novelist career that likely won’t bring in much money, can you use her flexible schedule to your advantage? Whenever she’s not sick, can she stockpile meals, do errands, shop grocery sales and stay on top of the housework? Can the two of you schedule both yours and her doctors’ appointments at the same time to minimize travel time and expense? A few less hours per week spent writing could make an enormous difference when you are sick if it means you have a stack of meals in the freezer, a fully stocked house and no laundry in the hampers or dishes in the sink. Honestly, unless your special diet is extremely complex and limited, I think it is waste of money to hire out for cooking help. Your wife works at home and does not have set hours; she should be able to make time to stockpile some meals.

    Also, this might not sound frugal, but can you buy some conveinience items to avoid having to hire help? Keeping some cheap disposable plates, silverware and cups around and only using them when you are sick means you don’t have to hire someone to wash dishes. In that same vein, if laundry is an issue, can you visit a thrift shop and buy some cheap clothes so you don’t run out of clothes when you’re sick and need to use a laundry service? Spending $20-30 on these things would be worth it if it means you don’t have to hire out for help.

  22. DOT says:

    Absolutely agree that one size does not fit all.
    My husband and I always buy new cars and have always owned them on average 10-15 years. With the exception of the first car I owned when I was 18 (new 1983 Ford Escort for $5000.. put down 1K with $91.00 payments), we have always paid cash until two months ago.
    We purchased a 2011 Honda Pilot with .5% financing from our credit union and instead of paying cash for the car we took the 30k we would have given to the dealer and put it in a 6year cd at 3.25% with our credit union also. We will net at least $825.00 per year after paying the .5% on the auto loan and earning 3.25% on the CD.This CD will remain our new car fund for our next and probably last car we will purchase.
    Many, many people will not agree with our decisions to always buy new, many will not agree with this financial arrangement or think a Pilot is a gas guzzler ..etc. However, as one commenter said and I agree with totally.. financial responsibility is about weighing all the options and spending consciously..

  23. Aaron says:

    You do have another option if you are underwater – pay down the car loan so that you’re not underwater, and refinance the car loan for a smaller payment that’s the same interest rate or less. If you have bad credit, that might not be possible. Still, might be something to look into. We refinanced my wife’s car simply to get a better rate (2.99% down from 5.24%), and it’s worked out very well.

  24. Amy P says:

    We bought a 2004 Taurus with 55k miles on it in 2007 for something like $11,000 or $12,000. We put some money down on it and paid off the rest of the loan over the course of a year. It has 85,000 miles on it today and (judging from the Craigslist postings I’ve seen) is probably worth between $3,000 and $4,000 today. It rattles a bit and it’s had a few parking lot dings, but mechanically it runs better today than when we got it. We plan to keep it as long as it can run without major repairs ($2,000 at a time would be a deal breaker). We haven’t had to put more than $1,000 into it at a time so far.

    My feeling is that you can get a dramatically better car for $3,000 over a $2,000 car, and you can get something pretty nice for $5,000, and for $10k you can have a car you can be proud of, particularly if you are willing to go domestic (Ford is supposed to have quality comparable to Toyota these days). This is especially true if you are able to travel a bit to get the car. Our town is home to a lot of rip-off car lots, but we got a pretty good deal by going 60 miles away to a Carmax.

    I’d also add that if you can’t afford to save more than $150 a month, you really can’t afford a payment or insurance for a more expensive car. Also, if you buy a good $3,000 car and then keep saving, your car will be worth essentially the same when you sell it in a couple of years. Maybe it’s time for a second job, at least until you have enough money to buy that move-up car.

  25. Marta says:

    Next step.

    My husband is a resident physician 15 months from finishing. I stay at home with our two daughters. Right now he makes enough money to cover living expenses (about 45k), pay a $170 car payment, put gas in the cars and food on the table. We don’t have cable, but do have cable internet ($30/mo) and cellphones only ($70/mo). Our two cars are both approaching 100k miles, mine is 11 years old, no AC and every 6 months seems to have a $500 “issue” often stranding me or leaving the car out of commission for several months until we can pay to fix it. We have <5k in credit card dept that we are paying at least the minimum on from his salary and any extra from some bookkeeping I do for my mom and selling some items we have kicking around. There is also close to 300k in medical school/living debt and my master's debt (which I pay $219.mo). We have no retirement plan or emergency fund. Family has been generous in gifting us help when we have car trouble.

    I don't like living like this, so hand to mouth, and my only peace is that in 15 months he'll make 3-5 times his current salary. Ideally I'd like to keep our living conditions as similar as they are now (no bmw's or mansions, though we will likely move and also replace at least one vehicle initially – hopefully with a low milage 2 year old car) and throw as much extra cash at debt and savings as possible. I definitely need some guidance, we want to pay off our debt as quickly as possible, but I don't want to neglect our retirement.

  26. Kat says:

    Q3 – “Given that you bought a used Camry and are paying $366 a month, I’m going to guess that you either have just a three year loan or you have poor credit.”
    Huh? A 2007 Camry is worth $17k in my area from a dealer, for the most basic kind. So, a year and a half into a loan (meaning she bought a 07 Camry in 09, when it cost more because it was newer and this was probably before the braking bad press happened and Toyota prices dropped slightly), I guess you are also assuming a huge down payment or large trade in value, or else your math makes no sense, and in which case she wouldn’t be upside down.

  27. Petunia says:

    Q6 – I think Trent nailed the motivation for this advice; your advisor stands to profit. It’s a terrible idea, just say no.

    (Keep in mind, only the first 100k of home equity debt generates tax-deductible interest. So don’t let your advisor tell you the tax advantage will work in your favor.)

  28. kristine says:

    Q7 “Are there any groups for people with your condition? Quite often, the support you can give to each other can make an enormous financial difference for all of you.”

    How so? Do you expect them to give him money? Or carpool, or exchange doc info? I must be missing something.

    Johanna is right- a fiction writer who completes about 6 books a year, if they are “B” authors (Grisham and DeMille being A authors), you can expect to make about 30K a year with a traditional publisher. Most no longer accept new authors unless they already have a grass roots following, or top tier agent. But it is the wild west out there right now in publishing, with lulu, and self-pubbing to Amazon. Research is in order! A business plan and timetable are in order!

  29. kristine says:

    Wow- so many people spend so much on cars! We paid 5K for each of ours, and budget in about 60/m in maintenance and repairs for the 2 of them. 2000 Ford Focus, and 2001 Toyota Camry. Both bought used- the Focus in 2004, the Toyota in 2009. My brother’s bets friend is a mechanic, and he checks out potential cars before we buy. Before the Camry we had a neon green 1995 escort wagon with 200K miles, that cost 1200, and lasted us 4 years. Soooo ugly! But it worked just fine.

    I refuse to buy a car I cannot pay for with cash. Medical and educational expenses are the only debts worthwhile to me. And maybe a house, when the time comes.

  30. Gretchen says:

    I don’t understand the math to the Camry driver either. maybe they misunderstood what being under water means?

    The novelist needs to get a (at least part time) job or failing that do the things Johanna suggested to make their lives easier. That part really has nothing to do with their illness, though.
    I agree they should join a support group but not sure where the money comes into that.

  31. jim says:

    Sue’s car could be underwater in this situation: She pays $16k for a high mileage basic model ’07 Camry in ’09. She has poor credit and gets a bad loan at 18% with 6 year term. Now the car is worth only $11k and she owes $13k. It would have to be a loan with very high interest and/or a high initial price for her to be underwater on that purchase. But such things do happen and car loans can be very high interest.

    Q7 Ron: You say you are using the cheapest insurance plan your company offers. Given your high out of pocket costs, maybe you should look closer at the plans with higher insurance premiums? The plans with higher monthly premiums may limit your out of pocket costs and be cheaper for you overall. But I’m not really clear on what you’re spending all the money on. Special diets, taxi rides, housekeeping may be things you end up needing but they generally won’t be counted as ‘qualified medical expenses’ by insurance or the govt.

    Q8 Sylvia: The price of silver has gone up a LOT lately. Now isn’t a very good time to buy. It could crash in value at any time. Silver was over $49 briefly in the 1979-1980 period then spent the next few decades mostly under $10. Silver is volatile and theres no real assurance at all that you’ll gain money or even retain what you spend. If you still want to invest then please don’t put more than 5-10% of your assets in to precious metals.

  32. Gal @ Equally Happy says:

    Q9 I work in the valley as a manager in a tech company and I hire people for a variety of positions.

    If you have technical skills, a college degree is not as necessary. I have a friend with no college degree who does high end tech support and easily pulls in 100k+. Similar stories around IT, operations and so on.

    Without technical skills and without a college degree you’re going to be screwed. The valley has plenty of highly educated people competing for non technical positions (I just turned down a philosophy PhD for one of our project management positions) and I don’t see how you’re going to stand out with your background. To make things even worse, you’re going to have no networks working for you, and hiring in the bay area runs on networking above all else. So the best you’ll end up with is a low paying job in a very expensive area.

    1. If you don’t have technical skills, go get them.
    2. If you can, network ahead of time. Make friends in the bay area and utilize those contacts. Best case scenario, you’ll have a job waiting for you when you arrive.


    PS This is all written from the perspective of the tech industry. There are other industries in the bay area but I am not familiar with them. They may very well be different.

    If you want to get in touch with me, feel free to click on my website link. There is contact information there.

  33. Marie says:

    Q1: My father’s rule of thumb for climbing the car ladder. If you have to take a loan out to buy a car (and I don’t know when he stopped having to do so), keep the car for at least twice the term of the loan. Three year loan – six year car. Buying a car with a five year loan – better like because it’s yours for 10 years.

    They wanted to be a one-car family but my father traveled out of town for work and my brother had health issues. The third time my mother had to ring the doorbell of a complete strangers to ask for a ride to the hospital – the neighbors they knew weren’t home and they had no in-state family – they bought her a car. But this way they never had more than one car payment at a time and by keeping the cars as much longer than the twice the loan as was practical, they were able to save up larger and larger down payments until eventually they starting paying cash.

  34. Eddie says:

    Q4-I’d also remind any young person entering the military, if they have any non-student loans(car, credit card, etc) to make sure and notify their banks in regards to the Servicemembers Civil Relief Act(SCRA).
    Under the Act, any debt incurred prior to entering active military duty is limited to 6% interest for the length of that duty(among other rights).A great chance to get ahead to being debt-free.
    …..Most banks will follow even more generous guidelines for active military personnel. It’s always worth letting your bank know your military status, even if you don’t fit the specifics of SCRA.

  35. mary m says:

    Rolling in negative equity from a trade in causes cars to go even more underwater.

    $366 with no $$ down is not an unusually high payment for a $17G vehicle, I sell cars at a reputable dealership, I know. Go plug in the #’s on a car payment calculator, you’ll see. $17G + tax with no down payment and 13% interest = $360 payment for 72 months. And before you say 13% is high, I do agree, but you do earn your interest rate. I have seen rates as high as 27.50%, terrible, I know, but that is a rate I saw this week to someone who needed a car but could not get any other finance company’s approval. That is a rate directly from the only lender who would issue the customer credit, and no dealer add on additional points.

    One tip, if you have an extended service plan, you can usually cancel them to have the pro-rated amount credited back to your balance due finance company. Helps get out from being underwater, if you are willing to risk having no warranty.

    I completely agree with Nick, throw any extra money you can toward the loan instead of into savings. You will pay off the loan much faster, and you will gain positive equity faster toward your trade in than you would gain by a few pennies interest in a savings account. Then continue to make payments to your savings account only after the car is paid off.

    The worst thing you can do is go to a buy here, pay here place. You will always end up with a car you have to pour more money in than you could ever afford. Better to go to a reputable dealer, get a good new or used car. I don’t think there’s any such thing as a cheap car, unless you get incredibly lucky on Craigslist, or are comfortable buying something with frame damage, which is unsafe.

  36. Julie says:

    Q3: Definitely look into refinancing, even if you think you’re “upside down” in your current loan. I bought a 2008 Kia in 2009 and took the dealer financing. I refinanced last year, even though I owed about a $1k more than blue book value. The bank didn’t even blink. My goal was to get the lowest possible interest rate, so I’m making the same payment and finishing a couple years earlier. But I had the option to go with smaller payments and a longer loan term. (Had I known I was about to lose my job, that would have sounded like a great idea.)

    Bottom line, if you don’t like your car loan, it’s worth the effort to shop around. Call the banks you already do business with and see what they’ll offer you.

  37. greg says:

    What sort of soccer league are your kids in
    where they would cancel a match for rain? LoL

  38. Henry says:

    Check out the $1,000 car song by the Bottle Rockets on You Tube. Anyone who has been there will get a good laugh.

    “If you’ve only got a $1000.
    You ought to just buy a good guitar.
    Learn how to play it it’ll take you farther,
    than any old $1000 car.”

  39. Adam says:


    Anyone who enlists in the military falls under the Servicemember’s Civil Relief Act, which brings all loans held before enlisting to 6% maximum. Any loans or credit incurred after enlisting, however, is fair game. :)

    All the service member needs to do is call the financial institution and reference the act, and that institution is then required to drop the interest rate effective the date of the enlistment.

    I had one loan at the time of enlistment, and the interest rate was too low for it to matter for that one.

    The Act also protects service members from forclosure.


  40. Courtney20 says:

    When I read Q6 I felt like it might a baited question from a Dave Ramsey devotee…

    To them, “My financial advisor told me to take out a mortgage on my paid off house to invest” is exactly the same thing as “I’m investing while still paying off my mortgage.” Dave Ramsey says you wouldn’t do the first, so why would you do the second? (I don’t agree with this btw, and Trent’s advice is actually spot on for Q6).

    If it is a real question, then fire your advisor and start investing what you would have paid on the mortgage. You’ve still got 25 years until retirement.

  41. Jonathan says:

    After seeing all the comments about the car payment in Q3 I decided to do some quick research. 2009 model Camrys in my area average about $18,000. Given that the OP purchased their 2007 1.5 years ago I thought that using an 09 with today’s prices would be somewhat comparable.

    If the OP paid 0 down, and rolled taxes/title/licensing into the loan, the financed amount could easily have been $19,500. At 5% interest for 60 months the payment for that amount would come to $367.99, which is extremely close to the $366 month payment mentioned. In other words, that payment amount seems completely reasonable to me.

    After 18 months of payments the balance would be around $14k. Trade-in value of the car could easily be around $12-$13k, which could technically be considered under-water. It seems entirely possibly, however, to get $14k out of a 4 year old Camry with 50k miles by doing a private sell, if the OP is willing to take that route.

  42. Sara says:

    Chelsea, I understand. I am 30 and recently made a huge move and career change. I was working in a lab in Philly and recently decided to become a chiropractor which required a move to Portland, OR. My boyfriend and I made the move together and each saved $5000. This paid for our moving expenses (we used ABF U-Pack, it was the best deal), apartment deposits, and the trip across the country. We were lucky to have a place to stay for a few weeks until we found our new home. If you don’t have that, you’ll likely need to save more for hotels, ect. Once we were settled we lived off of beans and rice until I got my first student loan check and he secured a job which took him about two months. I hope that helps you with some rough planning.

  43. Georgia says:

    I just can’t get all these people who feel you need to upgrade your car every time it gets over 150k miles. The miles on your car don’t always measure anything.

    I had a 79 Buick Electra Ltd. that had about 85k on it when we purchased used. I drove it for a number of years and when it died it had 363k on it. I was driving an average of 7-800 miles wkly.
    The next car was a 91 Lumina that had 316k miles on it when it went kablooey. My current car has 190k on it and I’m hoping it lasts another 5 years. It is a 2000 Ford Taurus Wagon that cost $4,200 in 2005.

    I keep a little, fat notebook in my car and put down every cent I spend on it. I average the costs out each month under the headings: Gas & Oil; Repairs; Maintenance. If Repairs & Maintenance costs average out to no more than $125 a month, I keep the car. I wouldn’t be able to buy another car for that low a payment.

    Right now my car has an average of $103 a month and I have had to put on another right front axle and may have another big job due soon. Since I have had the car for 67 months, it would take almost $1500 in repairs for me to even think of looking at another car. Cars, even older models, have a better life than most people realize. They just need to be loved and cared for. Ha! And, as you can see, I don’t have any preference for car companies – Buick, Chevrolet, Ford. They all work fine if well cared for.

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